Aim, the London Stock Exchange’s (LSE) market for small, fast-growing companies, really seems to get up some people’s noses in the United States.
Roel Campos, a Securities and Exchange Commission commissioner, is the latest to lash out, calling Aim a “casino” with an extraordinary failure rate of 30%. He follows NYSE (New York Stock Exchange) boss John Thain, who complained in January that Aim didn’t share the US’ tough corporate governance standards for exchanges. Campos’ words may have backfired because he got his facts wrong.
Only 3% of Aim companies fail each year, much the same as on other exchanges. But Campos’ intervention poses a bigger question: Why do the Americans keep bashing Aim?
There might be an element of sour grapes, because Aim is so clearly stealing a march on its US rivals. In 2006, LSE drew 123 international listings, of which 77 went to Aim, while Nasdaq attracted just 10 and NYSE 11 foreign initial public offerings (IPOs). And it’s not just firms from emerging economies such as Russia and China that are listing on the UK market: 30 of the 77 Aim IPOs last year were US-based firms.
The Americans should examine the kind of US-based companies that have listed on Aim in order to understand why they have done so. On average, these are small, often venture-backed US firms with a market capitalization of $150 million (Rs660 crore)—the sort of listings that once formed the backbone of Nasdaq. These days, that’s small by Nasdaq standards, but large by Aim standards—the average Aim company has a market cap closer to $100 million.
These companies made the transatlantic leap for several reasons. The biggest is that the cost of a US listing—always high—has gone up in recent years mainly due to the additional compliance costs of Sarbanes-Oxley. This matters more to small companies, which also don’t like all the hassle too. The other big factor is that there is now a real alternative in the shape of Aim, which is marketing itself to growth companies. The result? Aim has now managed to attract 60 US companies, up from eight in 2004.
That competition may explain why Aim annoys Thain so much, or why Nasdaq’s Bob Greifeld wouldn’t mind owning its parent. But it might be more productive if officials like Campos turned their minds to the question of why US equity markets have lost their competitive edge.