Off target on AIM

AIM has had a hard time of it over the last year, attracting accusations both
of a high failure rate of its constituent members and a woefully inadequate
regulatory regime.

Those who would seek to condemn it appear to have taken but a cursory glance.
The failure rate of AIM companies is no different from that of companies traded
on the main market ­ and is the envy of virtually all international growth
company markets.

A research report from the London School of Economics in November looked at
the alleged high failure rate of AIM companies and found that, far from the 30%
of new companies going under within a year touted by one US SEC commissioner, it
was, on average, 3%. When you consider AIM was set up to attract and nurture
smaller growth companies, is a truly remarkable feat.

On AIM’s regulation, it has become clear that some US critics who, frankly,
should know better, fail to understand principles-based regulation and appear to
ignore the fact that the former might actually lend itself better to a community
of growth companies.

What AIM has created is a set of guiding principles, which are policed
through the enforcement of its rules by a community of authorised advisers (the
nominated advisers or Nomads). This ‘lighter touch’ regulation is what allows
smaller and growing companies to flourish.

The extent to which this concept is alien to some Americans was nicely
illustrated by a report I heard recently of a well respected US investment bank
which approached the AIM team in London with a view to becoming a Nomad.
Flattered, naturally, the team asked why a prestigious US bank would want to get
involved in bringing companies to AIM.

‘Why wouldn’t we?’ came the reply. There are no rules on AIM so once we’ve
paid our membership fee, we can bring any old business onto AIM ­ or words to
that effect.
Predictably, the AIM team had to explain that the system defining the
eligibility of a firm to act as Nomad is also largely principles-based and
requires an understanding by the Nomad that it is in essence a guardian of AIM’s
reputation. Each Nomad is, after all, responsible for attesting to the
suitability of any company which it brings to AIM.

The increasing number of international exchanges looking to set up growth
markets emulating the model is testament to its success. Imitation is, after
all, the sincerest form of flattery.

John Cowie is head of AIM at Smith & Williamson

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