The 25th anniversary of the Alternative Investment Market focused on the success of the London Stock Exchange’s junior bourse in helping cultivate some of the world’s most exciting growth companies.
And rightly so. From 10 businesses with a combined market capitalisation of just £82mln, AIM has grown to 852 members worth in excess of £100bn.
FTSE 100 constituents Melrose Industries and GVC Holdings started life among the tiddlers, while at least two current AIM members – Boohoo and ASOS – would qualify for election to the top-flight were they willing to quit the junior exchange.
While its architects should be lauded, the back-patting and eulogising around AIM’s birthday in June ignored some obvious flaws that have tended to hamper the inhabitants of its lower echelons.
Among the impediments is self-regulation using a nominated advisor, or Nomad system, that layers on bureaucracy and adds significantly to the already pricey listing and professional fees.
While the recent spate of fundraisings has shown primary market to be in rude health, this hasn’t always been the case.
Institutional interest is limited to a handful of specialist and VCT funds, while family offices and high net worth investors often have access to more interesting deal flow off-market.
Until the lockdown, which prompted a revival in demand for healthcare and technology stocks, this poor funds flow had left firms scratching around for the necessary capital to sustain and build growth companies.
Add to this the longstanding issues of liquidity (traded volumes are thin for most stocks), and short selling (which adds to market volatility) and you’ll understand why not every AIM chief executive or investor is as bullish as those who run and support the market.
There is a company called Aquis Exchange PLC (LON:AQX) that believes it has the antidote to many of AIM's 'ills'.
Ostensibly, the solution is provided in the form of the Aquis Stock Exchange, which people will remember in former guises of PLUS and NEX.
The reboot is expected to deliver a transparent, technology-driven market, while a Netflix-style subscription service allows investors to trade for a set price per month rather than on a cost per trade basis.
Leading this new ‘challenger’ exchange is Alasdair Haynes, who headed Chi-X Europe before its sale to BATS in 2011.
Taking on the establishment
In just four years Chi-X grew from nothing to be responsible for just over 9% of trades in the 10 largest European markets, including 15% of the volume of FTSE 100 stocks.
So, Haynes has form for successfully taking on the establishment. And in Aquis he is proposing some interesting innovations that will help nurture the UK’s growth stocks in ways AIM sometimes fails.
His vision is to provide a three-tier “nursery school-to-university” solution for listed companies.
This would see growth businesses graduate from the sub-£10mln market cap early-stage Access market to the Apex market for more mature firms and then onto the Aquis Exchange proper, a pan-European alternative trading system designed to rival the Footsie.
At each stage of the journey rules and support would be different, reflecting the fact the “requirements for a £4mln, £400mln and £4bln company are totally different”.
“Great companies do start small, they grow and they ultimately mature,” Haynes says.
“Investors today are missing out because the wrong stock is in the wrong segment, with the wrong trading mechanisms and the wrong requirements and governance behind them.”
“So, we decided to make a marketplace that basically takes a company from almost nursery school to university. So, you can be in the same stock exchange, but have different requirements.”
Low-cost alternative
Listing costs are likely to start at £6,000-£10,000, says the Aquis CEO, a fraction of the joining fees for AIM, which comes with the financially burdensome requirement for a Nomad (though Apex companies will still require a financial advisor).
Regulation for the junior exchange will be provided by the corporate governance guidelines set down by the Quoted Companies Alliance, or Financial Reporting Council.
Companies on the Access market will require what’s called a growth prospectus, which provides a higher level of disclosure than demanded by AIM or the LSE’s Standard List, Haynes says.
The documentation is designed to allow private investors to participate in the initial public offering (IPO) of shares.
“Retail investors play a critical part in the financing of companies in the early stage and they need to be part of the IPO,” explains Haynes.
“Via the Apex markets, they are going to be able to invest directly in the IPO.”
To create a more benign and helpful setting for fledgeling businesses, aggressive trading strategies such as short selling are banned by Aquis.
This embargo on shorting isn’t protecting bad companies, Haynes explains. Rather it allows investors the “first right to sell” stock in an underperforming corporation.
“The shareholders are the people who should decide,” he adds.
Aquis’ technology-driven transparent approach will be undoubtedly be welcomed as a breath of fresh air by investors fed up and thwarted by the current system. However, there is a problem – awareness and connectivity to this new market, which in turn relies on execution brokers being plugged into the new ecosystem.
“We are clear this is a market where the investor and the company get a chance,” says Haynes.
Let’s hope this message resonates.