In the UK, the small company may be quoted on the
main market of the London Stock Exchange or, if unlisted,
on the Alternative Investment Market (AIM). If it
is a foreign company, it may be simultaneously traded
on an exchange abroad. The very small company may
be PLUS-quoted, which means on the previous Ofex primary
market. Let us take a more detailed look.
Main Market
There are some penny stocks traded on the London Stock
Exchange Main Market. For a listing, a company normally
needs a three-year track record, and 25 per cent of
its shares in public hands. If it is to acquire less
than 100 per cent of a target company, it must obtain
shareholder approval. These rules do not apply on
the AIM market (see below).
Alternative Investment Market
The Alternative Investment Market (AIM) is setting
standards as a small companies market for the rest
of Europe. As at March 2006, there were 1,188 domestic
companies on the AIM and 220 international companies.
To be quoted on the AIM avoids the higher costs and
more onerous regulation of a Main Market listing.
An AIM company is advised and supervised by a firm
known as Nominated adviser, or Nomad, which is regulated
by the London Stock Exchange.
The AIM is not a regulated market which, controversially,
means that Real Estate Investment Funds, a property
investment vehicle, will not be able to be quoted
on it when they are introduced to the UK in early
2007.
It is a sign of strength of the market that it has
substantial institutional investment. Foreign companies
are increasingly quoted on the market, often by way
of dual listing, which can bring risks to investors.
In mid-2006, the pipeline of future market listings
on the AIM was strong, although some companies had
cancelled their debuts amidst stock market turbulence.
PLUS-quoted
PLUS Markets Group, an independent UK provider of
equity market services, owns and operates the Ofex
market for small growth companies and the PLUS trading
service for shares of growth companies. By the time
this book is in your hands, Ofex and the PLUS service
will have merged into a single identity to be known
simply as PLUS. Securities on Ofex will be called
PLUS-quoted. They are traded on the PLUS trading platform
alongside securities listed and traded on other exchanges,
which are known as PLUS-traded.
PLUS-quoted stocks have an average market capitalization
of £10–20 million, and companies look
to raise up to £5 million from institutional
and retail investors on the primary market, and more
through secondary fundraisings. Some have raised no
new cash but their shares are traded, perhaps to obtain
a valuation for acquisition purposes, or to value
employee share options. This introduction method of
joining a market can enable a growing company to gain
a period of experience and transparency on a public
market before embarking on future capital-raising
initiatives.
For investors, PLUS-quoted stocks are largely immune
from the trends affecting mainstream markets. A PLUS
quotation can serve as a springboard for a move to
other, more senior markets. Experience of the old
Ofex regime shows that you can do well if you invest
in such future stars early, but many of the companies
will not make a hoped-for leap. Even if they do, not
every such company will necessarily sustain the higher
listing. Some find it hard to adjust to the resulting
sudden increase in their shareholder base and greater
liquidity, with share price fluctuations arising.
For more details, visit the PLUS Markets Group website
(www. plusmarketsgroup.com). Also see the site of
unquoted.co.uk (www.unquoted. co.uk) for access to,
among other things, useful bulletin boards.
Markets abroad
By June 2006, when the AIM had reached its 11th anniversary,
some rival small company markets were operating in
continental Europe.
In May 2005, Euronext, the cross-border exchange,
launched its junior market, Alternext, which offers
access to four countries. In October 2005, Deutsche
Börse launched its junior market Entry Standard,
which has 32 companies in sectors ranging from renewable
energy to nano technology and financial services.
Unlike on the AIM, companies on this market must have
a fully vetted prospectus and there are no tax concessions.
In the United States, Nasdaq (www.nasdaq.com) has
some small companies and it offers a more heavily
regulated alternative to the AIM. The market is fully
electronic, which makes it liquid and transparent.
Unless you know what you are doing, avoid US over-the-counter
(OTC) stocks, some of which are quoted on the US-based
Pink Sheets (www. pinksheets.com). The OTC issuers
do not have to register with the Securities &
Exchange Commission, the US regulator. Many OTC securities
are relatively illiquid, and fraud and manipulation
in this market are commonplace.
