How Does the AIM Market Work?

Summary

  • The Alternative Investment Market is a sub-market of the London Stock Exchange which was launched in June 1995.
  • The AIM helps small high growth companies gain access to capital raising on the public market, which can range between £1 million and £50 million
  • AIM has fewer regulatory requirements than the main market, and AIM listed companies use the help of Nominee Advisors or Nomads to help with the floatation process

The London Stock Exchange’s sub market called the Alternative Investment Market (AIM) was launched on June 19, 1995, with the goal of helping small and medium sized high growth companies gain access to capital from the public market.

Background

In 1995, 10 companies were listed on the exchange with a total market cap of £82 million. As of 12 May 2021, AIM has about 850 companies listed on it with a combined market cap of £104 billion.

Moreover, over 3,865 companies have raised capital worth over £115 billion since 1995. And the average amount of capital raised by companies in the past five years currently stands at £21.4 million, up from £2.8 million, which was the average in the first five years of AIM.

Companies planning to list on AIM usually seek to raise between £1 million and £50 million, although some AIM listed companies have raised up to £100 million as well.

There are three indexes, which helps track AIM called as the FTSE AIM UK 50 Index, the FTSE AIM 100 Index, and the FTSE AIM All-Share Index.

Regulatory system

Unlike the main market LSE, the sub market AIM has less stringent regulatory requirements or listing rules. For example, companies hoping to list on AIM do not need to adhere to any set rules regarding market cap or the number of shares issued.  This type of regulatory system is sometimes called AIM’s ‘light touch’ regulation.

AIM regulation is outsourced to Nominee Advisors or Nomads. These companies are typically hired by AIM listed companies to help carry out the due diligence of a newly listed company and also to offer any oversight or guidance to a company.

Nomads can also be brokers for the same companies and provide services such as advising on trading problems, investment opportunities and price of shares. As brokers also have the ability to earn a commission for all capital raised by the same company they are paid to regulate, it can create conflicts of interest.  

While LSE main market listed companies can face disciplinary actions by exchange officials, there is no such enforcement for AIM listed companies. Instead, Nomads can put pressure on an AIM listed company by threatening to resign.

In such cases, a company will be forced to leave the market if they are unable to find a replacement advisor. The Financial Conduct Authority (FCA) has the authority to have private companies act as nomads on AIM.

There are also certain tax benefits associated with AIM however, the tax rules are complex.

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