Advocates of the recent changes to the Alternative Investment Market say the future is bright for London’s junior stock market.
The government last month allowed shares traded on Aim to be included in individual savings accounts – the UK’s most popular tax-efficient investment schemes. The reform is designed to expand the pool of funding for the small businesses that are expected to drive UK’s nascent economic recovery.
“At a time when many small and medium-sized enterprises are looking for alternative types of finance, this change could provide a major capital injection for SME equity markets and encourage investment in growing businesses,” the Treasury said when it announced the new rule.
Early indicators are positive. In August, the average daily value of trades on Aim was £98.8m, a 24.1 per cent increase on August 2012, while the average number of daily trades in August was 15.3 per cent higher year on year.
Gavin Oldham, chief executive of The Share Centre said Aim would become more attractive because of the Isa change and next April’s abolition of stamp duty on Aim shares.
Some stockbrokers have said the changes have given them fresh impetus to encourage companies to list on Aim.
“For brokers like ourselves, the change in the Isa rules provides an excellent opportunity for us to talk to smaller companies about the growing benefits of being on Aim, including the existing inheritance tax breaks,” Dru Danford, head of corporate finance at Shore Capital, says.
The Isa rule change could also entice more companies to move from the main market to Aim.
“When you talk to companies about moving from the main market to Aim, explain the change in Isa rules and the wider benefits of being on Aim … they are receptive to the idea,” Mr Danford says.
Four companies moved from the main market to Aim last year. Six companies have moved so far this year, with three in September alone, including Central Rand Gold, the South African gold producer, according to the London Stock Exchange.
Since the beginning of August, there have been seven initial public offerings on Aim, compared with four in the same period last year.
Marcus Stuttard, head of Aim, is pleased to see the effects of the policy change. “It’s great,” he says.
In part, the increase in new listings is the result of a log jam.
Mr Danford says that, previously, a mid-cap company with a large Isa investor base might have been reluctant to move to Aim, because investors would have to sell. “That has changed,” says Mr Danford, of Shore Capital.
The LSE and Quoted Companies Alliance believe that the rule change, combined with the abolition of stamp duty and retention of inheritance tax perks on Aim shares, will draw many more private investors over the next year or so.
These investors typically hold stock for shorter periods than institutions, so Aim-watchers anticipate a big increase in liquidity in the market. That, in turn, has boosted companies’ confidence in the Aim exchange, and is likely to encourage more to join it.
But not everybody is convinced that increased interest in Aim will be sustained.
“People who really want to put Aim stocks in their Isa probably went and did it in August,” says Adam Pollock, head of corporate broking at Panmure Gordon.
It is also unclear whether the changes will deter companies from leaving Aim. In the second quarter of this year alone, 25 companies delisted, and the number of companies listed on Aim – 1,086 at the end of August – is still well below its peak of 1,694 in 2007.
Robert Finlay, head of corporate finance and broking at Westhouse Securities, said the Isa change was “helpful” for promoting interest in Aim but said: “The key drivers of people coming to market are going to be needing capital for their business, rather than tax structures.”