On the minus side, and it’s a big minus for shareholders, the fiasco at Telit Communications (TCM) has demonstrated why for many Aim is seen as a minefield. In addition to the board’s “considerable anger” that a historical indictment against the chief executive was never disclosed to them, there was no doubt considerable embarrassment. For shareholders, there was considerable discomfort at yet another serious governance failure.
To make matters worse, a European rival has received a competitive boost that could lure away some companies and investors. Nasdaq First North, the US financial services giant’s junior European market, has been awarded ‘growth market status’ by HM Revenue & Customs, covering its constituent exchanges in Stockholm, Helsinki, Copenhagen, Reykjavik, Tallinn and Vilnius. This means investors here will no longer pay a 1.5 per cent stamp duty reserve tax on investments in UK-based companies traded on that market, levelling the playing field with Aim in that respect.
Statistics are fairly flexible here. Put simply, Nasdaq First North does not yet have the numbers, but it is growing very quickly. It has just over 300 companies, while Aim has more than 960. But the European challenger has increased that number by 28 per cent in the past year, whereas for our domestic player, attrition has seen that number shrink by 9 per cent. Even with this year's better run-rate, we are still well behind the heady days of the mid-2000s.
When it comes to liquidity, Aim has the deeper pool. In July, it saw £5.6bn in shares exchanged by value, across just shy of 1m trades. For Nasdaq First North, close to 0.5m trades had an aggregate value of €718m (£658m). But if you adjust this for the numbers of securities on the market, Nasdaq First North has a higher number of trades per company.
On regulation, it is much of a muchness. First North’s certified advisers are the equivalent of Aim’s nominated advisers. For Nasdaq, it’s quality over quantity, argues Nasdaq's head of European listings, Adam Kostyál, who boasts of low failure rates. “We say no to quite a few companies that don’t meet our requirements,” he explains. But you don’t have to search too hard to find examples of disclosure and other failings.
Mr Kostyál expects the tax change to deliver Nasdaq First North more UK investors, but also to encourage companies from these shores to consider listing there. He cites an uptick in interest from the healthcare and technology sectors; Aim’s bread and butter. Nasdaq makes a low fee pitch: total charges and legal costs of admission come in at 6-8 per cent of capital raised.
But UK-based companies, to which the stamp duty exemption applies, have yet to make much of a dent on the largely Sweden-dominated bourse – there are currently four, and none in the top 25. Domestic investors might be less comfortable investing in businesses where the scuttlebutt approach requires much more of a scuttle.
Plus dividend income may be liable for withholding tax if they push further afield. Some of this might be recouped via tax treaty rules, but that creates some administrative headaches. Admittedly, dividends might not be a first consideration given the nature of Nasdaq First North companies.
For Aim, the current consultation on standards is a tricky moment. Set the bar too high, and companies may go elsewhere than the City of London, especially post-Brexit. Keep the bar too low, and the credibility risk to this leading growth market remains.
Ian Smith is companies editor
