No Pain, No Gain: Ofex needs new recruits to restore its credibility

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The Independent Online

Simon Brickles, the new head of the Ofex (Off Exchange) stock exchange for minnows, faces a daunting challenge.

Simon Brickles, the new head of the Ofex (Off Exchange) stock exchange for minnows, faces a daunting challenge. The nation's third share market has had a disastrous time. Costs have to be cut dramatically and at least 50, perhaps as many as 80, new constituents attracted before it recaptures its old exuberance.

I hope he succeeds. I support the view that an effective fringe market is an essential part of the investment scene. Its record until recently was outstanding, with more than £1.2bn raised for small and medium-sized companies that would otherwise have been left empty-handed.

The decline of what, until a few months ago, had appeared a growing and vibrant share market is astonishing. There were doubts about the merits of the shares - and, by implication, the market itself - when Ofex floated its own shares on the Alternative Investment Market last year. But a subsequent £1m fund-raising and the recruitment of Mr Brickles, an ex-head of AIM, as well as seemingly well judged expansion and reorganisation plans, cast Ofex in a bright new light and its shares touched 40p against the 25p placing price.

It has since transpired that Mr Brickles' old stamping ground is largely responsible for the Ofex headache. AIM, the Stock Exchange's junior market, is booming. It now has about 950 constituents, many of them rip-roaring exploration companies which at one time would have appeared to be ideal Ofex fodder. The 1,000 mark should be topped before the year-end. There is even talk that the AIM army will, at least numerically, overtake the main market, which has about 1,300 members, some time next year.

But AIM is not the only competitor. Other share markets keep popping up. Individually they do not amount to much, but collectively they must make it harder for Ofex to capture new members. This week a market called Angel Bourse appeared. It joins such operations as the matched-bargain facility run by the stockbroker James Sharp and the ShareMark electronic trading system. There is also a growing matched-bargain operation started last year by JP Jenkins, the family company of John Jenkins, founder and retiring chairman of Ofex.

About 100 unquoted companies have signed up to Jenkins mark two; and they do not have to pay for the privilege. Cost is, of course, important to small companies. Ofex charges less than AIM, but its rivals are invariably cheaper still.

There are currently 137 companies traded on Ofex. Their collective value is about £1.1bn, against more than £2.5bn at one time. Since its inception it has featured, at varying times, more than 500 constituents. Many have disappeared, a fate that was bound to befall some of the young and adventurous enterprises that found their way onto the junior share market. Nearly 100 have moved upmarket - mainly to AIM.

Last week Ofex enjoyed the now rare distinction of attracting two recruits on one day. Yet, at the same time it lost two of its more prominent players, the stockbroker Daniel Stewart and the builder St Marks Homes, to AIM. It is its determined pursuit of young and ambitious companies that are likely to move to AIM that has proved to be its Achilles heel. It should have relied more heavily - as it originally intended when born out of the Stock Exchange's matched-bargains market - on old, established operations with a wide shareholder base but a reluctance to tolerate the rigours of a full (or AIM) listing. It is significant that seven of its top ten companies have been around for years. They include Shepherd Neame, Britain's oldest brewer, as well as Arsenal and Glasgow Rangers football clubs.

Whether Mr Brickles will manage to attract enough recruits - which goes along with restoring credibility - is one of the unanswered questions. The present difficulties could prompt more companies to depart and deter some from joining. The introduction of a two-tier market could be a two-edged sword, as presumably the premier division will be more expensive, thus eroding some of Ofex's cost advantage over AIM. He should, however, be able to deliver on the costs front and, perhaps, get the mooted overseas bandwagon rolling.

After all, AIM has achieved an international dimension with about 100 overseas constituents. Even China has "taken AIM" with a pharmaceutical machinery company called China Wonder making a firecracker debut.

Ofex shareholders are due to vote on Monday week on the planned reconstruction. It seems certain to be approved and £2.8m of the £3.15m being sought should already be in the bag. As part of the reorganisation, the Jenkins family is giving up control. And there is a new name for the operation: Plus Markets. But with the Ofex name so distinct and entrenched that could be a change too far.

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