No Pain, No Gain: 'Brussels plans a calamitous move on small businesses'

The European Union seems determined to undermine the investment landscape for small investors and small companies. I mentioned last month the proposed Brussels legislation that could end the highly popular execution-only share trading systems; now I will describe the threat to AIM, the Alternative Investment Market, surely the most successful junior share market in the world.

When I last discussed the shadow hanging over its future, there seemed a strong chance the proposals from the Brussels Eurocrats would be given the old heave-ho or at least modified. But no. Eighteen months later, the danger to AIM is more acute.

Despite strong representations from Britain, there seems every chance dramatic changes will be implemented within a year that could leave AIM in the wilderness. One suggestion is it should become an "unregulated" market, thereby avoiding the madcap influences of Brussels. But such a route, adopted by the smaller Ofex fringe share market, may not be negotiable.

The Brussels intention is to introduce a European capital-raising prospectus, perhaps a laudable ambition. But by adopting the favoured Eurocrat philosophy of one-size-fits-all, there is a grave danger AIM will be driven out of existence as its small-cap constituents are forced to endure the burden of increased costs without a scintilla of benefit.

The European prospectus passport, and related plans for all companies to report quarterly, are claimed to be aimed at large groups. The passport, they say, will make it much easier to raise cash in more than one EU country. It will introduce uniformity and could curtail dubious practices. But the prospectus, like much that emanates from Brussels, comes at a price. It will not make much difference to major groups but have a calamitous impact on smaller businesses.

The proposals are not, they say, aimed at destroying small share markets. It seems AIM and its array of small-cap constituents (already burdened by inexplicable volumes of red tape) happen to be in the way of a grand Brussels design, another example of reasonably sound intentions flawed by ham-fisted execution. The whole unseemly episode must surely raise the question whether Brussels has any understanding of share markets.

Just how serious AIM regards the Brussels threat is illustrated by its readiness to consider becoming an unregulated share market. It could make the transition. But I suspect its hope that this would entail merely a legal switch, and AIM could continue as it does now, is unlikely to be realised.

Aim is part of the investment establishment, tied to the London Stock Exchange. It would represent something of a constitutional upheaval if it were suddenly cut free to allow it to become unregulated. And those who have argued in its favour would have difficulty justifying why, when they are out-voted, Euro law is avoided by what amounts to sleight of hand.

Heavy British guns have endeavoured to impress on Brussels the folly of its changes. Could the establishment, ever keen to display its Euro credentials, cut the junior market adrift to sneakily avoid Euro rules? I doubt it.

Ofex, run by the Jenkins family and with its own shares recently successfully floated on AIM, is not part of the establishment. It could go its own way and stick the proverbial two fingers at Brussels. Yet, although in the eyes of the Eurocrats, it is unregulated, it is carefully policed by its own regulators and is an example to many overseas markets.

The threat to AIM is likely to overshadow its eighth anniversary this month. It has been a huge success, embracing 700 companies with a combined capitalisation of £10bn.

The destruction of execution-only stockbroking is another example of Euro indifference or ignorance. The system is popular here, attracting an estimated 1.3 million investors. But Brussels, in its bid to protect the unsophisticated, assumes that every investor, no matter how experienced, must be subjected to rounds of cautionary investment patter when they deal. The mind boggles at the unnecessary cost such a procedure will introduce.

With the debate over the planned constitution for Europe becoming more heated and the Government's expected weasel words over the wretched, undesirable euro due on Monday investors have cause to fear Britain's increasing entanglement with the EU.