The London Stock Exchange is looking to increase confidence in the junior
Alternative Investment Market (Aim) by introducing a new rulebook for corporate
advisers and new disclosure requirements for companies.
Until now, regulation of the so-called nominated advisers – nomads – was
provided by the rules governing Aim companies and the nomad eligibility
criteria. The proposals establish a single source, which largely consolidates
and codifies the existing regulations and good market practice.
The Aim Rules for Companies will be amended accordingly, with additional
disclosure requirements. The
Disciplinary Procedures and Appeals Handbook is also being amended to
provide greater clarity.
Anyone interested in commenting on the proposals is asked to submit their
views by 1 December 2006, with a view to the rules coming into effect early next
While the proposed new rulebook itself contains little that is new, Schedule 3
draws on current market practice and defines the responsibilities of nomads.
• A nomad should have a sound understanding of the applicant
company in order to assess its appropriateness for Aim. The nomad should have
experience in the company’s sector or bring in outside experts. It should also
consider the company’s business plan and financial information, as well as the
results of due diligence. There may be issues worth considering relating to the
company’s country of incorporation (in part because some foreign companies have
failed to qualify for the tax benefits that are ordinarily available to
investors in most other Aim companies). Nomads should also meet the directors
and key managers and visit the company’s main operational sites.
• Nomads should also consider the appropriateness of the
individual directors (or proposed directors). Various press, Companies House and
other reference checks should be made to ensure details on directors’ CVs are
correct. The same should be done for key managers and consultants and the nomad
should consider conducting the same sort of checks on significant shareholders.
• The nomad should oversee the due diligence process,
ensuring that appropriate financial and legal due diligence is conducted. The
nomad should also ensure that reviews are undertaken of the working capital and
financial reporting systems and controls. Specialist due diligence may be
necessary. Of course, any issues arising from the due diligence should be
properly dealt with and the nomad should be satisfied that none of these issues
affect the appropriateness of the company for Aim.
• The nomad should be actively involved in and oversee the
preparation of the admission document, leading the drafting of the sections
covering the company’s business and risk factors (ensuring that they cover any
issues arising from due diligence).
• The ongoing responsibilities of nomads include the
requirement to maintain regular contact with the Aim company so it can advise
the company with regard to any matters relating to the company’s requirement to
disclose price-sensitive information and to ensure that the company understands
its obligations. It is up to the nomad to ensure the company has systems in
place that will help compliance with the price sensitive information disclosure
rules. Any notices issued by the company should be reviewed by the nomad
* The rules say that it is imperative that the nomad contact
the Exchange immediately if it has any concerns about the appropriateness of a
Where a nomad is required “to satisfy itself” regarding a particular matter,
the rules say that this should only be after “due and careful enquiry and
exercising due care and skill” and that it should keep a record of how it did
Rules for companies
Aim companies are required to have a nominated adviser, who is solely
responsible to the Exchange for assessing the appropriateness of an applicant
and for advising it. If a company ceases to have a nomad, the Exchange will
suspend trading in its shares. If there is no replacement nomad within a month,
the company’s shares will be removed from Aim.
Companies will be required to have an up-to-date website containing
free-of-charge information relating to the directors, a description of the
business, the most recent annual and interim annual reports, any issued Aim
notices, details regarding country of incorporation and any other overseas share
listings, the percentage of shares not in public hands, the identity of
significant shareholders and details of its nomad and any other key advisers.
Companies are also required to have sufficient procedures, resources and
controls to enable compliance with the Aim rules and to seek advice from its
nomad – and take that advice into account – regarding compliance with these
Future of Aim
As Nasdaq lifted its stake in London Stock Exchange plc to 25%, concerns have
been raised relating to the outlook for Aim, with the Daily Telegraph
recently suggesting that the junior market’s future could be in jeopardy.
While it didn’t expect that Nasdaq would actually close Aim, it thought it
possible that the US suitor could scrap the LSE’s investment plans for Aim.
Treasury secretary Ed Balls promised legislation that would get its second
reading by Christmas and which would guarantee the LSE’s ‘light touch’
regulatory regime in the event of a takeover.