Marketing of initial public offerings
In this article, the FIN-FSA responds to frequently asked questions from initial public offering (IPO) advisers about the marketing of IPOs and the distinction between IPO marketing and other communications.
In IPOs, marketing methods and channels have evolved and diversified, and questions have arisen about, among other things, what is permitted in marketing and what is not, what is IPO marketing and what is other advertising. There is no simple answer to these questions, and situations always have to be assessed on a case-by-case basis. The key factor, however, is that marketing must not be misleading. What is sought through marketing is also crucial; for example, if a podcast is planned with the aim of attracting investors to participate in an IPO, the podcast must take into account IPO marketing requirements.
The FIN-FSA considers that careful planning of an IPO’s marketing messages and channels, and adherence to the plans, will minimise any possible interpretation problems concerning the IPO with regard to what is considered to be marketing of the IPO. It should also be agreed in advance who will market the IPO on behalf of the company and who, moreover, will not comment on it. The advisors of the listing company have an important role in guiding the company also in this regard. The FIN-FSA also considers it good that the prevailing practice in Finland is to prepare publicity guidelines for the listing company at an early stage of the listing project. The guidelines help the company’s management to be aware of what information about the company can be disclosed to the public and when.
When is IPO marketing involved?
The Regulation1 defines advertising as a communication
- that relates to a specific offer of securities to the public or to an admission to trading on a regulated market and
- that is specifically aimed at promoting the potential subscription or acquisition of securities.
The FIN-FSA interprets the above definition of advertising broadly. In practice, this means that a communication can be considered as marketing of an IPO, even if it does not explicitly mention the IPO, if the communication is intended to arouse the interest of potential investors in the company and investing in its shares.
In practice, the aforementioned communication may be, for example, statements about the company’s strengths, strategy, financial performance, future prospects, competitive situation and market growth. Such factors, which are typically presented in the marketing of IPOs, may be interpreted as marketing of the IPO regardless of where, how and in what way they are presented. On the other hand, marketing directed at the company's customers that aims to market the company’s products or services, is not, as a rule, considered to be IPO marketing material.
What does the Regulation require from marketing?
Marketing material must be submitted to the FIN-FSA
The marketing material used in Finland related to all prospectuses must be submitted to the FIN-FSA at the latest when marketing begins. Marketing material related to IPO prospectuses, however, must be submitted to the FIN-FSA during prospectus inspection, as the FIN-FSA reviews the material in advance and substantively comments on it.
Marketing material must not be confusable with the prospectus
The Regulation2 requires that advertising be clearly recognisable as such. Advertisements directed at retail investors should include, among other things, the word “advertisement” in a prominent manner as well as a recommendation that potential investors read the prospectus before making an investment decision in order to understand the potential risks and rewards associated with the decision to invest in the securities. Advertisements must also be sufficiently different in form and length from the prospectus so that no confusion with the prospectus is possible.
Marketing material must be based on the prospectus
The FIN-FSA emphasises, in particular, that advertising must be consistent with the prospectus and must not conflict with the information contained in the prospectus. In practice, this means that marketing messages must be based on the prospectus, and marketing cannot provide material information that is not in the prospectus. What is presented in marketing material should also be possible, in terms of its content, to be presented in the prospectus. This should be taken into consideration in connection with claims and slogans, for example.
The FIN-FSA’s comments on marketing materials often relate to the presentation or highlighting of alternative performance measures (APMs). Marketing material should not include APMs, unless they are included in the prospectus. If APMs are presented, the corresponding figures of the applied accounting rules must also be presented in the same context in accordance with ESMA Guidelines.
It has sometimes been suggested to the FIN-FSA that preparing easy-to-understand marketing material based on the prospectus text might be challenging. The FIN-FSA therefore urges preparers of prospectuses to ensure that the information in prospectuses is also presented in a form that is easy to analyse, concise and comprehensible.
Prospectus supplement must also be taken into consideration in marketing material
If a prospectus is supplemented, advertisements directed at retail investors must also be amended if the matter supplemented renders the advertisement materially inaccurate or misleading. In such a situation, the amended advertisement must, among other things, include a clear description of the differences between the two versions of the advertisement.
Marketing material must refer to the prospectus
The advertisement must state where the prospectus is available so that the investor can fully acquaint themself with the information presented in the prospectus. In practice, advertisements must mention the website on which the prospectus has been or will be published. In some situations, it is not technically possible to include a reference to the prospectus in marketing materials. For example, a reference to the prospectus may not necessarily fit into the banner on a website. In that case, according to the interpretation of the FIN-FSA, the reference to the prospectus may be elsewhere on the same page or on a page that can be accessed by clicking on the advertisement.
Marketing must not be misleading
The information included in advertising must not be inaccurate or misleading. As in the prospectus, information or claims presented in marketing material must be based on facts and it must be possible to validate them to the FIN-FSA, if necessary. For example, the use of the term initial public offering might be misleading if a sale of shares is also involved, as the term initial public offering gives investors the impression that the funds being raised will be ultimately be at the disposal of the company. In such a situation, the term initial public offering and sale should be used. Similarly, the FIN-FSA has considered the use of the term stock exchange listing to be misleading if this does not involve a listing on a regulated market but on a multilateral trading facility, such as the First North list.
Positive and negative factors must be presented in a balanced way
Advertising must not pay less attention to negative aspects presented in the prospectus than to the positive aspects. In practice, this means that if marketing material describes, for example, the company’s growth, strengths and the expected development of the market, the corresponding risks must also be highlighted in the same context. The FIN-FSA considers that the presentation of risk factors should be considered on a case-by-case basis. In advertisements that contain, for example, only a brief reference to the company’s IPO in a neutral manner, a description of risks is not required.
How does the FIN-FSA comment on marketing material?
In connection with the inspection of listing prospectuses, the FIN-FSA has drawn the attention of preparers of marketing materials to the fact that all marketing material must be based on the prospectus. Although the FIN-FSA also comments on marketing materials in connection with prospectus inspection, for scheduling reasons the FIN-FSA does not compare in detail the texts of the marketing materials with the texts of prospectuses. Insofar as the texts of the prospectus are used in marketing material, it is the responsibility of the preparers of the materials/the company to ensure the consistency of the texts.
The slogan of a marketing campaign should be submitted to the FIN-FSA for comment in good time. In practice, a slogan has been changed in several cases based on the FIN-FSA’s comments. Comments have often concerned the fact that the slogan has given the impression that the company’s success or investor returns are certain.
The FIN-FSA recommends that marketing materials be submitted to it at the earliest at the stage when the FIN-FSA has issued its first prospectus comments and they have been taken into account in the next version of the prospectus and in marketing material. In practice, this often means midway through the inspection period. Subsequent changes to the texts of the prospectus based on the FIN-FSA’s comments must also be taken into account in all marketing material, where applicable. The FIN-FSA requires that the final versions of marketing material be submitted to it in collective form before marketing begins.
In IPOs, an announcement of the company’s plans to list (intention to float announcement) is often published before the actual start of the offering. The FIN-FSA does not comment on companies’ announcements in advance, and therefore does not comment on ITF announcements either.
The FIN-FSA has not identified any particular problems with IPO marketing materials it has reviewed in advance. In some ambiguous situations, the FIN-FSA has discussed with advisers the nature of marketing material and marketing-related procedures. In general, the FIN-FSA and advisers have concurred on issues of interpretation related to marketing materials. However, the FIN-FSA draws the attention of preparers of marketing material particularly to the terms used about listing, the presentation of alternative performance measures, and the taking of prospectus comments into account in marketing material.
Marketing regulations and guidelines
- Securities Market Act (Chapter 1 sections 2 and 3 and Chapter 3 section 3)
- Prospectus Regulation (EU) 2017/1129 (Article 22) and Delegated Regulation (EU) 2019/979 (Chapter IV)
- Regulations and guidelines 15/2013 Marketing of financial services and products (in Finnish)
For further information, please contact:
Marianne Demecs, Senior Market Supervisor, marianne.demecs(at)fiva.fi or tel. +358 9 183 5366
1 Regulation (EU) 2017/1129 of the European Parliament and of the Council, as amended (Prospectus Regulation).
2 Prospectus Regulation and Commission Delegated Regulation (EU) 2019/979.