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Secure trading on AIM

Recent rule changes will make it more difficult for companies to join the Alternative Investment Market. Not before time.

AIM was launched by the Stock Exchange in June 1995 to provide developing companies with a quick and cheap method of securing a public market for their shares. However, the speed at which companies flooded onto the new market was not always matched by their quality, and the initial honeymoon period was followed by several notable failures.

In order to restore public confidence, a number of changes were made to the AIM rules on 1 August 1997. Many of these are likely to have far-reaching consequences and, in certain respects, the AIM rules now appear to mirror the listing rules of the Stock Exchange’s Official List. Companies joining AIM after 1 August will find the admission process longer and more complex than before, which will inevitably lead to increased costs.

It is the role of the nominated adviser which is seen as being of paramount importance in ensuring the quality of new applicants to AIM. In addition to being responsible for the whole admission process and ensuring the AIM rules are complied with, they must now confirm to the Stock Exchange in writing that the company and its securities are appropriate to be admitted to AIM. The nominated adviser must now demonstrate an active role in ensuring the quality of companies coming to the market.

In other areas too, the role of the nominated adviser has been increased.

Following certain cases where the reported results of companies did not meet forecasts made on admission, an AIM company must now notify the market immediately of any material change between its actual trading performance or financial condition and any profit forecast included in its admission document. It is the task of the nominated adviser to review a company’s profit forecast on a regular basis and determine whether an announcement is required.

Nominated advisers are also now required to play a more active role in related party transactions. It has always been the case that such transactions must be notified to the market, but now the relevant announcement must contain a statement from the directors that, having consulted the company’s nominated adviser, the terms of the transaction are fair and reasonable so far as shareholders are concerned. This is a clear example of the AIM rules mirroring those for fully-listed companies, where such a statement from directors has long been required.

The role of directors is also seen as being of importance in ensuring the integrity of companies coming to the market. AIM admission documents have always been required to make fairly full disclosure of the identity and experience of a company’s directors but, under the new rules, the disclosure requirement has been extended to include details of all the companies and partnerships with which a director has been involved and which have suffered any event of insolvency.

Interestingly, these disclosure requirements have been extended to shadow directors which may cause a number of banks and major institutional shareholders to think carefully about their future role in AIM companies.

There are many other ways in which the revised AIM rules seek to guarantee the integrity of entrants to the market. For example, full disclosure is now required of all persons involved in promoting or introducing a company to AIM. Apart from professional advisers and trade suppliers, the names of any persons who have received fees of #10,000 or more from the company in the 12 months prior to admission must be disclosed with full details of the fees received.

However, it is the increased role of the nominated adviser which is key to the future of AIM. The practical implications for companies considering joining AIM will be the time and costs now involved. Nominated advisers are likely to insist on a fuller due diligence exercise before bringing a company to the market. Their ongoing responsibilities with regard to financial information and related party transactions are also likely to impact upon the cost of operating on AIM.

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