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Aim looking to keep out the riff-raff

The London Stock Exchange is looking to beef up the pre-admission process on Aim
July 20, 2017

Since the start of the year, the FTSE Alternative Investment Market (Aim) 100 index has outstripped its main board benchmark equivalent by 14 per cent. Five market admissions involving a vendor placing delivered an average share price appreciation of 45 per cent between January and June, according to Allenby Capital. 

The number of new admissions was slightly down on the previous year, although the aggregate size of the market – £93.6bn at the end of June – is challenging the high water mark achieved in 2007. More importantly, the rate of attrition continues to slow. An average of 12 companies delisted per month during the first half of 2016. The rate dropped to nine per month over the second half and has continued to dwindle through 2017. That’s progress of sorts.

Meanwhile, funds generated through admissions rose from £753m to over £919m, according to accountancy firm UHY Hacker Young. The total amount raised on the market since its inception in 1995 has now passed the £100bn mark. Somewhat surprisingly, nearly 60 per cent has been generated through secondary issues, often perceived as the Achilles heel of the market.

And yet the market continues to draw criticism, with the rights of minority shareholders increasingly in the spotlight. Last month, Standard Life (SL.) blamed stock market rules that allowed software company Fusionex to cancel its shares on Aim, saying it will leave minority investors lumbered with unlisted and illiquid shares. A similar situation is playing out with Aim-traded Gemfields (GEM). At the end of this month, the emerald and ruby miner will be delisted from Aim after majority shareholder Pallinghurst Resources (JSE:PGL) received enough votes (75 per cent) to force a takeover under a nil-premium bid. Shareholders will end up holding a stake in the larger Pallinghurst group, listed in Johannesburg – presumably it’s a question of value rather than liquidity that has vexed minority holders.

The history of fundraising on Aim

There have been far more contentious issues in the past – one need only recall the corporate governance issues that have engulfed a number of the Chinese companies trading on Aim in recent years. It’s even debatable whether a beefed-up regulatory framework would have made any difference to the examples cited above. By its very nature – light-touch regulation, relatively modest fees – the market entails a more acute risk profile. But occasionally it’s stung into action by criticism.

A decade ago, the London Stock Exchange (LSE) doubled the maximum fine it could levy on rogue companies and advisers as part of a tightening of regulations. This was in response to mounting criticism of the market’s lax oversight, including some very public barbs by the then chairman of the rival New York Stock Exchange. Now, LSE bosses have released a discussion paper on proposals to tighten Aim rules governing the pre-admission process for constituents and nominated advisers (Nomads):

  • One of the proposals looks at whether Nomads should commence discussions with the LSE at an earlier stage, setting out key information on companies prior to admission.
  • Regulators are also seeking submissions on whether the LSE should publish a list of “non-exhaustive examples of factors” that a Nomad could consider when assessing a company’s suitability.
  • Another proposal looks at whether the LSE should introduce a minimum fundraising threshold for applicants and if so, whether it should apply to both revenue and non-revenue-generating companies. The paper is also looking at the possible introduction of a minimum “shares in public hands” requirement and if so, what the minimum free float should be.