The changes
In a move that has been described
as the "biggest single change" to the AIM market
since its launch in 1995, the London Stock Exchange (LSE)
has introduced a new rulebook, the AIM Rules for Nominated
Advisers. Other changes implemented in conjunction with
this include the introduction of new disclosure requirements
for AIM companies.
The motive behind the new
rulebook
We examined the reasons behind
the changes in our bulletin published at the time the
changes were first proposed. However, it is worth repeating
the points made. It is no secret that AIM is almost becoming
a victim of its own success. This success, particularly
over the last couple of years, has been driven by keeping
regulations to a minimum. Inevitably, questions have been
raised about the suitability of a light regime for the
more mature market, and concern has been increased by
recent events including a number of profit warnings from
AIM companies. John Thain, Chief Executive of the New
York Stock Exchange, recently stated at the World Economic
Forum in Davos that "anyone could list on AIM"
and warned that London "had to be careful not to
damage its reputation by allowing in companies that are
not well run". In addition, there has been much in
the press recently about the performance (or lack of it)
of some of the Nomads. One angle that had been examined
as a way of calming nerves and dealing with concerns was
the possible extension of the statutory right for investors
to sue companies for false and misleading information
published with annual reports and interim financial information
(as a result of the implementation of the Transparency
Directive) to AIM companies. However, much to the delight
of many of those who lobbied strongly (including the Quoted
Companies Alliance), the government decided against following
this route. This new rulebook and related changes represent
another attempt to assuage the growing, and increasingly
vociferous, number of concerned industry players.
What does this mean for
Nomads and AIM companies
Nomads
The new rulebook takes elements
from the existing AIM Rules (for companies listed on the
market) and joins them with the existing criteria for
becoming a Nomad, in essence codifying what should already
be best practice. Nomads already know that they must have
a sound understanding of the company hoping to join the
market, but the new rule book contains advice on what
they "should usually" do to achieve such understanding.
For example, they "should usually" have sufficient
expertise in-house or access to specialists in order to
make their assessment. There are few new requirements,
but by spelling out the duties of the Nomad in such detail,
the LSE hopes to eliminate misunderstandings while leaving
room for interpretation. No substantive changes have been
made to the existing Nomad eligibility criteria. In particular,
the number and type of transactions that a firm must achieve
in order to be eligible to be considered for nominated
adviser status will remain the same. During the consultation
process, there was intensive lobbying by many Nomads.
Whilst no major changes have resulted, there has been
a certain amount of tinkering to the final rules. For
example, the LSE's proposal that the Nomad should usually
have "experience in the applicant's sector"
has been changed to clarify that the Nomad should usually
have "appropriate knowledge of the applicant's area
of business (taking into account its country of incorporation
and operation)", and the requirement to consider
the suitability of other advisers has been deleted (although
the LSE notes that it expects Nomads to provide advice
to the company on the appointment of advisers). The key
declaration that must be made on Page 1 of the admission
document has also been tempered so that the requirement
is simply to state that each AIM company is required to
have a Nomad and that the Nomad provides the LSE with
a declaration in the form found in the new Rules for Nomads.
AIM Companies
The main change for AIM companies
is the requirement both to have a website and to post
on it all core management and financial information. Investors
will be able to find on the website the admission document,
annual report, all regulatory news service announcements
for the past 12 months and up-to-date biographies of the
directors, as well as information relating to its investing
strategy, where relevant, and details of other trading
platforms or exchanges on which the company has applied
or agreed to have any of its securities admitted or traded.
It must also say where it is incorporated, the level of
free float in the shares and details of other exchanges
where its shares can be traded. Again, most companies
should be doing much of this already, but it is thought
that even for those that have to start a website from
scratch, the costs should not be too onerous.
Timing
The new rulebook for Nomads, and
the amendments to the AIM Rules for Companies, have immediate
effect. The Nominated Adviser Eligibility Criteria are
therefore repealed. The LSE has stated that it expects
all AIM companies to implement the requirements of Rule
26 (the website requirement) by 20 August 2007.
The future
The expectation is that the new
rulebook will serve to weed out smaller Nomads who do
not do their job properly - those who "rubber stamp"
applicants' admission documents and neglect to stay in
touch with the company after listing. Some of the new
requirements could prove particularly tricky with respect
to overseas companies - for example, the requirement to
prove a knowledge of the company and its directors could
prove a particular challenge in the emerging markets such
as China and India. The crackdown is also expected to
provide a boon to business intelligence services.
Further information
