The London stock exchange is actually divided into two parts. The first part is the main market, for which companies need at least three years of audited accounts to become members. The second part of the exchange is the Alternative Investment Market, otherwise known as AIM.
AIM offers a market for those shares that either cannot obtain or do not want a full listing on the main market (also known as the Stock Exchange's Official List). AIM is targeted at smaller companies with fewer costs and formalities in obtaining a listing. This often attracts younger and fast growing companies.
The Alternative Investment Market started on the London Stock Exchange in June 1995 and at the end of 1996 it replaced the Unlisted Securities Market.
In the early days, AIM was viewed as a 'high tech' home for UK stocks, rather like the NASDAQ in America. However, this was in part due to the massive rise in technology stocks (TMT) in the late 1990s that became the 'Internet bubble'.
Not so focused now
AIM now hosts a wide range of small companies in almost every imaginable area - including a number of companies that are not even UK companies but wanted a UK listing.
A number of factors have come together to make the AIM market popular for entrepreneurs seeking a liquidity event. These factors include the UK's generous "non-dom" tax rules for wealthy individuals, London's position as a major global city, the power and position of "The City" and a tacit legal protection of wealthy foreigners.
This has lead to a number of Russian businesses
choosing London and AIM as their location for a floatation. It has also
lead some to question just how transparent reporting requirements on the
exchange.
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Companies which want to be listed have to meet the Public Offers of
Securites Regulations (1995). This requires much less information than
the full listing document. There is no minimum capitalisation for an AIM
company, nor is there a minimum track record. But, if the company has a
history of less than two years, the directors and employees must
undertake not to dispose of their shares for at least 12 months after
listing.
Liquid for some
It goes without saying that in many of the companies listed on AIM, liquidity is lower than might be the case elsewhere on the LSE. This is in large part due to the smaller relative size of AIM companies, but also because not all stockbrokers deal in AIM stocks.
This liquidity is sometimes squeezed even further by the very nature of the companies listing. Entrepreneurs floating small, fast growing businesses will tend to maintain a significant holding themselves. The listing offers them a way to raise money for the business and make it possible to begin - or complete - the process of making themselves wealthy personally.
When a small company has several owners with large percentage holdings, that only has a few market makers, dealers and analysts following the firm, it can be very tricky for private shareholders to sell holdings as and when they choose.
It might also be worth noting that these entrepreneurs can sometimes become imperious rulers of the company. They are, after all, both management and major owner and thus can force through changes to the company structure at the expense of other shareholders should they choose to.
As with the London Stock Exchange main market, Alternative Investment Market listed companies are required to report various matters including directors' changes, any price-sensitive developments and any changes to major shareholdings.
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