Four-letter word investors start to swear by

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The most surprising of the market statistics issued by Plus this week was the fact that on January 21 its share of the reported trades in Northern Rock stock was a little over 49 per cent. That was the day when news emerged from the Treasury that taxpayers were set to support Northern Rock for years under a government-sponsored financing plan likely to raise public sector net debt by close to £100bn.

Plus, as long-term readers of this column already know, is a four-letter word at the London Stock Exchange. So let me make it quite clear that there is no suggestion that the share price for Northern Rock is being set anywhere but on the LSE’s electronic order book trading system.

The LSE insists on calling Plus Market’s quote-driven system a trade reporting platform. Plus in turn insists that its platform is not merely for trade reporting, but that deals are done on its market according to its trading rules.

Much of the disagreement is a matter of semantics. What is important is to view the figures put out by Plus as a measure of how fast it is growing. Its progress is being under-reported in the City – although that is a customary fate for any small company listed on Aim. Plus has the added disadvantage that there are no analysts making financial forecasts, not even Numis, its broker. To some extent that can be explained by the speed of events.

It was only in the summer that Plus received approval from the Financial Services Authority to act as a regulated investment exchange (RIE). Then on November 1 it launched the new trading platform, timed to coincide with the introduction of Mifid, which requires brokers to seek best execution for their clients.

In December the market saw 207,113 bargains with a trade value of £1.8bn, up from 52,969 and £301.5m on the old platform in December 2006. This week’s figures show that in January 387,419 bargains were reported – a rise of 92 per cent on the previous month. The total value of the trades was £2.8bn, up 61 per cent, and the number of shares traded was 1.7bn, up 70 per cent.

The increases tell their own story. Making comparisons with other markets may be like comparing apples with oranges, but nevertheless it helps to put the achievement into context to know that the average daily number of trades in January on Plus was 18,065 – higher than the average number of daily trades on Aim last year of 16,460.

Plus is aiming at retail investors, who will contact their brokers in order to buy and sell shares through its market makers. The activity of retail investors in Northern Rock probably goes some way to explaining the figures reported above for January 21. But retail investors will be trading mostly in small and mid-cap companies and this is the area where Plus believes its quote-driven system will prove a winner.

On January 22, Plus claims that it took a 53 per cent market share of all UK retail trading activity, exceeding the LSE for the first time. Its total retail market share for the month was 39 per cent.

Throughout the month more than 50 per cent of the trades in about 400 small and mid-cap UK companies were reported through Plus. It also had about 40 per cent of the activity in the 78 Aim companies traded on both Plus and the LSE.

There is still plenty to go for. For starters, Plus is awaiting an FSA decision that may allow it to trade in all 1,700 Aim stocks and it also has plans to move into electronic connectivity between market participants on its new platform.

Two questions follow from the January figures. The first is how long can such a rate of growth be maintained? The second is exactly how much money will Plus be able to make from the trading platform?

Aim’s plus points

In all the excitement it is easy to forget that Plus’s core business is its primary market. That now numbers more than 200 companies, but it still has a lot to prove in terms of its ability to raise capital. In January eight new companies joined Aim, raising a total of £27m. Plus attracted six but they raised just £4m.

The £27m raised by the new Aim companies is well down on January 2007, when nine new companies raised £147m. That is only to be expected given the market developments of the past 12 months. More impressive are the figures for secondary fund raising, which rose from £311m to £326m, including £98m raised by Highland Gold.

Last year was the first time secondary fund raisings overtook primary on Aim. According to a recent survey of 197 UK Aim companies from Smith & Williamson, a nomad, 20 per cent expected to raise further funds in the next six months and 33 per cent envisaged fund raisings in the coming year.

Aim’s January statistics undermine the findings. That shows a healthy underlying confidence that should dispel some of the gloom in the market.

david.blackwell@ft.com

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