When I discussed AIM last week, I was unaware that the London Stock Exchange's junior share market was about to face an eruption of new – and formidable – competition.
Earlier this year, the rival Plus share trading platform won the right to deal in all AIM shares. But it delayed utilising its new strength until towards the end of last month. Previously, only companies that agreed a Plus involvement were traded. Even those that object to such an expansion of share trading are now forced to tolerate what was once regarded as a very fringe market.
Until this latest manoeuvre, the Plus AIM trades were confined to around 90 constituents, but its new power must represent the most serious challenge AIM has yet faced. Undoubtedly, Plus will draw trades from a share market that is already under pressure.
Last week I rejected suggestions that the LSE's junior market was a spent force. But, quite clearly, the Plus intervention is going to make it even harder for AIM to recapture past glories.
Since its launch 14 years ago, AIM has attracted more than 3,000 companies – many from overseas. Delistings and bankruptcies, as well as corporate activity and elevations to the main market, have reduced membership. It is now around 1,450. At the end of 2007 1,694 constituents were embraced and, with some exceptions, share trading was fairly buoyant.
It is impossible to estimate just how much trading Plus could capture as its involvement is in its infancy. None the less, I decided to conduct a little test over a few trading days.
Two AIM stocks (constituents of the no pain, no gain portfolio) were examined. One attracted very little Plus interest. The other, with a turnover that regularly tops three million shares, experienced a far more significant response. Indeed, on one day, Plus's volume exceeded AIM's by around 400,000 shares but, overall, it accounted for perhaps nearly a third of trading.
Plus, then known as Ofex (Off Exchange), was set up as a fringe market by stockbroker John Jenkins when the LSE abandoned matched bargains. Many unquoted companies that frequently participated in the obscure matched bargains facility, such as brewer Shepherd Neame, were happy to embrace the new platform. Jenkins also directed his market towards young, small businesses, many of them in need of cash.
But times move on. The Jenkins family bowed out with its stockbroking firm, JP Jenkins, is now part of Tom Winnifrith's financial group, Rivington Street Holdings. A clutch of City firms supported new Plus management, led by former AIM chief, Simon Brickles, and Ofex became Plus.
Expansion was underway. The fringe market tag has became increasingly unrepresentative although small and mid caps remain its main focus.
Plus clashed on a number of occasions with the LSE. One acrimonious point of contact was the Plus ambition to deal in all AIM shares. But the upstart market also had its sights on other horizons and it now offers dealing facilities in some 9,000 stocks. Even before AIM's arrival, fully listed shares, such as Barclays, could be traded. Around 5,000 European stocks are now tradable although this facility has still to be fully exploited. In addition to this share catalogue is the original Plus-quoted section, which houses around 200 constitutes, including Shepherd Neame.
The upstart market, which has, like the LSE, Recognised Investment Exchange status, can offer stockbrokers – and by implication their clients – certain cost advantages.
In some respects, particularly for small deals, it appears to have some advantage and it is argued that the Plus jobbing system, regarded as old fashioned in many quarters, is more suitable for smaller trades than the electronic order book. Competition between the two markets could provoke some interesting arbitraging if the nimble-footed can exploit minor price differences.
It is very much a David and Goliath confrontation. Plus is capitalised at £20.6m. The LSE commands a valuation of £2.2bn. And Plus is still loss making, incurring a £10.2m deficit in its last year.
The little'un's shares are traded on AIM with a mirror image on Plus. When I checked, much of its share trading occurred on Plus.
I support AIM and Plus. The two markets are vital parts of the share-dealing and cash-raising environment. The portfolio embraces nine AIM shares and just one Plus – English Wines Group.