When looking at announcements made by small-cap, UK-listed companies, have you ever wondered why some describe themselves as being listed on the AIM market while others claim to have a standard listing on the Main Market? Although it may appear like a trivial piece of regulatory legalese, these two listings carry wildly different reporting and operational requirements. Not only that, the two markets allow businesses to treat their shareholders in entirely different ways. Considering where a business is listed is a vital step for every investor to take in their due diligence of a prospective firm. It could end up being the difference between whether you get a chance to vote or not in any major company decision.
What are the two markets?
The London Stock Exchange operates two principal markets in the UK: the Main Market and the AIM market. The Main Market is made up of ‘premium’ and ‘standard’ listing regimes. A premium listing is typically used by large firms looking to benefit from an increased profile and highly liquid market. Indeed, it is only with a premium listing that a company can be eligible for inclusion in the FTSE indexes. To maintain a premium listing, companies must meet the UK’s highest standards of regulation and corporate governance and pay significant costs.
For those who are uninterested or unlikely to benefit from the liquidity and exposure of a premium listing, a standard listing is more likely to be of interest. For a standard listing, firms only have to comply with minimum EU requirements and pay lower fees. It is the standard listing regime that we will be focusing on here. The alternative investment market, or AIM, is the LSE’s exchange for smaller and growing organisations. It has a simplified regulatory environment designed for the needs of small and emerging companies.
What are the differences?
Financial regulation is highly complex and there are hundreds of technical, intricate differences between a standard listing on the Main Market and a listing on the AIM market.
Some of the most important ones include:
Market cap – Firms looking for a standard listing must have an expected market value of at least £700,000. There is no such requirement for AIM-listed businesses.
Float size – A standard market listing requires at least 25pc of a firm’s shares to be floated the market. There is no such requirement on AIM except for investment companies, which must raise at least £6m in cash.
Track record – Neither an AIM or standard listing requires a historic earning record to be provided prior to floating. However, if an AIM firm has not been independent and earning revenues for at least two years, all investors holding at least 0.5pc must be locked in for a year after listing.
Nomad – To list on AIM, an organisation must have a nominated adviser – or nomad – at all times to advise and guide it on its obligations. A nomad is not required for firms who opt for a standard listing.
Prospectus – A standard listing requires businesses to provide a prospectus that has been vetted and approved by the UK Listing Authority (UKLA). An AIM listing does not require a prospectus, but an admission document – often called a pathfinder prospectus – must be provided in accordance with AIM rules. This usually contains the same information as a prospectus but does not need to include a share price.
Corporate governance – Neither an AIM or standard listing requires a company to say if it has complied with the UK corporate governance code in its annual financial report. However, a standard listed firm must identify the corporate governance code it is subjected to in its directors’ report. Meanwhile, an AIM-listed organisation is expected to comply with corporate governance guidelines for smaller quoted companies. Details can be found on the London Stock Exchange website here.
Large transactions – A standard listed company does not need to get shareholder approval for significant or related party transactions. However, an AIM firm must get shareholder approval for transactions like reverse takeovers or disposals resulting in a fundamental change to its business.
Yearly update – Standard listed organisations must annually file with the UKLA and publish a document containing all information provided to the public over the previous 12 months. AIM firms do not have to do this, but all notifications must be freely available on their website.
Financial report – A standard listing requires companies to publish an annual financial report within four months of the end of each financial year. AIM businesses must file their report within six months. Standard listed companies must publish half-year financial reports within two months of the end of each half-year end while AIM firms have a three-month deadline.
Management statements – Companies with a standard listing must publish an interim management statement in each six-month period of the financial year. AIM organisations are not required to do this.
Tax relief – Standard listed businesses do not qualify for tax relief through an enterprise investment scheme or venture capital trust. AIM firms do qualify provided certain criteria are met.
Moving around – It is also worth noting that if an AIM business wants to migrate to the main market it will have to do so through the normal process – there is no fast track procedure. In contrast, if a standard listed firm wants to take on a premium listing, it will not have to produce a prospectus unless it is also offering shares to the public.
Which one is the best?
There are clear benefits to both types of listing for investors. After buying shares in a standard-listed stock, an investor can be assured that financial reports, interim management statements, and annual information updates are all required to be swiftly released to the public. A standard listing also allows prospective investors to refer to a UKLA-authorised prospectus when deciding whether to participate in a company’s IPO.
However, there are also potential downsides. By investing in a standard listed firm, shareholders may give up their right to have a say in potentially transformative decisions like acquisitions or large placings. Indeed, an organisation quietly planning an acquisition spree may choose a standard listing to bypass shareholder interference. Likewise, although buying shares in an AIM-listed firm guarantees a say in any significant decision, investors may find that some results take a while to appear or do not have to be disclosed at all due to more lenient reporting guidelines.
Before making any investment, it is vital for investors to weigh up exactly what it is they want from a company. They could well find that the requirements of a business’s chosen listing framework end up causing them some concern.
Author: Daniel Flynn