Equity capital markets

Equity capital markets sits between a company that wants equity and the investors who might buy it. The mandate might be a first listing, a further issue by a company already listed, an offer made to existing shareholders, or a convertible instrument that starts as debt and may become equity.

The work is distribution and price discovery rather than negotiation. The desk markets the story, gathers indications of demand into a book, and recommends a price at which the shares will both sell today and trade sensibly afterwards. That means facing two counterparties with opposite interests: the issuer wants the highest achievable price, and investors want a discount plus room for the shares to rise.

The desk has to face both again next year, which is the discipline that keeps it honest. Pricing an issue at the very top clears the book once and damages the investor relationships the bank needs for the next deal. Pricing too generously leaves value with investors that the issuer will notice.

It is paid out of the proceeds of the issue rather than on the completion of a negotiation, so the calendar is set by market windows: results seasons, volatility and the flow of competing issues. Advisory only firms generally have no such desk, because placing shares requires a distribution network and, where a deal is underwritten, capital at risk.