Guardians of the junior stock market try to avoid own goals

'Nomads' are in short supply on the Alternative Investment Market because brokers are putting their reputations above money

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The Independent Online

It’s not often that football fans have to grapple with the finer details of the financial world, but Rangers supporters had to do just that in their club’s final few months on London’s junior stock market.

Shares in the Glasgow-based club, mired by financial troubles, ended up being delisted from Aim – the Alternative Investment Market – because it did not have a “Nomad”.

We’re not talking about players who roam about a football pitch. A Nomad is short for “nominated adviser”, whose job it is to determine whether a company is suitable to trade on Aim.

The Nomad, usually an investment bank or stock broker, will guide the company as it joins Aim and will provide advice as it grows – particularly regarding public announcements – effectively acting as its main regulator. If a Nomad fails to do the job properly, it could face a warning, a fine, a censure or even removal of its Nomad status from the register. Nomads are exclusive to Aim as part of the extra regulation surrounding less established companies to make sure corporate governance is up to scratch.

Recent research showed Aim, which has just celebrated its 20th anniversary, shrank last year as the number of companies on the market fell by 29. Among those that left the market, 13 were delisted after the Nomad stood down and they were unable to find a replacement within a month – by which point the company is dropped from Aim.

Accountancy firm UHY Hacker Young, which carried out the research, suggested that attitudes towards corporate governance were changing, with some Nomads now unwilling to put their reputations on the line for the sake of a few more pounds.

Laurence Sacker, partner at UHY, said tighter corporate governance was a natural progression for any maturing growth market.

“Aim is seeing a new influx of capital as appetite for growth companies increases, and also a wave of new companies,” Mr Sacker said.

“With more demand for their services, Nomads are increasingly opting to focus on companies who are willing to go the extra mile in terms of putting in place strong corporate governance controls. That is a real positive for investors and for Aim.”

UHY pointed out that a number of firms that departed the market were advised by City outfit Daniel Stewart, whose financial troubles have been well documented.

It gave up its Nomad licence in December, leaving 21 clients without an adviser.

Rangers was one of them. WH Ireland took up the account but decided in March it no longer fancied the job.

The club was unable to find a replacement and was dumped from Aim. Incidentally, the cash-strapped Scottish football club was the most complained-about company on Aim in the previous year.

Another two former Daniel Stewart clients, Chinese manufacturer Pressfit Holdings and electric vehicle firm Enova Systems, were unable to find a replacement before the month was out so their Aim listing was also cancelled.

Naibu, the Chinese sportswear manufacturer, saw its Nomad resign amid a scandal which saw its executive directors vanish without a trace.

Nomad-less Gate Ventures was the latest to drop off Aim amid a controversial ownership structure in which a wealthy Chinese investor owned about 90 per cent of the company through 10 different vehicles.

Of course, investment banks tend to follow the flow of money by their very nature. However, when their reputations are on the line, they will think twice. One broker, who wished to remain anonymous, told The Independent that his firm handed in its notice as Nomad to a junior mining firm as it “didn’t think the company was being totally transparent with us”.

“It was not worth the reputational damage to the firm or individuals involved so we resigned as Nomad to the client,” he said.

“As a Nomad, is it critical that the company is totally open with you otherwise it is your neck on the line.”

In the case of Quindell, the insurance outsourcer which has been embroiled in accounting and share-dealing scandals, sources said that at least one broker turned down the job despite the company offering to pay it several times over the odds.

Marcus Stuttard, head of Aim at the LSE, said Nomads act as an “outsourced compliance function” for companies that are new to Aim and its nuances, adding: “If we didn’t have a robust regulatory framework in which the investors had confidence, we wouldn’t have seen £90bn raised for smaller companies.”

Many of the firms leaving Aim amid falling commodity prices are the oil and mining firms with assets in far-flung corners of the world – the type of company Aim was previously a hotbed for.

Matt Butlin, head of equities at Allenby Capital, said: “I think there is a cleansing process going on where a lot of these small shells or small natural resource companies are slowly dropping off the market and they’re being replaced by quite high-quality companies.”

Even brokers strapped for cash – and there are plenty of them – are refusing to put their names to exploration companies with little or no track record in the current climate, knowing the share prices are likely to tank.

Kristian Rogers, a partner at law firm Wragge Lawrence Graham & Co, echoes the sentiment: “With traditional sectors, such as oil and gas, suffering, in part due to volatile commodity prices, a host of innovative new companies have taken advantage of the market’s ability to stimulate rapid growth.”

Perhaps then, this cleaning process will help Aim shake off that “Wild West” tag or at the very least help it avoid own goals like that of Rangers in the future.