How companies and governments raise money through shares, bonds, and everything in between.
Capital markets are the venues and mechanisms through which companies and governments raise long-term funding by issuing securities — shares or debt instruments — to investors. The primary market is where new securities are created and sold for the first time (an IPO or a bond issuance), while the secondary market is where existing securities are traded between investors (the London Stock Exchange, for instance). The distinction matters because lawyers advising on a primary market transaction focus on disclosure, structuring, and regulatory compliance, whereas secondary market work centres on trading rules, market abuse, and ongoing obligations.
An initial public offering (IPO) is the process by which a private company lists its shares on a stock exchange for the first time. The company appoints underwriters (investment banks) who commit to buying any unsold shares, guaranteeing the fundraise. A detailed prospectus must be prepared and approved by the FCA, disclosing the company's business, financials, risks, and management. The bookbuilding process gauges investor demand at various price points before the final offer price is set. Beyond IPOs, listed companies may raise additional equity through rights issues (offering existing shareholders new shares pro rata) or placings (selling new shares to institutional investors).
Instead of selling ownership, companies can raise funds by issuing bonds — debt instruments that promise to pay investors a fixed or floating coupon (interest rate) and return the principal at maturity. Investment-grade bonds are issued by highly rated borrowers and carry lower yields, while high-yield bonds (often called junk bonds) offer higher returns to compensate for greater credit risk. Bonds may be listed on exchanges like the London Stock Exchange or traded over-the-counter. The documentation — typically an offering circular or prospectus — is heavily negotiated, with covenants restricting what the issuer can do (e.g., limits on further borrowing or asset disposals) to protect bondholders.
The prospectus is the cornerstone document of any capital markets offering and carries significant legal liability. Under FSMA and the Public Offers and Admissions to Trading Regulations — which replaced the UK Prospectus Regulation on 19 January 2026 — it must contain all information necessary for an investor to make an informed assessment of the issuer's financial position and prospects. Lawyers play a central role in drafting and verifying the prospectus, conducting a verification process where every factual statement is traced to a source. Inadequate disclosure can expose the issuer, its directors, and the underwriters to civil liability — making accuracy not just a best practice but a legal obligation.
A capital markets transaction involves a web of professional advisers. The issuer is the company or government raising funds. Underwriters (or bookrunners) are the investment banks managing the offering and assuming distribution risk. A sponsor (required at listing and for certain later transactions) vouches for the issuer's compliance with listing rules. Lawyers advise on both sides — issuer's counsel and underwriters' counsel — each with distinct responsibilities around disclosure, due diligence, and regulatory filings. Auditors verify financial information, and registrars manage the share register.
ESG bonds — green bonds, social bonds, and sustainability-linked bonds — have surged as issuers seek to align financing with environmental commitments, though concerns about greenwashing have prompted tighter disclosure standards. The UK's post-Brexit overhaul of its listing regime (the new UKLR rules effective 2024) simplified the premium/standard distinction into a single listing category, aiming to make London more competitive for IPOs. Direct listings, where companies list without raising new capital or using underwriters, offer an alternative to the traditional IPO but have seen limited uptake outside the US. Meanwhile, the rise of private credit markets has given companies another route to raise debt outside public bond markets.
Capital markets work is central to the practice of most City law firms and a staple interview topic. Understanding the difference between equity and debt, being able to explain what a prospectus does, and following a recent IPO or bond issuance signals the commercial awareness that recruiters are testing for. Many trainees rotate through a capital markets seat, so familiarity with the landscape gives you a genuine head start.
“What is the difference between equity and debt capital markets, and when would a company use each?”
What they're assessing
A clear understanding of two distinct fundraising mechanisms — and commercial judgment about when each makes sense.
Answer skeleton
Equity capital markets involve a company issuing shares — selling ownership — to raise money, typically through an IPO or rights issue. The company gives up a stake but has no repayment obligation. Debt capital markets involve issuing bonds — borrowing from investors at a fixed interest rate, with an obligation to repay principal at maturity. A company with strong cash flows and a desire to avoid dilution might prefer debt; a company with no credit rating or wanting to raise large amounts at IPO without ongoing interest costs might prefer equity. The choice depends on the cost of capital, existing leverage, and the company's stage of development.
“Walk me through the key stages of an IPO.”
What they're assessing
Process knowledge and an understanding of what lawyers actually do at each stage — not just a generic description.
Answer skeleton
An IPO begins with the company appointing advisers: investment banks as underwriters and lawyers for both issuer and banks. Due diligence is conducted and a prospectus is drafted — the core legal document disclosing all material information about the company and carrying significant liability if inaccurate. The FCA reviews and approves the prospectus. The bookbuilding process gauges investor demand at various price points. Once the offer price is set, the shares are allocated and trading begins on the exchange. Lawyers are involved throughout — drafting and verifying the prospectus, negotiating the underwriting agreement, managing regulatory filings, and advising on timing and structure.
“What is a prospectus and why does it carry significant legal liability?”
What they're assessing
Understanding of disclosure obligations and the legal consequences of getting it wrong — a core capital markets concept.
Answer skeleton
A prospectus is the disclosure document required for public offers of securities — it must contain all information an investor needs to make an informed assessment of the issuer's financial position and prospects. Under UK law, if the prospectus contains a misleading statement or omits something material, investors who suffered loss can claim compensation from the issuer and, in some cases, the directors and underwriters. This is why lawyers spend significant time on the verification process — tracing every factual statement to a supporting source. The liability risk is what makes capital markets due diligence so rigorous compared to private transactions.
“London has lost ground to New York and Amsterdam as an IPO venue since Brexit — what are the legal and commercial reasons, and do you think the 2024 UKLR reforms will help?”
What they're assessing
Analytical thinking about a live debate in capital markets — the ability to identify multiple causes (legal, commercial, structural) and form a reasoned view rather than reciting facts.
Answer skeleton
Context: post-Brexit London saw a string of high-profile companies choose New York or other venues, citing the depth of the US investor base, dual-class share structures, and legacy premium listing restrictions. Commercial implication: a less liquid IPO market affects valuations, so companies weigh listing venue not just on legal requirements but on where they will get the best price and investor coverage. Legal angle: the 2024 UK Listing Rules (UKLR) removed the premium/standard distinction, permitted dual-class shares for a longer period, and relaxed sponsor requirements — directly responding to founder concerns. Current hook/your view: the reforms are directionally right, but I think legal structure is only one factor — the depth of US technology-sector investor pools is a harder problem to solve, and London's recovery will depend as much on macroeconomic conditions as on listing rule reform.
“What is a green bond and what legal obligations does an issuer take on that differ from a conventional bond?”
What they're assessing
Understanding of a product that now represents a significant share of bond issuance and raises specific legal issues around disclosure and greenwashing liability.
Answer skeleton
Context: a green bond is a fixed-income instrument where the issuer commits to allocating proceeds to eligible green projects (renewable energy, energy efficiency, sustainable transport) — issuance has grown sharply as ESG investor mandates expanded. Commercial implication: issuers access a wider investor base and may achieve a 'greenium' (lower yield), but take on ongoing reporting obligations that a conventional bond does not require. Legal angle: lawyers must draft use-of-proceeds covenants, reporting undertakings, and consider alignment with voluntary frameworks (ICMA Green Bond Principles) and, increasingly, mandatory disclosure requirements under UK and EU regulation — greenwashing claims by investors create potential liability under FSMA. Current hook/your view: I think the lack of a single legally binding standard still creates greenwashing risk — the recent FCA scrutiny of ESG fund labelling signals a direction of travel towards stricter legal accountability for green claims in capital markets.
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