Round peg, square mile: Plus sets its sights on LSE

Rules have been put in place to facilitate competition. Players are piling into the market and, at the same time, credit lines to businesses of all kinds are all but totally paralysed, as are most other forms of borrowing.

Meanwhile, listing, as a form of raising cash, is less popular than it has been for years. Even the private equity houses are in suspended animation. But there are still companies looking to grow and to raise money

This is where Plus, London’s ‘junior’ stock market, has a golden opportunity to drive its mandate to provide affordable liquidity for European small and mid-caps.

The advent in November 2007 of the Markets In Financial Instruments Directive (Mifid) aimed at harmonising the regulatory regime for investment services across the 27 member states of the European Union and opening it up to competition did a lot of good work: Plus is one clear beneficiary of this.

In 2008, it worked hard to exploit this and prove the viability, transparency, accountability and geographical reach of its platform, establishing a raft of joint ventures and alliances with equal numbers in Europe such as the Munich Stock Exchange, and in Asia-Pacific through the New Zealand Stock Exchange.

In November, it signed an agreement with Washington DC-based Direct Edge, the US’s fourth-largest centre for US equities which is in the process of converting into an SEC-regulated stock exchange, to work together in the future.

In chief financial officer Nemone Wynn-Evans’s mind, 2008 was a year to celebrate for Plus. “Mifid has fundamentally redefined the way securities are bought and sold across Europe ­ there is a myriad of platforms trading securities now,” she says. “There is a huge amount of change and things are very fast moving in our industry; we are going through a process of deregulation and competition.”

There are few other places you might imagine Wynn-Evans to be given her obvious passion for the Plus raison d’être. She left the London Stock Exchange in 2004, joining fellow defectors Cyril Theret and Alternative Investment Market head and co-founder Simon Brickles for what was then a smaller, family-owned concern, Ofex.

The trio formed the decidedly zippier executive board that replaced the well-respected Jenkins family, to re-create and recapitalise the company as Plus.

Full of life
Expecting her first child in March, and conducting the business half the time in London and the other half from her home in the Midlands, Wynn-Evans’s role is probably the fullest of any in the FTSE-250, comprising the CFO role (full-time since September, interim since April 2008), and heading up the investor and media relations functions ­ and she isn’t a qualified accountant.

“It’s all rather exciting and new. I’ve got no easy answers,” she says to the question of how such a demanding job can be balanced with first-time motherhood and a long commute.

“I have been running teams from home for the past four years, so I’ll scale down and back up when I need to. I will still be dialling into meetings and writing board papers and serving as CFO,” she maintains. “I’m aware it is quite unusual for CFOs to also occupy the communications function. It takes a particular type of person, put it that way.”

Her commitment to the Plus concept is clear: she is taking on the LSE’s Dame Clara Furse and the City establishment to remove the last road-block to becoming cash-generative in 2009, as it has said it intends to be: Plus reported a £2.4m loss in its September 2008 interim statement, alongside revenues of £1.6m for the period. The company is pursuing the London Stock Exchange through the High Court to remove the right LSE’s rulebook gives it to require all trades of securities listed on its markets, but executed anywhere else outside the LSE, to be reported to it. Plus believes this has the effect of preventing trading in Aim securities other than the LSE, and thinks it an abuse of a dominant posit ion in the listings market.

Taking Aim
LSE denies the rule effectively prohibits member firms from executing trades in Aim securities on Plus, and has taken a pop at Plus’s alliance with the Munich exchange, saying it “circumvents the FSA’s regulatory regime” and “deprives Aim companies of any say in where their shares are traded.”

Wynn-Evans argues that companies don’t have a say in that matter anyway and that the venture, allowing dual-trading of Aim securities under the German regulatory authority and Mifid, was launched to get around what it sees as a critical hindrance by the LSE of its objectives.

“Because of its status, Aim wasn’t caught by Mifid, so while free trading without encumbrance is possible for main market securities, it isn’t possible for securities on Aim as they are not governed by Mifid,” Wynn-Evans says. “Our view is that there is no difference between the trading of a large-cap share and the trading of a small-cap share. But because of the legacy infrastructure relating to Aim, those provisions don’t apply. There are some circumstances in which we can trade Aim securities, but they’re very restrictive.”

She expects the challenge to reach trial in the second half of 2009: a ruling in her favour would be as historic for the City and for the LSE as it would be for Plus.

Reputations at stakes
The fight is critical to both Plus’s financial future and its reputation. Plus has spent its four-year existence shuffling off the legacy of Ofex’s reputation, or lack thereof; Ofex was not always taken seriously as a junior stock exchange and never touched the strength of the Aim brand. Plus is working to change City perception, but many still see Aim as the logical home of the mid-cap IPO.

“It might be true to say that it takes time for perceptions to shift when an industry structure shifts,” says Wynn-Evans.

The CFO notes the number of new entrants to its market space in last couple of years, including BATS Europe, Turquoise, whose owners include Morgan Stanley, Société Générale and UBS, and Nasdaq Europe. Wynn-Evans hopes recession will make companies study their options to seek the best deal for a first time or dual listing ­ not just go to the safest, biggest brand.

“As to whether the LSE retains a standing over and above us, bearing in mind we are both recognised investment exchanges in the UK and have identical regulatory status ­ I guess that will be up to the High Court to decide.”