Derek Pain: GXG marks the spot to buy into a share index
No Pain, No Gain
Saturday 04 August 2012
Share markets are again, to use an old-fashioned phrase, two-a-penny. Gone are the days when investors relied on their monopolistic, domestic stock exchange. Globalisation and the internet are creating a whole new spread of platforms with some concentrating on small caps.
When I started in the City, Britain was dotted with provincial exchanges, but London eventually absorbed them. Then a few decades ago a number of unregulated markets – in some cases more wild west than west end – appeared. but their reigns were relatively short. Since then, the likes of Plus and the online Share Centre have materialised, and more recently there have been stirrings from Continental exchanges operating under relatively new European Union rules that are aimed at harmonising many aspects of the EU's financial life.
The front-runner in this Continental invasion is GXG, a Swedish/Danish electronic stock market that could prove to be a serious rival to Plus which, after an uncertain time, is now ensconced in the safe arms of Icap, an inter-dealer broker with a fully listed capitalisation of £2.1bn.
GXG already embraces some Plus constituents among its 30-plus membership and is clearly hoping to attract more. Indeed, when the future of Plus was so uncertain I suspect the Swedish/Danish operation was sounded out by many Plus companies worried about their share-trading future. Perhaps, if GXG had a longer history of trading in this country – it started here only last year – the exchange would have scooped up more fretful businesses. Even so, problems at Plus must have given it a lift. But it is not only targeting Plus; a company on the Frankfurt market is thinking of signing up. Approaching half of the GXG residents are traded in sterling.
Certainly it is anxious to grow. Simon Kiero-Watson, who runs the UK end, expects to be accommodating around 40 constituents anytime now and believes his list will be around 50 by the end of the year.
It is geared to small caps. There are three tiers with the smallest companies paying a £6,000 application fee and then £6,000 a year. On this bottom section there is, if a firm opts for what is called the OTC market, no need to employ a corporate adviser which makes a deep impact on flotation and running costs. Moving upmarket, any entity with a capitalisation of more than £10m is charged £15,000 and then £13,000 and on what is called the regulated market, where more substantial companies exist, fees are £19,500 and £13,000.
Any investor who studies the GXG website and decides to take action should get on to their stockbroker who, if not part of the GXG scene, should be able to contact any one of the long list of stockbrokers who have signed up. The British contingent includes Alexander David Securities, Walker Crips, and the aforementioned Share Centre. It is a matched bargains platform unlike, for instance, Plus. Unless there is a special arrangement payments are T+3, in effect, four days. Shorting is taboo.
Mr Kiero-Watson believes his group has a more transparent and fairer system than other exchanges. GXG is owned by GXG Global Exchange Group, an unquoted Swedish firm. Its chairman is Carl Johan Hogborn who was chairman of OMX, the Stockholm Stock Exchange, when it tried unsuccessfully to buy the London Stock Exchange. The Swedish group he now heads developed an electronic share-trading system, and then two years ago acquired a Danish-regulated market that it renamed GXG. Britain is its first overseas venture. It intends to become a pan-European exchange and is near to invading France, Germany and Holland.
Now to two constituents of the no pain, no gain portfolio. I am growing increasingly worried about the performance of Hargreaves Services and intend to dump the shares if they fall below 700p, thereby locking in what is left of the profit. The portfolio paid 417p and earlier this year the price topped 1,200p.
But another member, Marston's is moving in the right direction. After it reported that 42-week sales rose 2.2 per cent, the shares reached 112p, their highest since the portfolio arrived.
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