Corporate Governance

The UK, AIM and the Decline of Regulatory Lite

By J. Robert Brown

Remember when one of the attacks on SOX was the loss of cross-listings by foreign companies?  The main evidence was the increase in cross listings in London.  Turned out that the growth in London came at Alternative Investment Market or AIM.  The market took small, often illiquid companies and was typified by regulation lite.  In other words, it attracted the type of company that US trading markets didn't want. 

Well, it turns out that this approach has largely run its course.  A recent article in the Financial Times suggests that the heyday of AIM is over.

• The number of new listings in the year to date has dropped to 99, compared with 284 in 2007, while the amount raised on the market has fallen to £1.1bn from £6.6bn ($9.9bn) in 2007. October was the first calendar month for 10 years when no new money was raised on AIM.

• There has been a similar tail-off in international companies seeking to tap investors in London. There has been only 26 new listings this year from foreign companies, compared with 87 last year.

• For the first time in its history the number of companies quoted on the junior market is falling, dropping from 1,694 companies at the end of last year to 1,592 on Wednesday.

In other words, the panache of a foreign listing is no longer enough.  Unlike its counterparts in the United States, listing on AIM provides no cross premium advantage.  In other words, the home market gives the London listing no real value.  This decline may not last and may reflect the current global turmoil.  Nonetheless, it is an indication that in an era when local stock exchanges have climbed in quality, cross listings depend not on offering regulatory lite but on a higher standard.  In other words, the best competitive advantage arises out of a race to the top rather than a race to the bottom.

Full post as published by The Race to the Bottom on November 28, 2008 (boomark / email).