Look Out Traditional Stock Exchanges

Diane Francis Saturday June 24:


LONDON -- This week, London's junior exchange, called AIM for Alternative Investment Market, celebrated its 11th birthday and business, and prospects, have never been better.

AIM is starting to shake up the stock market scene around the world. This is because it has a unique governance model which results in lower costs and more research coverage for companies. It's also an "incubator" for the London Stock Exchange which in 2005 attracted more IPOs than NASDAQ and the NYSE combined. This year, so far, IPOs for AIM are nearly double the two American exchanges.

Attempts in post-Enron Corporation America to exempt medium and small cap companies from the costs and burden of Sarbanes-Oxley have failed this year. The result is a flood of interest in AIM from North America as well as other jurisdictions.

It costs US$900,000 to be listed on AIM; US$2 million on NASDAQ and the TSX Venture Exchange is somewhere in the middle in costs, according to Neil Johnson, managing director of Canaccord Adams Limited, the only Canadian player on AIM. Ongoing compliance costs can be as high as US$2.5 million south of the border and less than US$1 million a year on AIM.

Anne Mouliere is the head of Business Development in North America for AIM and talked with Diane Francis last week in London.

Q. How would you gauge current interest in AIM?
A. "We now have 1,650 companies and they are from around the world, China, Russia, Ukraine, Kazakhstan, the Middle East, Canada, Australia and the U.S. In the last two years the success we enjoyed is from international interest and involvement which has totally exploded. We have 35 Canadian companies and get six or seven a year. Most have no listing in Canada."

"We first went to Canada in 2000 and AIM was a different market then than it is today. We went to Canada and Australia first because they had similar securities models to the UK and were commonwealth countries."

Q. How about U.S. companies?
A. "Eighteen months ago we saw U.S. companies starting to do IPOs and now we're seeing alot of interest for IPOs. We have 45 U.S. copanies on AIM now and they are not interlisted anywhere at all. It's also important to note that we are not another NASDAQ or technology exchange. We have technology, biotech, retail and resource companies. We have venture-capital backed companies from California and Boston. AIM companies range in size from US$15 million market capitalization up to US$1 billion, but that's only after they've grown on AIM. The average raise is US$14 million."

Q. How do you prevent AIM from cannibalizing the LSE?
A. "If a company is too big -- such as already US$1 billion in market capitalization -- we suggest they should list on the main market. We now have 15 companies on AIM that are about that size but they have grown on AIM over a few years. We let companies join but always say that when they are compliant to the requirements of the LSE eventually, we expect them to join it. But we wouldn't force them to move."

Q. How quickly is the exchange growing and what's the future?
A. "Last year we had 519 new joiners. In the first quarter of 2006, we have had about 100, so it may be less than 2005's number but they are bigger companies."

Q. How much of a role does the cost of compliance in the U.S. and Sarbanes Oxley play in terms of the exploding interest in AIM?

A. "U.S. interest is high and Sarbanes Oxley plays a part. Companies are saying they can comply with the rules, but the cost and disturbance to management is unaffordable. Legal firms are checking this exchange out in significant numbers. Another benefit for companies who list on AIM is the analyst coverage which is superior to coverage on NASDAQ or other exchanges. This is an advantage that the big exchanges don't provide."

"Each company has a Nominated Advisor, called a NOMAD, which monitors compliance and is there to service the company on an ongoing basis by providing research to institutional investors. Unlike NASDAQ or other exchanges, this means that every listed company has at least one research analyst from day one covering them."

Q. Are there imitators yet in Canada or elsewhere?
A. "Euronext has launched something similar and so has the Dublin Exchange. But the reality is we have a community in London that, for 200 years, has existed to serve small and medium cap companies. It takes time to build a market like AIM."

Q. AIM outsources regulation to NOMADS which some criticize as letting the monkeys guard the bananas. How does the LSE regulate these NOMAD regulators?

A. "First we have a process that takes months before we licence a NOMAD. Their role is to bring the right companies to market. And we are very tough when we regulate NOMADs. We can remove their licences. Impose public sanctions. So they are very careful about who they list. We took three or four licenses away five years ago, but none since. We also want NOMADs who have been established in London for some time. NOMADs need to have a reputation to lose and to be responsible on an ongoing basis."