The London Stock Exchange (LSE) has issued a discussion paper outlining its proposed changes to the AIM Rulebooks (collectively the AIM Rules for Companies and AIM Rules for Nominated Advisers). The LSE will be seeking support over the coming months as it strives to further develop AIM and consolidate its status as a leading international growth market.
The proposals are being considered to ensure and support AIM’s future development. AIM prides itself on a balanced regulatory framework and a transparent trading market. These in turn ensure increased investor confidence. This blog outlines the most significant proposals taken from the discussion paper.
Nominated advisors (or ‘nomads’) play an important role throughout the application process. Nomads are required to assess the appropriateness of a company prior to its admission to AIM and are also required to ensure consistent application of the AIM Rules for Companies.
In the early stages of an application, nomads will approach the LSE to discuss any company which may have unusual features that could raise potential concerns. An admission can be stopped by the LSE if there is any possibility of damage to the reputation or to the integrity of AIM. If issues are not highlighted early enough, there is the prospect of a delay, postponement or complete withdrawal of a planned admission.
One proposed change is to require nomads to enter into discussions with the LSE at an earlier stage, outlining key information regarding the company and its admission. This requirement would be codified into the AIM Rulebooks and would apply to all admissions, not just to those which raise potential concerns. Just how early these discussions would commence is unclear and is one point on which the LSE welcomes feedback.
There are also proposals to introduce a non-exhaustive list of factors for nomads to consider when determining a company’s appropriateness for AIM. The factors relate to any issues that may give rise to concerns, such as where:
- the rationale for seeking admission is unclear;
- the applicant has been denied admission to another platform;
- a business model may not be suitable for a public market; and
- there are concerns regarding the good character and experience of a director.
The nomad will be expected to consider the interaction of different factors when determining the company’s appropriateness. The rationale behind this proposal is to ensure consistency of approach from nomads.
Free float represents the proportion of shares of a company that are in public hands. Sufficient free float is said to maintain an orderly market. There are currently no eligibility requirements for a company relating to minimum size, trading history or percentage free float. The LSE, in particular, believes that nomads should consider factors relating to free float when considering appropriateness. They should consider the:
- range and spread of shareholders;
- influence and visibility of any major shareholder; and
- existence of any concentrated shareholdings.
At present, a qualitative approach is preferred by the LSE. In addition, early discussions with nomads allow the right balance to be struck between supporting liquidity and supporting innovation.
Investors appear to have a similar view and have already stated that such a requirement is not necessary.
Minimum funding threshold
Should a similar minimum fundraising requirement to that for investment companies be introduced for all applicants? The LSE has proposed a range of £2m-£6m for minimum fundraising before a company can be admitted to AIM. Despite concerns that this may impact a large number of smaller companies, a survey contained in the discussion paper shows that the majority of companies currently listed had initial minimum fundraising levels of over £2 million.
The LSE believes that initial fundraising gives an extra level of scrutiny over the company and allows for a better quality of trading once admitted to AIM.
An AIM company is free to choose its own regime of corporate governance, in consultation with its nomad. The LSE appreciates that every company is distinct and therefore will inevitably approach internal governance differently. This ties in with AIM’s underlying objective, in that a ‘one size fits all’ regime of corporate governance is not a viable proposition for most small and medium sized companies.
AIM must be satisfied that a governance system is in place which allows for transparency between directors and shareholders. Therefore, one proposal is that AIM companies should comply and explain against one of the industry codes of their choosing and produce an annual report. However, the LSE does see the benefit to a company of having the ability to adopt a regime to suit its internal needs and unique circumstances.
The closing date for responses to the LSE discussion paper is 8 September 2017.
This blog post was written by Elliot Gibson. For further information, please contact:
T: 0161 836 7823