In July 2017, the LSE published a discussion paper advancing changes to the AIM Rules, and in March 2018 it confirmed a number of changes designed to raise the entry bar and boost the image of the market, to improve the quality of new entrants to London’s junior stock market whilst retaining accessibility for investors.

Main Rule Changes

Early notification: nominated advisers (Nomads, see below) must submit a template early notification form to the Exchange, prior to submission of the Schedule One form, setting out key information on the company and its proposed admission. Where this is not yet available, the adviser must update the Exchange when it becomes available.  

• Assessment of appropriateness: AIM Rule 9, Schedule Three to the AIM Rules for Nominated Advisers now includes a non-exhaustive list of matters that could affect an applicant’s appropriateness for AIM. 
• Corporate Governance: An AIM company must provide details on its website of the ‘recognised corporate governance code’ that it has decided to apply, how it complies with that code and where it departs from this, an explanation of the reasons for doing so. This information is to be reviewed annually. 

The first two of these changes came into force on 30 March 2018, while the third applied from 28 September 2018. The early notification requirement has been introduced to streamline the process and reduce the risks of a delay, postponement or withdrawal of a proposed admission by eliminating any potential issues towards the end of the application process.

Among the examples given as areas that the Exchange will generally consider as matters that could affect appropriateness under Rule 9, are:

• questions as to the good character, skills, experience or previous history of a director, key manager, senior executive, consultant or major shareholder 
• the rationale for seeking admission to AIM is not clear 
• formal criticism of the applicant and/or any of its directors by other regulators, governments, courts, law enforcement or exchange bodies 
• the applicant has been denied admission to trading on another trading platform or exchange 
• the applicant has a vague or ill-defined business model or business operations 
• corporate structure and business models which may give rise to concerns regarding appropriateness for a public market
• the applicant holds a derivative or economic interest in a material part of its assets or business operations via a risky contractual arrangement with the owner of the assets or operations rather than by owning them itself or through a subsidiary 

Overall, these changes should be seen as beneficial to investors by seeking to ensure AIM companies focus on their corporate governance and cannot simply get away with a tickbox exercise. 

Research from the Quoted Companies Alliance (QCA) and UHY Hacker Young published in December 2018 suggested companies are going to have to take greater positive action in communicating with their shareholders and other stakeholders. From a shareholder’s perspective, any additional transparency here must be favourable.

One notable absentee from the rule changes, which had been included in the initial consultation, was a potential tightening of the entry criteria. The discussion paper had considered whether to introduce (1) a minimum free float, or portion of a firm’s shares that can be publicly traded with the intention of minimising the risk of investors exercising little control over the company, and (2) a minimum capital raising threshold, bearing in mind the increasing market capitalisation of AIM companies and the average amount of capital raised. 

This topic generated the greatest level of feedback on the LSE’s discussion paper, with  “strong support that the current approach to free float strikes the right balance”. As a result, the LSE concluded it would not proceed with these changes.

Another proposal that did not make it through was the potential for LSE to introduce concepts such as automatic fines for certain explicit breaches. Again, the feedback suggested this would not be helpful, given the limited breaches that they could be applied to, and as a result, the LSE dropped this proposal.

This piece has been published as part of the Alternative Investment Market Report 2019. For the full report click here