Market Soundings in UK Equity Capital Markets – Wholesale Banks

We analysed the impact of market soundings on market quality in equity capital market (ECM) transactions in UK listed shares. These are our findings.

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  Market soundings in UK equity capital markets – wholesale banks

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We analysed the impact of market soundings on market quality in equity capital market (ECM) transactions in UK listed shares. These are our findings.

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1. Introduction

1.1. Who this applies to

This multi-firm review will be of interest to:

• Banks who perform market soundings in the UK.
• Issuers listed in the UK or significant holders of UK shares who are considering market sounding.
• Buyside investors receiving market soundings.
• Other stakeholders in the sector including trade bodies and other regulators.

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1.2. Why we did this work

Market soundings help determine interest in a transaction before it is announced. They also support price discovery, featuring in the majority of UK ECM transactions. Investment banks are central to the market soundings process – conducting them for issuers or sellers and helping support efficient and well-functioning financial markets.

Our supervisory work identified some transactions where a relatively large number of investors were involved in the market sounding. Reflecting on this, we wanted a more representative view of the number of investors sounded and to see if market soundings were affecting market quality. We investigated a broader sample of transactions looking at a number of key metrics.

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1.3. What we did

We asked 5 banks active in ECM for their UK equity and equity-linked transactions over £50 million between January 2023 and June 2025 where they acted as a bookrunner. We then combined this with order book data and transaction reporting data that we held.

We received information on 63 transactions, 90% of which were market sounded. These included:

• accelerated bookbuilds (ABBs)
• rights offerings
• other primary offerings
• convertible bonds
• initial public offerings (IPOs) To ensure comparability, our analysis focused on the 50 ABBs which had a collective value of c.£32 billion (our 'sample'). Based on Refinitiv data, this represented just under 60% of ABBs by number and 66% by value of UK transactions during this period.

We assessed potential market impact using various metrics covering liquidity, spread, depth and price. For each metric, we compared the average values observed before and during the market sounding. To ensure our observations were robust, we benchmarked them against several control groups and where appropriate used statistical tests for validation.

We also spoke to a small number of market sounding recipients (MSRs) - long-only investors and hedge funds - about how they handle market soundings and their views on the process.

Our review did not assess the systems and controls firms have in place for handling inside information during market soundings or their compliance with the UK Market Abuse Regulation (UK MAR). This is an area where we have issued communications such as Market Watch 51, 58, 75 and 83.

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1.4. What we found

In our analysis, trading volumes fell by an average of 13% during the market sounding period. We did not observe material impacts on our other market quality metrics, such as effective and quoted spread and market depth.

We observed that firms completed transactions across a wide range of sizes, both absolute and relative, indicating that the UK equity markets have the liquidity to absorb substantial transactions.

On average, 33 investors were sounded although we observed one instance where it was nearly 90. The ABBs that achieved high coverage from the sounding after approaching an above average number of MSRs did not meaningfully grow in overall demand or oversubscription after launch.

We don’t prescribe the number of MSRs that can be market sounded but remind firms that the risk of inside information leaking may increase as the scale of a market sounding grows (for example, approaching a greater number of MSRs or a longer market sounding exercise). Firms may wish to consider whether their policies and procedures appropriately consider the scale of their market soundings.

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1.5. Next steps

We’ll continue to engage with banks and other market participants on market soundings and, where appropriate, explore their approach and controls in place through supervisory work.

We also took the opportunity to seek views on Article 11 of UK MAR. Most banks said the market soundings regime is clear. However, they suggested some proposed improvements, such as greater alignment with the EU market sounding regime and reducing the burden of the current record-keeping requirements. We’ll consider this feedback in any future changes to UK MAR.

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2. Market soundings

2.1. Regulatory context

One of the FCA’s operational objectives is to protect and enhance the integrity of the UK financial system, and to make sure that markets are effective, efficient and reliable.

Article 11 of UK MAR establishes a framework under which inside information may be disclosed during a market sounding, provided the specified conditions are met. We did not assess bank’s compliance with UK MAR as part of our review.

During the period of our review, a prospectus was required if an issuer was looking to increase their share capital by more than 20%. Following the implementation of our new rules for the Public Offers and Admissions to Trading Regulations (POATRs) in January 2026, issuers can now increase their share capital by up to 75% without a prospectus. All the rights offerings in our review represented a less than 75% increase in share capital. In our sample of 19 primary ABBs, the new issue size averaged 11% of the pre-issue share capital.

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2.2. Who's involved in market soundings at the banks?

Across our sample banks, market soundings were usually undertaken by syndicate personnel. Banks noted that sales personnel can be involved in convertible bond market soundings, and one noted wider use of their salesforce. Corporate broking or ECM personnel can also be involved. Where multiple functions undertake soundings, clear and effective oversight helps ensure inside information risks are appropriately managed.

Banks involved their compliance and legal teams in differing ways. Some required them to approve scripts, while at other banks they were only consulted when guidance or advice was needed. Some banks required compliance approval when a target list exceeded a specific threshold or consultation if the market sounding period was longer than normal. Market Watch 83 identified a similar good governance practice among corporate finance firms.

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2.3. How did the banks choose MSRs?

There were a number of factors that banks cited when defining their target lists for market soundings. These included company market capitalisation, transaction size and the nature of the transaction.

When choosing potential investors, banks considered the top existing shareholders, issuer or seller recommendations, prior investor interest and the likelihood of accepting the market sounding. They also considered participation in previous transactions in the underlying company or in comparable securities.

Most banks also described seeking the issuer's or selling shareholder’s approval of the target list in coordination with other syndicate banks before the market sounding started. In our sample, nearly 80% of transactions involved two or more disclosing market participants (DMPs) working together. In these transactions, each bank approached a similar number of investors.

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2.4. Market soundings by transaction type

Banks used market soundings in all primary ABBs and in 90% of the secondary ABBs we received. ABBs enable issuers or sellers to place equity instruments quickly without formal offering documentation. They can be used by issuers raising new money (primary) or by an existing shareholder selling shares (secondary). Secondary ABBs may also result from a bank hedging its risk from a derivative position or facilitating investors hedging their risk in a convertible bond offering (delta placings).

Our sample varied widely in size. The average transaction value was c. £650 million (median: c. £240 million) with a number of deals exceeding £1 billion. In relative terms, transaction sizes also varied, with a range from 2 to nearly 300 times the 30 day average daily traded volume.

In primary ABBs, an average of 13 of the top 20 existing shareholders (range of 7 to 20) were approached for market sounding. The extent of market soundings in these transactions is in keeping with the Pre-Emption Group’s guidance that UK issuers engage major shareholders ahead of a primary ABB. This group is an industry body that issues best practice guidance aimed at protecting shareholders’ pre-emption rights and ensuring they are consulted appropriately in equity issuances.

In addition to ABBs, we also received information on a small number of rights offerings and convertible bonds, all of which involved market soundings.

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2.5. Duration of market soundings

In our sample, market soundings for secondary ABBs were, on average, completed within 1 trading day. Typically, larger secondary ABBs (more than £1 billion) took more time market sounding, but all secondary ABBs were completed within 3 trading days.

On average, primary ABBs took longer to market sound than secondary ABBs. Primary ABBs had an average sounding period of 3 trading days and a median of 2 days. The higher average for primary ABBs relative to the median was driven by a number of smaller transactions. Based on our discussions with some MSRs, the longer sounding period for primary ABBs can result from the additional time needed to consider the rationale for the primary capital raising.

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2.6. Number of MSRs

We requested the total number of accounts sounded by the syndicate from our sample banks on a ‘best of knowledge’ basis. Most transactions involved multiple DMPs who share the target list of MSRs.

Table 1 shows the number of investors approached for ABBs by transaction type and deal size. On average, 33 investors were market sounded across the syndicate for both primary and secondary ABBs. Larger secondary ABBs sounded more MSRs, with the largest exercise involving 87 investors, increasing the average for secondary ABBs.

Table 1. Number of MSRs across transaction sizes

| Less than £100m | £100m to £1bn | More than £1bn | All deal sizes |
| Average number of MSRs | ABB Primary | 36 | 31 | NA | 33 |
| ABB Secondary | 22 | 26 | 49 | 33 | |
Figure 1 compares the number of MSRs for each transaction to the coverage level achieved. By coverage, we refer to the total level of indications of interest (IOIs) relative to the target deal size. Among secondary ABBs, we found that coverage is generally higher when more accounts are sounded, though this was not always the case. Primary ABBs did not exceed 3 times coverage, but some secondary ABBs were more than 4 times covered.

Figure 1. Number of MSRs and transaction coverage from the sounding

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The ABBs that achieved high coverage from the sounding after approaching an above average number of MSRs did not result in a meaningful increase in overall demand or in the level of oversubscription after the transaction launched.

This may indicate that a smaller sounding exercise would have been enough to cover the deal and launch with good visibility. That said, we do not set a limit on the number of MSRs under UK MAR and we acknowledge that each transaction will have its own unique circumstances.

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2.7. Are banks targeting interested investors?

The banks sampled had an average MSR acceptance rate of 87%, though this ranged from 75 to 93%, indicating that soundings are generally directed at investors likely to accept them. The lowest observed acceptance rate for a single transaction was 45% though this secondary ABB still received indications exceeding its launch size and the final order book was nearly 2 times covered. By type of MSR, hedge funds overall accepted the sounding in 97% of cases and long-only investors overall did so in 82% of cases.

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2.8. How market soundings are handled by MSRs

We spoke to a small number of MSRs who were frequently sounded in our sample. Each MSR had ‘gatekeeper’ arrangements in place that sat within either compliance or capital markets. At some of these MSRs, the gatekeeper differed depending on the jurisdiction or product. The benefits of using gatekeepers have been highlighted in Market Watch 51, 58 and 75.

These gatekeepers were responsible for assessing whether to accept a market sounding, initially based on a no-names script. Before accepting, they’d consider things such as the proposed cleansing process and the expected duration of the sounding. If a gatekeeper declined to accept it, the MSRs we spoke to would still place the relevant security or securities on a watch list.

Upon accepting a market sounding and receiving the details of the transaction, the MSRs we spoke to would make their own assessment of the inside information held and received. They would then impose trading restrictions on the relevant securities.

At the MSRs we spoke to, the gatekeeper identified the individuals or teams within the MSR to be approached with details of the potential transaction. Initial contact with investment teams was typically made on a no-names basis, similar to the DMP’s first approach to MSRs.

Where additional individuals were brought into the sounding (for example, where a portfolio manager wished to involve an analyst), the MSRs described how they would ensure insiders lists remained accurate and up to date. The MSRs also described how they handle inadvertent contact with individuals not on their insider list and how they lift trading restrictions at the end of the process.

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2.9. Do MSRs provide DMPs with information by way of IOIs and orders?

64% of MSRs contacted in our sample were long-only investors while 36% were hedge funds. This differed by transaction type: in primary ABBs, 73% of MSRs were long-only investors compared to 59% in secondary ABBs.

91% of hedge funds who accepted the sounding then went on to provide an IOI and an order and were more likely to do so in secondary ABBs than in primary ABBs. This could reflect the investment strategies of some hedge funds, which includes acting as liquidity providers in financial markets.

46% of long-only investors who accepted the sounding then went on to provide an IOI while 59% provided an order. There was little variation in long-only investor behaviour between primary and secondary ABBs.

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2.10. MSRs' participation in sounded transactions

For approximately 40% of our sample we had full visibility of DMP sounding activity either through deals with a sole bookrunner or by capturing all bookrunners acting as DMPs. Of these transactions, 71% of the final deal size was allocated to MSRs. Allocations to MSRs were almost evenly split between hedge funds (53%) and long-only investors (47%). However, long-only MSR investors received greater allocations in primary ABBs and hedge funds MSRs received greater allocations in secondary ABBs. On average, 16% of total hedge fund demand and 76% of total long-only demand from MSRs was filled, with similar fill rates for both primary and secondary ABBs.

MSRs we spoke to valued participating in soundings as a means of assessing the proposed transaction and promoting a more efficient process. One MSR felt that participation in the market sounding was necessary to receive an allocation in the subsequent transaction.

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2.11. Do banks provide MSRs with realistic market sounding timelines?

DMPs typically communicate an expected duration of the market sounding to potential MSRs. Of the 56 market sounded transactions we received, only 3 primary transactions were extended beyond the timings initially communicated to MSRs, all by 1 trading day. This indicates that in our sample, banks generally provided investors with accurate timing estimates.

MSRs we spoke to highlighted expected timelines as a key factor in deciding whether to accept a sounding. Overall, they were generally satisfied with communications from banks acting as DMPs, including the accuracy of the timelines they were told.

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2.12. Do banks provide accurate launch messages?

In our sample we observed different approaches to how banks communicate the market sounding outcome. Two banks used a verbal message to the salesforce at the point of launch while the others used a written launch message. Either way, banks indicated a market sounding exercise had been undertaken and good or strong feedback was received. The written launch messages we reviewed reflected the demand received in the sounding exercise and were fair, clear and not misleading.

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2.13. When market soundings don’t result in a transaction

We asked banks about market sounding events (of any target size) that did not result in a transaction launch. Most sample banks had at least one sounding exercise that did not launch. Of the 8 transactions that did not launch, 6 lacked sufficient investor demand and 2 did not initially proceed due to market volatility, although they later completed. These examples demonstrate that market soundings can also help inform decisions to not proceed with a transaction.

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2.14. Banks’ reviews of market soundings

We requested summaries of any second and third line of defence reviews conducted by our sample banks that were relevant to market soundings during the period. All banks had at least one internal audit review with market soundings in scope. Some also described quarterly or annual reviews carried out by their compliance teams. The summaries we reviewed did not highlight any significant issues, and where findings were identified, they mostly related to errors in record-keeping. For example, some banks discovered missing or inaccurate market sounding transaction records. We also asked for any instances of inadvertent disclosures of sensitive information made by either the banks or MSRs during the period. None were reported by the sample banks.

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2.15. Lock-up waivers and market sounding

A lock-up agreement restricts issuers or shareholders from selling more shares for a period after an equity offering, unless the global coordinator(s) of the prior offering agree. This helps reassure investors by supporting price stability. Lock-up waivers in the past have sometimes been criticised by market participants when the unexpected supply has led to the share price falling after a waiver. All 5 transactions where the lock-up was waived were market sounded. In each of these secondary ABBs, the share price had increased relative to the prior offering. The offering was priced above the prior offering price and the share price traded above the offering price. On average, more than half of the original lock-up period had elapsed at the time of the waiver.

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3. Impact on market quality

3.1. Method

Our analysis focused on FTSE 100 and FTSE 250 transactions, as the higher daily liquidity supported market quality assessments. We refer to this as the 'market quality sample'. We analysed order book data from key UK equity trading venues for both the market sounding period and the previous 30 days, and this served as our benchmark period.

To account for broader market conditions at the time of each market sounding, we investigated trading activity within the FTSE 350 index to determine whether the instruments that had been market sounded showed similar behaviours to broader market trading on the relevant day(s). We also constructed and compared our analysis to 3 control groups:

• Companies in the same Refinitiv economic sector with similar trading volumes.
• Shares in the same broad group index with similar trading patterns during the benchmark period.
• Exchange-traded funds (ETFs) linked to either the FTSE 100 or FTSE 250. Using control groups reduces the risk that our findings are driven by wider market trends and helps ensure that any differences observed are not explained by sector or index effects.

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3.2. What happens to traded volume

Volume refers to the turnover (price multiplied by quantity) traded during the market sounding period. A higher level of turnover indicates greater market liquidity. During the market sounding period, we observed a decline in volume in 70% of the transactions in our market quality sample.

On average, volume dropped by 13% across both primary and secondary ABBs. FTSE 100 ABBs had a greater absolute decline than FTSE 250 ABBs. However, when compared to FTSE 350 activity during sounding periods, the relative declines of FTSE 100 and FTSE 250 were similar. Our transaction reporting data showed similar patterns in overall drops in volume during the market sounding day(s).

We then compared our market quality sample to the control groups. On average, the FTSE 350 index volume increased by an average of 5% on the same market sounding day(s). Figure 2 shows how changes in trading volume during the sounding period are distributed, comparing our market quality sample (shown in blue) with overall FTSE 350 trading volumes (shown in maroon). It shows that the market quality sample has more instances where trading volume fell.

Figure 2. Distribution of the percentage changes in traded volumes during the sounding period

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Our other control groups also showed rises in volume during the same sounding periods. We used statistical tests to compare traded volumes between the benchmark period and market sounding day(s). We observed a significant difference in the market quality sample which was not evident in any of the control groups.

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3.3. Relationship between number of MSRs and impacts on traded volume

Across our market quality sample, we did not find that higher numbers of MSRs led to larger declines in traded volume. As discussed in section 2.3, a range of factors affect how many MSRs a DMP contacts. We were told that sellers sometimes request specific names be included on target lists, even if these investors rarely trade in the instrument. This could increase the number of MSRs sounded with less impact on market metrics.

Our analysis looked at the impact of market soundings on a whole day basis using the day the market sounding first began. We did not request more granular time stamps, such as the timing of individual outreach to MSRs or when trading restrictions were imposed at MSRs.

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3.4. What happens to measures of spread

We also investigated changes to the relative effective spread and quoted spread. Effective spread calculates the difference between a trade’s execution price and the mid-point of the quoted bid and ask prices and indicates the actual cost of a trade. Quoted spread looks at the difference between the best ask and best bid price. A widening in either spread measure indicates worsening market quality.

We found the relative effective spread widened by an average of 3% during the sounding period, while quoted spread narrowed by 4%, with differences between FTSE 100 and FTSE 250 ABBs. Control groups showed similarly mixed results. Importantly, given that changes in spreads were one basis point or less, we did not find evidence of market spread being significantly impacted during market soundings.

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3.5. What happens to market depth

Depth represents the volume of bids and asks at different price levels. A deeper market will have a larger volume of bids and asks, indicating greater market quality. We looked at the aggregated depth up to the 1st, 3rd and 5th depth level. For example, the 1st level reflects the volume available at the best bid and ask.

Across the depth levels we analysed, we saw a small average decline in depth of 1 to 2% which was not deemed significant especially when compared to the control groups.

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3.6. What happens to price

Lower liquidity during market soundings may result in downwards pressure on price. Any information leakage may also affect prices. Our analysis did not identify consistent evidence of unusual price behaviour. We estimated z-scores during the market sounding period, which are a statistical way of identifying outliers and comparing data. The percentage price returns (calculated daily by using closing prices) during the market sounding days were computed and the z-scores were obtained using the mean and standard deviation over the benchmark period. For market soundings spanning multiple days, we also considered cumulative abnormal returns over the corresponding market sounding period.

On average, price movements during the market sounding period were consistent with price movements during the benchmark period. As before, we also compared results with the control groups and did not observe meaningful differences.

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3.7. Market cleanliness

We investigate market cleanliness using 3 metrics designed to identify possible information leakage or insider dealing in UK equity markets. One of these metrics looks at unusual increases in trading volumes prior to potentially price-sensitive announcements in equity instruments and some equity derivatives. Overall, activity levels were stable across the market quality sample, with only isolated cases showing any significant increase. We’ve explored those cases, confirming that appropriate actions, where required, have been taken.

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