In a step towards the first fully electronic IPO, the FIX Trading Community (FIX) and the Investment Association (IA),  published an industry best practice framework to support the modernisation of equity capital raising processes. By establishing a standard approach, the framework will help make the equity issuance process fully digital while improving efficiency and transparency, with future work expected to build on these standards across IPO and secondary placements.

Published by the FIX Equity Issuance Working Group (EIWG), the new recommended practices set out how the Financial Information eXchange (FIX) protocol can support fully digitalised workflows for bookbuilding and deal allocation during equity capital raisings, beginning with Accelerated Bookbuild Offerings (ABOs), covering both direct orders and orders placed with vendors or intermediaries.

The framework addresses one of the few remaining areas of capital markets that continues to rely heavily on manual workflows, with orders in IPOs and secondary share placings often communicated by email, telephone or chat message, which can create inefficiencies and increase operational risk.

Developed by buy- and sell-side firms as well as technology providers, the guidance takes a vendor-agnostic and system-agnostic approach, providing a standardised way for investment managers, syndicate banks and vendor platforms to communicate throughout the capital raising process.

Jim Kaye, Executive Director, FIX Trading Community, said:

“FIX has been at the heart of capital markets for over 30 years. As a neutral, global industry association, our focus has always been on solving problems that improve markets for all participants.

“Equity issuance is a perfect example of how we have been able to work together to use FIX to solve such a problem, and I’m delighted to see this work come to fruition.”

Galina Dimitrova, Director of Investments and Capital Markets at the IA, said:

“Strong capital markets are the bedrock of the UK’s financial services sector and vital to the health of the wider economy. Ensuring the UK’s IPO process remains competitive and attractive to issuers and investors is therefore essential. Yet, while much of the investment ecosystem has become increasingly digital over recent decades, equity capital raising remains heavily reliant on manual processes and fragmented workflows.

“These new recommended practices represent an important step forward. By providing an industry-led framework for the electronic communication of orders and allocations, the working group has laid the foundations for greater automation, reduced operational risk and a better experience for investors and issuers.”

Daniel Riches, buy-side co-chair of the EIWG, FIX Trading Community, and Head of Equity Dealing at M&G Investments, said:

“This work enables the removal of many of the manual processes and risks around order handling in primary capital markets. Through these new standards, the buy-side and sell-side can experience the benefits of FIX workflows already seen in secondary markets within the new issuance markets. This includes managing scale, increased operational efficiency and enhancing the data foundation for all stakeholders, while incorporating the strong FIX governance framework and technical expertise.“

Jeremy Bruce, sell-side co-chair of the EIWG, FIX Trading Community and Head of Trading EMEA at Bernstein, said:

“The aim of this roadmap was to leverage FIX’s system- and vendor-agnostic nature to enable buy-side traders to place orders for an IPO or ABO via FIX in the same way that they are able to execute secondary market trading, whether they do this directly or via a vendor platform. Not only will this create efficiency, it will also reduce operational risk via human error. Just as importantly, it will make IPOs more transparent, ensuring investor confidence and delivering better compliance outcomes.”

Source: IA