Content Options

Content Options

View Options

MAR 2 Annex 2 MAR 2 Ann 2G





This guidance has been produced by the FSA to help issuers identify the information they might seek when engaging underwriters and stabilising managers to manage their new offers for them. stabilising managers are encouraged by the price stabilising rules to alert issuers to the existence of this guidance.


When stabilisation can be used


It is a common market practice in the United Kingdom for stabilising managers of both debt and equity issues to reserve the right to stabilise offers by including in the offer documentation wording which gives notice that the issue may be stabilised. FSArules allow the stabilising manager/underwriter to stabilise a new offer, which means that it may purchase securities to support the price:


where the offer is for cash;


where the offer is public and is subject to the rules of an exchange specified under the price stabilising rules; and


only for a limited period, (the stabilising period).


Common market practice when undertaking stabilisation


Stabilising action involves supporting the price of securities made in public offers. The stabilising manager undertakes this action by purchasing or agreeing to purchase the relevant securities. Supporting a price may potentially lead to distortions of price signals. For the stabilising manager to obtain the 'safe harbour' (effectively a defence against a charge of market manipulation, insider dealing or market abuse) provided by the price stabilising rules, a number of disclosures must be made to the market (see 5 below).


It is common practice for the stabilising manager to over-allot a new offer as an ancillary action to stabilisation. This leaves the stabilising manager with a net short position in the securities, having pre-sold more than 100% of the issue. When the offer begins to trade in the after-market, if the price does not go above the offer price, the stabilising manager can make purchases of securities in order to close out this short position. The purchases that the stabilising manager makes to close out the position will be part of the price stabilising activity. It is common for the stabilising manager to take out an over-allotment (or Green Shoe) option, so that further securities can be obtained from the issuer at the offer price. Thus, if the price has risen, the stabilising manager can still close out the short position.


Use of the Green Shoe unconnected with stabilisation


It is possible for the stabilising manager to obtain a Green Shoe option that is not intended for the purpose of filling any short position arising from over-allotment. The reason for the option should be explicitly disclosed to the issuer. The issuer may wish to ensure that it understands why the stabilising manager wants a Green Shoe option, and may wish to secure that its agreement specifies the circumstances in which it can be exercised


FSA rules and disclosure


The price stabilising rules require the stabilising manager to make certain disclosures:


to the market, providing notification that stabilising action may be taken; and


in the prospectus, or offering circular, concerning the existence of an over-allotment or Green shoe option, and the terms on which it has been agreed.


In addition, where the stabilising manager is an authorised person in the United Kingdom, MAR 2.7.3 R gives the issuer certain rights to inspect parts of the register of stabilising action which such a stabilising manager must maintain.


Information that issuers may wish to request from the stabilising manager


When negotiating the terms of agreement for the offer , the parties will no doubt wish to consider how the offer will be managed and what information the issuer might wish to seek from the stabilising manager. In considering what information might be requested, the issuer may wish to arrange for the following:


information on how the issue is proceeding during the stabilising period (nature of demand, types of investors, etc.); and


information on the level of stabilising activity which is being undertaken (though it may not be desirable, for reasons of confidentiality, for this to be disclosed in any detail until the stabilising period has ended).


The issuer may also request information on the reasons for the exercise of the right to additional allotment by the stabilising manager. In particular, the issuer may wish to know how far the additional allotment is attributable to:


a need to deliver relevant securities to persons who are unconnected with the stabilising manager; and


a need to make good any failures to deliver by other counterparties.

The issuer may also wish to consider whether the additional allotment might have led to a profit for the stabilising manager.


The stabilising manager is not under any obligation to identify the names of individual clients to the issuer.