Choosing a Market

WHICH MARKET?

In the UK, there is a choice of two principal institutions that provide public markets for equity securities. These are:

• The London Stock Exchange; and
• PLUS Markets Group.

Each market has its benefits and it is important to choose the right market for you.

London is a highly attractive international centre that offers applicants access to a vast base of investor capital. This, together with the UK’s more principles based approach to regulation and corporate governance (which stands in marked contrast to many prescriptive regulatory overseas regimes), results in the London market providing a more cost-effective offering with a lower cost to access capital than its counterparts in the US, for example.

After joining a public market, it is possible to move between markets as the company’s circumstances change, provided eligibility criteria are met and shareholders agree. However, such a move will incur costs. Availability of funds for different markets can vary depending on the market, the number of recent IPOs, and the fund allocation of investors.

The London Stock Exchange plc

The London Stock Exchange plc operates two principal markets for equities:

• The Main Market; and
• AIM.

Founded in 1801 it is one of the largest Stock Exchanges in the world with over 1,600 companies listed on the Main Market, coming from over 60 countries and spread across 42 sectors. In 2006 £8.4 billion of funds were raised in new issues on the market with 66 new companies being listed.

A further feature is the liquidity it offers for shares traded on the secondary market (i.e. after IPO). It also offers the widest investor base of all the UK markets and its secondary market is also the most liquid. A significant portion of this liquidity is generated by the inclusion of shares in the FTSE Index Series, which covers all primary listed shares on the Main Market (but not secondary listed shares or Depository Receipts).

PLUS Markets Group plc

In July 2007, PLUS Markets Group plc was granted Recognised Investment Exchange status by the FSA. PLUS operates two primary markets:

• PLUS-listed; and
• PLUS-quoted offerings.

While this guide is intended for the use of UK trading companies that are considering joining a public market for the first time through an admission of its ordinary equity securities, it is worth noting that both the LSE and PLUS also offer facilities to trade debt securities and depository receipts (which are considered briefly later on in this section). The LSE also offer a Professional Securities Market and Specialist Funds Market (which are both noted in Appendix IV).

AIM AND PLUS-QUOTED - 'EXCHANGE-REGULATED' MARKETS

AIM

The London Stock Exchange owns, regulates and operates the AIM market. Since its launch on 19 June 1995, over 2,800 companies have joined AIM, coming from 38 sectors, across 70 countries. AIM companies have raised more than £49 billion through IPOs and further capital raisings. In 2006, 462 companies joined AIM, raising a total of £9.9 billion. This compared with 2005 which saw 519 new applicants joining AIM with £6.5 billion raised. AIM has enjoyed considerable growth over recent years and has developed a considerable institutional following such that institutions now hold 57% of shares in AIM companies.

In an effort to mirror the benefits of indexing that the Official List enjoys, since May 2005 AIM has had its own constituent indices – the FTSE AIM UK 50, FTSE AIM 100 and FTSE AIM All-Share. Additionally, since May 2006 there have been 18 sector indices which, as for companies on the Official List, allow sector comparatives to be made.

AIM is an exchange-regulated market; companies that are admitted to trading on AIM are said to be 'quoted'. AIM quoted companies are not 'Listed' on the Official List and so do not need to comply with the Listing Rules. Requirements for admission and continuing obligations are specifically designed for small and growing companies. Companies admitted to AIM must comply with:

• The AIM Rules, the current version of which became effective in February 2007;
• Where relevant, the Guidance Note for Mining, Oil and Gas Companies that was issued in March 2006; and
• The Prospectus Rules; where a company seeks to raise funds from the public at admission, its admission document may be required to be a UKLA-approved prospectus.

PLUS-quoted

The second primary market operated by PLUS Markets Group is the 'PLUS-quoted' market. At the end of 2006, PLUS-quoted companies had a combined market capitalisation of just under £2 billion. While PLUS Markets does cater for international companies, it does not yet have the overseas profile that AIM (or the Main Market) has acquired over recent years.

PLUS-quoted is an exchange regulated market and has a similar regulatory regime to that of AIM. The PLUS Rules are very similar to those of AIM. Similarly, those sections of the Prospectus Rules that apply to AIM quoted companies also apply to PLUS-quoted companies.

The above text is part of the QCA's A brief guide to floating a company in the UK. The guide gives a brief impartial introduction to the primary public markets in the United Kingdom which are used by companies, both domestic and international, as a trading platform for their shares and as a means of raising external finance for capital growth and development.

To order your copy of the guide please click here.