The Move

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 is proposing to introduce a new rulebook, the AIM Rules for Nominated Advisers. Other changes proposed in conjunction with this include the introduction of new disclosure requirements for AIM companies. This Article will go on to examine in brief the significance of the new rulebook and some of its detail, and the proposed new disclosure requirements, but first we want to examine the driving force behind these proposals.

The Motive

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 – indeed, some US companies have been quite open about the fact that they have taken a listing on AIM in order to avoid the burden of Sarbanes-Oxley. Inevitably, questions have been raised about the suitability of a light regime for the more mature market, and this has been increased by recent events such as the profits warnings issued by both Prosperity Minerals and Burst Media, the Chinese cement manufacturer and US internet advertising specialist who only listed recently. In addition, fund managers have started to express concern about the quality of the companies arriving on the market. One angle that has been examined as a way of calming nerves and dealing with concerns is 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 has decided against following this route. These latest proposals represent another angle of approach.

The Nuts and Bolts

The proposed 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 is full of 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.

In addition to the proposed new rulebook, the main change for AIM companies in the consultation document 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. 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, the best 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.

The Future

The consultation closes on 1 December 2006 and if market participants agree, the new rules will take effect from the beginning of next year. The process will no doubt be followed keenly by many. Much as the AIM market is still enjoying unprecedented success, what with the revamping of the OFEX market (now the PLUS market) and its push towards the small cap companies that have traditionally been the preserve of the AIM market, and the rumblings in the AIM market that many companies currently listed on AIM are considering listing fully on the London Stock Exchange to attain better long-term support from institutional investors, these measures could provide a significant bolster to AIM at an important time.

Further Information