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Witold Sawin from accountant Sawin & Edwards discusses how AIM’s recent international success has bred envy among its US rivals.

During March we witnessed a barrage of comment about AIM. Since its launch the junior market has stayed below the radar of the ‘big boys’ but its recent success in the international arena has exposed AIM to the dangers of swimming in shark infested waters.

AIM is now closely watched by Nasdaq, NYSE and the SEC and has attracted comments such as those comparing it to a casino. These comments were hotly disputed by Ed Balls, City minister, and subsequently withdrawn but their significance is in the fact that AIM is clearly starting to make waves across the pond.

AIM should rightly congratulate itself for attracting so much attention in North America and for successfully luring US companies away from the over-regulated US exchanges. However, the remarks are a warning to AIM that the Americans are keeping a close watch for the slightest hint of an embarrassing corporate failure.

There are at least two good reasons for this. Firstly, they are embarrassed by the fact that US companies are shunning their own exchanges in favour of AIM and secondly it’s to justify their Sarbanes-Oxley stance on corporate governance. Clearly they are laying down markers so that they can say “we told you so” in the event of a high profile AIM failure. This has all the flavour of sour grapes.

AIM has gone through a rule tightening over the past two years in response to this threat. The clear up of cash shells was a good example and more recently the new nomads rule book is a further move in that direction. AIM is right to focus on nomads as they act as the first line of defence against unsuitable AIM applicants. A recent Financial Times headline read; “AIM’s role is providing liquidity not gauging risk”: this makes the point that an exchange is there to provide an orderly and transparent market and not to act as a nanny to unwary investors. By putting the onus on nomads to filter out unsuitable applicants it has managed to control quality but with minimum regulation.

Curiously at the same time that the “casino” insults were being hurled, the chief executive of the American Stock Exchange was congratulating AIM on its success and even went as far as suggesting the set up of a similar junior market in the US that would fall outside of the Sarbanes-Oxley regime. This looks like a case of “If can’t beat them, join them”.

It is also interesting to note that President Bush himself has recently admitted that Sarbanes-Oxley has damaged US capital markets. There are now moves afoot to water down the legislation to make it less onerous.

The recent concerns in the UK over the London Stock Exchange falling into American hands were met with a very rapid piece of legislation giving the FSA the last say on regulation and therefore denying the opportunity for a foreign owner to impose an excessively onerous regulatory regime. A smart move, clearly to protect us from the threat of Sarbanes-Oxley.

AIM has got it right in terms of regulation of a junior market but success brings its own risks and envy can be a highly destructive force.

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