No Pain, No Gain: Plus Markets is making the most of small-caps

For the first time in a great many years the Stock Exchange is encountering competition when supplying facilities for dealings in small company shares.

Plus Markets is challenging its dominance as well as developing its fringe Ofex share market. Indications are that it is winning business from the once-monopolistic Stock Exchange. And, adding insult to injury, John Jenkins, the founder ofOfex, is enjoying considerable success with a market for unquoted shares.

His vehicle, JPJL, is a mirror image of the old matched bargain trading that the Stock Exchange abandoned near the time it launched its junior Alternative Investment Market (AIM) 10 years ago. There was widespread astonishment when the matched market, providing share-trading facilities for companies which do not want a formal listing, was killed off.

One reason why Jenkins launched Ofex was to fill the void left by the Stock Exchange retreat. Although his creation picked up some of the matched shares, such as Arsenal Football Club and brewer Shepherd Neame, it also attracted fledgling businesses that had little opportunity to raise seed corn cash on AIM or the Stock Exchange's main market.

Nowadays Jenkins has few links with Ofex. He left after it ran into difficulties and had to indulge in a rescue rights issue. But he remains fascinated by small-cap stocks and JPJL, a screen-based online facility with 150 constituents, is making steady headway.

As Jenkins progresses, AIM-traded Plus Markets seems to be enjoying attacking the Stock Exchange's small-cap credentials. The City talk is that it has captured a significant amount of trade that would otherwise have gone through the Stock Exchange. It should win more business as it steps up its roll out. Meanwhile Ofex, likely to be rebranded, continues to attract recruits.

A handful of other markets cater for small caps. The most active, I believe, are those run by James Sharp & Co, a Bury, Manchester, stockbroker, and The Share Centre, an investment group based at Aylesbury, Buckinghamshire.

But JPJL seems to be the fringe growth market. When it was launched, Jenkins, who is 59, was still deeply involved in Ofex. But following his departure he put his undoubted small-cap muscle behind the new venture. His company, JP Jenkins, was acting as a market stockjobber when he started Ofex. Now it is a stockbroker. So investors are not confined to dealing through their own stockbroker; they can use the Jenkins operation.

There is a vast swathe of unquoted companies large enough and with a suitable spread of shareholders to merit JPJL attention. Besides the array of old established businesses, Jenkins points to the 13,000 tax-efficient Enterprise Investment Schemes (EISs) that have been created.

The current JPJL crop includes former Stock Exchange companies, such as Pressac, and an assortment of football clubs, railway lines, breweries and leisure companies. In shareholder terms National Milk, with no less than 27,000 (mainly farmer) shareholders, is the largest constituent.

But JPJL is not confined to long-established groups. Like AIM and Ofex it embraces many up-and-coming businesses. One is the Capital Pub Co, created by David Bruce, who developed the revolutionary Firkin brewing pubs, and Clive Watson, ex-Regent Inns. It is an EIS venture that now runs a chain of freehold pubs and has just paid £31m for 10 pubs formerly owned by the Spirit Group. Capital has had little difficulty raising cash and now feels sufficiently strong, with six-month profits up 30 per cent to £546,000, to promise shareholders a dividend. A move to AIM is likely. Capital Pub Co 2, a copycat venture, has materialised.

Investors, of course, can only benefit from this share-market activity, particularly the Stock Exchange-Plus Markets confrontation. Monopolies are rarely user-friendly. When the Stock Exchange was, in effect, a members' club there may have been some justification for its dominance. But it is now a company with shareholders to accommodate. I believe it should not fall into foreign hands - allowing control to go overseas would be bad for the investing community.

In the meantime, Stock Exchange shares - and those of Plus Markets - have enjoyed outstanding runs - for different reasons. The Stock Exchange has benefited from take-over action whereas its little rival from its expansion into what was once forbidden territory.

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