This article will focus on what an AIM is and why it's important to those investing in small businesses. We'll also take a look at the history of AIM, the regulations that govern it, and how you can invest in it yourself.
What is an Alternative Investment Market (AIM)?
The AIM market is one of the most important and widely used trading platforms in the UK. Businesses looking to raise money from a wider pool of investors can list their shares in the "premium listing" market. This is what the exchange markets call these alternative investments.
There are two types of AIM: secondary and primary listings. Secondary listings are for well-known companies such as high-profile tech companies or pharmaceuticals, for example. AIM's primary listings are for smaller, less well-known companies which are looking to raise capital from a wider pool of investors.
What's the Difference between AIM and Main Market?
Companies that list on the main market are usually well-established businesses. They have already raised a significant amount of capital and achieved success. Companies that list on AIM need only be limited by the size of their market. Many have not yet reached their full potential or seen the returns they hope to achieve.
Almost all companies listed on the main market are required to adhere to strict regulations and standards. Companies listed on AIM, however, are much less regulated. This means AIM listings can be risky for investors, but it also provides the opportunity for greater rewards.
History of AIM
The Alternative Investment Market was created in 1995 as a section of the London Stock Exchange known as the Unlisted Securities Centre. The new directive changed the rules governing brokers to ensure they had more stringent criteria over which they could list companies on their exchanges.
The MiFID Directive was a result of the 2000 EU Savings Tax Directive, which aimed to stop tax evasion by making the broker responsible for checking a client's income and verifying it with HM Revenue &'' Customs. On top of this, new laws were introduced to protect investors from fraudsters and other unscrupulous brokers.
Despite these changes, the market remained unregulated until May 2005 when it became part of the London Stock Exchange. During this time, the AIM market was growing rapidly, as many companies realized that AIM offered them the chance to list without having to adhere to strict regulations and standards.
Currently, there are over 1,300 companies listed on the Alternative Investment Market. These range from small startups looking to start up or grow their business to banks looking to raise capital via an initial public offering (IPO). Most of these companies are "unlisted" meaning they do not have a separate listing with their own stock symbol. Instead, they trade under the current group's stock tradenames, such as BT Group or Barclays Bank PLC.
Listing on AIM – How to List
When considering an AIM listing, a company will usually seek guidance from its bankers and lawyers. The firm's application will include information about the company and information about how they want to raise the capital. Once this has been submitted, AIM starts its own due diligence process. They may contact auditors and accountants, as well as request documents such as year-end accounts or balance sheets.
The AIM then assesses whether the company is suitable for listing on their exchange. There are three main factors that govern this assessment: "whether the company meets the requirements of rule 21 of LSE Listing Rules in relation to being able to apply for a listing...whether the company is able to pay the applicable fees...whether the applicant is fit and proper to be a listed company".
If AIM decides that a company meets its criteria, it will put it forward for approval from members of the LSE's Board of Directors. If approved, the listing will go forward and is usually made during a "ready market", which occurs during the trading hours on Monday to Friday between 10 am and 1 pm. Once all companies have been notified, they can start trading in that day's session.
AIM listing – Investors
Investors who choose to invest in AIM companies are looking for something more than they would get with a larger, well-established business. They are looking to make a quick return on their money, or buy into an up-and-coming business that could provide huge rewards for investors in the future. With this in mind, it is important for a company to have a good growth strategy and business plan in place before applying for an AIM listing. This way, investors will be much more encouraged to invest with them.
AIM companies seek funding for many different reasons. The most common reasons for going public are to access additional capital or to secure capital from existing shareholders. This is done by encouraging new shareholders to invest or getting existing shareholders to buy more shares in the company. A standard way of doing this is by issuing a rights issue, where new shares are sold at a discount in order to encourage existing shareholders to purchase more shares.
Companies that wish to raise capital via an initial public offering (IPO) use AIM to raise new funds, which are usually used for business expansion and research and development. Once the company has been successfully listed on AIM, it is then up to its directors to decide how best to utilize their new funds.
Investors can purchase shares in any company either via their stockbroker or directly from the company itself. Some companies choose not to have a broker deal with their investors as it allows them more control over who buys or sells their stock. However, they must still stick to all of the relevant requirements under the AIM Rules and regulations – otherwise, they could be delisted.
Companies that are listed on AIM are subject to the same rules and regulations as other listed companies. These include the Companies Act 2006 and the Rules of the London Stock Exchange (ROLES). Listed companies have to comply with all of these as they are also a member of the LSE. Similar rules apply to every other publicly-owned company in the United Kingdom.
If any of these requirements are breached, it is likely that AIM will take action against the company. This can include suspension, delisting, and even closure.
