ShareSoc Proposes How the AIM Market Should Be Improved

ShareSoc has issued the following press release today:

The AIM market run by the London Stock Exchange (LSE) has been criticised by many people for the quality of companies listed on the market and for the way it operates. ShareSoc and our Members think that some reform is necessary.

There is no denying that it is possible to invest in successful AIM companies but as any experienced AIM investor knows, doing so consistently and avoiding those that either never establish a profitable business, get delisted, go bust or otherwise become the walking dead is another matter altogether. Picking out the quality companies that will give a good return from buying their shares is not easy and in comparison with main market companies it is a minefield for inexperienced investors.

Over 3,500 companies have joined AIM in the last 20 years since the market was launched. How many are left? The answer is about 1,000. Now some will have moved to the main market, and some will have been taken over (not necessarily at a profit for the shareholders from their original investment), but clearly there is a very large amount of turnover in AIM companies. Many will have gone bust or been delisted. Or as Claer Barrett said in the Financial Times: “20 years of a few winners and many losers”.

One only has to remember recent cases such as Globo and Silverdell, or companies such as Izodia, Versailles and Langbar, or the numerous oil/gas or mineral exploration companies some of which were of course simply fraudulent businesses. Do the few, sometimes massive, winners offset the losers? The answer is no. The AIM index has underperformed main market indices over the last 20 years.

The LSE has consistently defended the way AIM operates and claims it is one of the most successful small cap exchanges in the world. But many private investors would not agree.

The reputation of AIM is such that it actually puts off good quality companies from listing on it. Therefore SMEs that wish to raise equity for expansion are often discouraged from listing on AIM and this is damaging for the health of the UK economy.

But there are some simple ways to improve the AIM market without imposing large costs on the market participants. ShareSoc has published a document which spells out exactly what should be done. It is present on our web site here: http://www.sharesoc.org/aim-campaign.html

There is also an electronic petition for investors to sign who support the ShareSoc initiative here (see foot of page): http://www.sharesoc.org/aim-campaign.html

Summary of Key Recommendations:

These a few of the key recommendations in our proposal:

– The enforcement of AIM regulations needs to be improved.

– The roles of Nomad and Corporate Broker should be separated because of the conflict of interest therein.

– A corporate governance code should be introduced.

– Directors remuneration should be reported and votes required to approve it at AGMs.

– AIM company directors should have knowledge of UK Company Law.

– Share placings should be constrained.

– New listings should be vetted by an independent panel.

– Nomads should have clearer responsibilities.

– Non-executive directors should be clearly independent and have a limited number of roles.

– General Meetings should be held within the UK and at convenient dates and times.

– All AIM company directors should be fluent in English.

These recommendations are spelled out in more detail with explanations for their need in the aforementioned document.

Roger Lawson

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