Mastering market soundings and wall-crossings in equity placings

Introduction

Equity placings on the London Stock Exchange often require gauging investor interest in advance through market soundings: confidential discussions with potential investors before a deal is announced. These pre-marketing activities, sometimes called wall-crossings, involve selectively disclosing inside information to certain investors to test appetite or set pricing for a forthcoming share issue. By wall-crossing an investor, the bank or broker makes them an insider by giving them confidential, price-sensitive information. While this early engagement is valuable for price discovery and deal success, it creates significant market abuse risk if not handled properly.

The UK’s regulatory regime (chiefly the UK Market Abuse Regulation, Financial Conduct Authority guidance and London Stock Exchange expectations) sets strict requirements to prevent insider dealing and improper disclosure. Companies and their advisers must have tight controls on handling inside information and follow strict protocols when disclosing information ahead of a public announcement. This article sets out the relevant regulations, team responsibilities and practical controls for compliant market soundings and wall-crossings, helping maintain market integrity and avoid breaches.

Regulatory framework: UK MAR, FCA guidance and LSE requirements

UK MAR. The Market Abuse Regulation is the cornerstone of the UK’s market conduct rules, prohibiting insider dealing, unlawful disclosure of inside information and market manipulation. Inside information is broadly defined as non-public, precise information that would significantly affect the price if made public. Under MAR, disclosing inside information other than in the normal course of one’s employment or duties is unlawful. In other words, selective disclosure is banned unless it falls within a safe harbour.

The market soundings safe harbour. MAR Article 11 provides a safe harbour for market soundings, the formal term for these pre-deal investor discussions. It allows disclosure of inside information in the normal exercise of one’s employment, that is, when following the prescribed procedures for a market sounding. To benefit from the safe harbour, the disclosing market participant (DMP, usually the issuing company or its advisers) must follow strict steps, including:

• Assess and document inside information: determine whether the transaction details constitute inside information, and record that assessment.
• Standardised scripts and procedures: use approved scripts to communicate information consistently and fairly to all market sounding recipients (MSRs), so no unnecessary or preferential information is disclosed.
• Obtain consent and an NDA: obtain the investor’s prior consent to receive inside information (often through a wall-crossing agreement or recorded consent) and an agreement to keep it confidential. Investors typically acknowledge through a “no trade” agreement that they will not deal on the information.
• Inform recipients of their insider obligations: clearly warn recipients that the information is inside information and that they are prohibited from using it to trade or from tipping others. The reminder reinforces their legal duties under MAR and the Criminal Justice Act 1993.
• Careful record-keeping: make and keep records of every communication and all information disclosed during the sounding. Records (call recordings, emails, meeting notes) should capture who was wall-crossed, when, and what was said. Good record-keeping is key to evidencing compliance and earning the safe harbour’s protection.

Investors receiving a sounding (MSRs) have responsibilities too, under MAR and FCA guidance. They must independently assess whether the information received, combined with anything else they know, makes them insiders, and refrain from trading if so. MSRs should also keep their own records of soundings and decisions, and restrict internal knowledge on a need-to-know basis, for example through compliance gatekeepers. In short, being wall-crossed puts the investor under the same strict confidentiality and no-trade obligations as the insider firm.

FCA guidance. The FCA actively monitors compliance with the market sounding regime and has published guidance on best practice. In its Market Watch newsletters, the FCA stresses that sound sounding procedures are vital to protect market integrity by controlling inside information and preventing abuse. It has warned of cases where recipients misused sounding information, for example by guessing the issuer’s identity and trading ahead of an official announcement. The FCA also reminds firms that the safe harbour protects only the discloser from accusations of unlawful disclosure; it does not protect an investor who deals on that information. Both civil and criminal penalties can apply to insider dealing or improper disclosure.

The FCA’s guidance (for example Market Watch 58 and 75) and ESMA’s guidelines recommend measures such as compliance gatekeepers at investment firms, training staff on their obligations, keeping wall-crossing conversations high-level (“no names”) until consent is obtained, and minimising the delay between initial contact and full disclosure. The FCA has made clear it will intervene if it suspects behaviour that undermines market confidence, and compliance teams should note that it can request detailed records of communications, trading data and sounding scripts to investigate potential abuse.

LSE and the Listing Rules. The London Stock Exchange expects listed companies and member firms to uphold the market abuse regulations. UK MAR’s disclosure requirements, for inside information and insider lists, apply to issuers on the LSE’s markets, and the FCA, as the competent authority, oversees and enforces them. In practice, a company planning an equity placing may delay public disclosure of the deal only in accordance with MAR (ensuring confidentiality), and must notify the market promptly through a Regulatory Information Service (RNS) once the transaction is ready to announce or if a leak occurs. If confidentiality breaks, the issuer should release the inside information to the market as soon as possible. If rumours or unusual price movements suggest a leak, the company, with its advisers and potentially the FCA, should consider an immediate announcement or a trading halt to keep the market orderly.

Industry bodies such as UK Finance and AFME have proposed simplifying certain MAR requirements after Brexit to ease the burden, including easing the market sounding rules. Until any rule changes are made, however, firms must comply fully with the existing UK MAR regime.

Roles and responsibilities of key teams

Compliant wall-crossing is a cross-functional effort. Different teams in a bank or broker have distinct responsibilities for managing inside information and mitigating risk.

Equity capital markets (ECM) and the deal team. The ECM bankers planning the placing coordinate the overall process and must ensure regulatory compliance from the start. Their duties include identifying whether the transaction information is inside information and, if so, justifying the wall-crossing as necessary (in the normal exercise of their duties) and obtaining internal approval, often through Compliance or a deal review committee. They prepare approved investor scripts or talking points in line with MAR, making sure only the essential facts are shared to gauge interest. The deal team also typically draws up the insider list of everyone, internal and external, who will be wall-crossed, and works with the issuer to make sure the issuer’s own obligations (such as insider lists and eventual public disclosure) are met. They should plan the cleansing announcements, so that once the deal is launched or aborted, insiders are told they can trade again because the information is public or no longer price-sensitive. In short, ECM sets the protocol for bringing investors over the wall safely, and must keep the process tightly controlled and documented.

Syndicate desk and sales. Syndicate and sales professionals carry out the market sounding by contacting investors and conveying the information under controlled conditions. They must follow the standard wall-crossing script and procedure: first, without revealing confidential details, ask whether the investor is willing to receive potential inside information about a transaction. If the investor agrees, and preferably confirms acceptance of an NDA or confidentiality terms, syndicate can then disclose the deal details. It’s crucial that salespeople do not divulge more than necessary before consent is given. For example, they should not name the issuer or give exact details until the investor formally consents, especially where there are few possible issuers and even a small hint could give away inside information. Syndicate must also explicitly remind the investor of their no-trade obligation and confirm they understand their insider status. These conversations should be on recorded lines or documented immediately in call notes. The syndicate desk should promptly tell Compliance who was wall-crossed and when, so those names can be added to insider lists and the relevant securities to internal restricted lists, preventing any proprietary or personal trading. Syndicate and sales staff should also watch for investor questions or behaviour that might suggest discomfort or potential misuse, and report any suspicious incident (for example, an investor declining the wall-cross and then trading the stock) to Compliance.

Compliance and the control room. The Compliance department, often through a dedicated control room, is the guardian of the wall-crossing process. Before any market sounding begins, Compliance should make sure there is a clear rationale and necessity for selectively disclosing inside information, documenting why it is in the normal course of duties. They review and approve the wall-crossing scripts and procedures to confirm they meet MAR standards. Compliance also manages the firm’s insider lists, recording which employees and outside parties are insiders on the deal. As soon as a transaction becomes likely, Compliance adds the issuer’s securities to the firm’s restricted list, blocking any trading by the firm’s sales and trading teams outside the deal and stopping research analysts publishing on the stock. They enforce the Chinese wall separating the private-side deal team from public-side staff, to prevent information leaking within the firm. Compliance should also train and guide everyone involved, making sure syndicate and ECM teams understand the MAR soundings regime, how to recognise inside information, and their duties (no trading, sharing only on a need-to-know basis, and so on).

During the sounding process, Compliance monitors for red flags. It may run surveillance on trading around the time of wall-crossings, checking for instance whether any wall-crossed investors or connected parties traded the stock before the announcement, which could indicate insider dealing. If suspicious activity is detected, Compliance must consider filing a Suspicious Transaction and Order Report (STOR) with the FCA. Compliance also oversees cleansing: making sure that once the deal is announced, or if it is postponed or cancelled, all insiders are told they are cleansed, because the information is now public or no longer inside information, which lifts their trading restrictions. Finally, Compliance should have a leak contingency plan, ready to advise immediate public disclosure if news of the deal leaks or the market moves unusually, and to liaise with the FCA and the LSE on a trading halt or announcement. Throughout, Compliance’s role is to maintain rigorous oversight, document every step and make sure the firm can demonstrate full compliance.

Key controls and best practice to mitigate risk

In light of all this, firms should put strong controls and governance around market soundings and wall-crossings. The following best practice for compliance and front-office teams is drawn from regulatory guidance and industry commentary.

Information barriers and need-to-know controls. Only staff who genuinely need the deal information should have access to it. Apply the need-to-know principle and keep the circle of insiders as small as possible. Use internal confidentiality classifications (mark documents as inside information) and secure handling, such as password-protected deal folders and no personal email, to prevent inadvertent leaks. Add the issuer to your restricted list as soon as planning begins, so nobody outside the deal team trades the stock by accident. Make sure any employee brought over the wall internally (a salesperson helping with soundings, say) understands their obligations and is recorded on the insider list. Effective information barriers, sometimes called Chinese walls, are critical to stop sensitive information spreading within the firm.

A gatekeeper mechanism for investors. Encourage or help buy-side clients to use a gatekeeper model for soundings. Many asset managers appoint a compliance officer or other designated person as the first contact for wall-crossing requests. The gatekeeper can vet the request and involve portfolio managers only if the sounding is accepted, insulating investment staff from unnecessary inside information. As the FCA notes, a gatekeeper approach promotes consistency and reduces the opportunities for leakage. Sell-side firms should keep up-to-date lists of whom to approach at each institution for wall-crossing (often supplied by the investor), so soundings are channelled correctly. It also means that if an investor declines a sounding, the inside information stops with the gatekeeper and need not reach the portfolio manager, although both sides must still consider whether even a declined approach conveyed inside information indirectly.

Standardised wall-crossing procedures. Develop a clear internal procedure for market soundings and train all relevant staff on it. It should include scripted language for the initial approach, for example “We have a potential transaction involving [broad description]. Are you willing to receive confidential inside information under MAR?”, and for the follow-up if they say yes. The procedure must follow MAR’s steps: get explicit consent, explain the duty not to trade, then share the minimum necessary detail. Have template insider acknowledgements or NDAs ready for investors to sign or respond to in writing where feasible; some firms send an email confirming the wall-crossing terms. Never reveal more than is needed at each stage. In small or illiquid sectors especially, remember that even without naming the company, certain clues may let a well-informed investor guess the issuer. Review scripts and procedures periodically against the latest guidance: FCA Market Watch 75, for example, suggests tailoring the amount of initial information to avoid unnecessary disclosure.

Comprehensive record-keeping. Keep detailed records of every market sounding: who was contacted, when, and what was said or sent. Record phone calls where possible; if not, follow up promptly with an email to the investor summarising the discussion and ask them to confirm it. Log each investor’s response (accepted or declined) and its timing, and record when an investor became wall-crossed and when they were later cleansed. Keep these records organised: MAR requires them to be retained (five years is recommended) and made available to regulators on request. Good record-keeping is a regulatory requirement, and it also protects the firm if questions arise. As best practice, also document declined wall-crossings and the general reason (“Investor X declined because of a conflict”, or “no interest”); the FCA regards tracking declined approaches as good practice, so that those instances are considered in insider risk management too.

Training and awareness. Regularly train front-office teams (ECM bankers, sales, traders) and the relevant compliance staff on the inside information rules and the firm’s wall-crossing policies. Employees must recognise what constitutes inside information and how serious improper handling is. Before anyone takes part in a wall-crossing call or receives inside information, make sure they have been briefed on what they may and may not do. Training should stress, for example, that trading on or divulging inside information is strictly prohibited and potentially a criminal offence. Staff should also be trained to spot situations where they might receive inside information unintentionally, and how to escalate them to Compliance. Consider periodic refreshers, particularly when the regulations change. The FCA has observed that firms with a strong compliance culture, treating MAR compliance as “a state of mind”, tend to do best at preventing market abuse.

Monitoring and surveillance. Put surveillance in place to detect suspicious activity around a market sounding, such as unusual volumes or price moves in the stock after investors were sounded but before the news is public. Compliance can check whether any wall-crossed clients traded in a way that might indicate misuse, using market data or transaction reports. Internally, monitor for breaches of the restricted list: no employee trading in the stock, no research published on it, and so on. After the transaction, review the chronology. If an investor’s trading looks odd (for example, selling immediately after the wall-crossing call and then buying in the placing), consider investigating and reporting it; the FCA has noted such patterns with concern. Strong post-trade surveillance, combined with enforced pre-trade controls, helps catch and deter insider dealing. Also require pre-clearance of personal account dealing: anyone aware of the deal must be barred from trading the related securities, and everyone else should be pre-cleared against the restricted list.

Cleansing and post-deal controls. After the transaction completes, or if it is abandoned, cleanse insiders promptly. That means telling every recipient of the inside information, investors and internal staff alike, that it is now public or no longer material, which frees them to trade again. For a successful placing, the public announcement of the deal (pricing and terms through an RNS) often cleanses the information publicly. In some cases a specific notification is also sent to wall-crossed investors confirming their restrictions are lifted. For a withdrawn or postponed deal, a private cleansing email to insiders may confirm the information is no longer live. Plan the cleansing in advance, as part of deal planning, deciding how insiders will be told and by whom, and record when each insider is cleansed. Cleansing is courteous to investors, letting them resume normal trading, and it also removes lingering insider risk. Afterwards, hold a post-mortem: if anything went wrong or nearly did (an investor who declined but still heard too much, for example), update the procedures or training accordingly.

Leak contingency planning. Despite everyone’s best efforts, leaks happen, deliberately or accidentally. A well-prepared firm has a plan for handling rumours or leaks before the official announcement. The plan should say who will decide on and draft an urgent market announcement if needed, and how to reach the issuer, the exchange and the regulators quickly. FCA guidance is clear that if inside information escapes into the market, the issuer should disclose it publicly as soon as possible, even during trading hours. Holding statements can confirm that a potential transaction is in progress if needed. Bring the firm’s communications team and legal advisers into leak planning, and consider drafting an outline leak announcement in advance. Reacting quickly and transparently to a leak limits market disruption and avoids any accusation of selective disclosure. Once the dust settles, investigate the source of the leak and tighten controls accordingly.

Conclusion

Market sounding and wall-crossing are invaluable tools for executing equity placings, but they carry an inherent risk of insider dealing and market abuse if not carefully managed. By following the UK’s regulatory framework (UK MAR’s requirements, FCA guidance on best practice and the LSE’s expectations for timely disclosure), firms can conduct soundings in a compliant, controlled way. A clear assignment of responsibilities across ECM teams, syndicate desks and compliance officers is critical, as is a strong set of internal controls: information barriers, approved scripts, meticulous record-keeping, training, surveillance and leak response plans.

Compliance professionals should build a culture in which integrity and caution around inside information are ingrained in front-office behaviour. A proactive, structured approach reduces legal and reputational risk and contributes to fair and orderly markets, helping maintain investor trust in the capital raising process. By following the best practice above and keeping up with regulatory developments, UK banks and brokers can handle market soundings and wall-crossings with confidence, and complete successful equity placings without compromising on compliance.