Small Talk: AIM is working, despite the disasters

US stock market regulation has little impact on where small companies decide to list their shares, according to a report from three North American academics. The widespread perception that the US's Sarbanes-Oxley legislation is one reason why so many international companies have chosen to list in the UK is out of touch, the report argues.

Andrew Karolyi and Rene Stulz of Ohio State University and Craig Doidge of the University of Toronto say that although the regulatory burden on smaller companies has increased thanks to Sarbanes-Oxley, there has been no marked increase in US companies seeking a foreign listing.

However, the fact that all 67 US companies listed on the Alternative Investment Market in London have floated since the introduction of Sarbanes-Oxley indicates the opposite, and the proliferation of foreign companies seeking a UK listing highlights the attractions of London.

London is likely to remain a very attractive source of capital regardless of sniping from across the Atlantic.

Regulators are always stuck between a rock and hard place, seeking to strike a balance between maintaining London's competitive position among global markets while attempting to improve the quality of companies listing in the UK and protecting investors. The Financial Services Authority does not have any direct control over companies listing on AIM, which is regulated by the London Stock Exchange. That may give the impression that AIM is an unregulated market, and that is the angle most US critics of AIM have taken. However that is just not true - the secondary market is decentralised rather than deregulated, and the LSE applies strict listing rules. New rules require nominated advisers to fulfil due diligence requirements and maintain an oversight of the companies that they advise.

Therein lies on of the main problems with listing foreign companies on AIM. Not all nominated advisers appear to maintain regular due diligence, and as a result there is an increasingly long list of disasters on the secondary market. Within the past few weeks, Betex, a Chinese online gambling group, has seen its shares suspended after the arrest of several senior staff in a fraud inquiry in China. Bodisen Biotech, a Chinese organic fertiliser maker, has seen its shares tumble from 1,050p to 140p, while the Russian environmental agency is threatening to seize the assets of a handful of resources groups operating in the former Soviet Union.

The problem is that if you are an adviser operating entirely through a London office, maintaining proper due diligence on companies operating exclusively outside the UK - and often in some of the most remote and inaccessible areas of the world - is very difficult.

That said, overall the performance of foreign companies listed on AIM has been no worse than that of UK-domiciled companies. Anyone investing in the secondary market, regardless of where a company is operating, needs to be aware of the dangers involved and diversify their investments.

Profit warnings have increased in recent months, but that is also the nature of a growth market. AIM lists more than 1,800 companies at varying stages of development, so it should come as no surprise that profit warnings have increased as the total number of companies listed grows.

There has been a slight slowdown on new listings on AIM so far this year, partly caused by the success of the main market, strong performance by blue chips after a sluggish 2006 and the attractive returns coming from alternative asset classes including private equity. There is no getting away from the fact that investors are more cautious over new listings on AIM, but the market looks stronger than ever.

The subject of AIM regulations with regards to foreign companies listing seems set to rumble on. In the meantime, the foreign invasion of AIM will continue, and although the US remains the destination of choice for larger companies, access to London's capital markets remains incredibly attractive. AIM is not without its faults, but its growth and prosperity are assets of which regulators should be proud.

DeuxMill speeds towards Gibraltar acquisition

A little bird tells Small Talk that DeuxMill Marine, the AIM-listed super-yacht fuelling and services group, is poised to make its first significant acquisition since coming to the market in September. Last week it raised £738,000 in a placing at 5.5p per share, and it looks set to spend most of it on Yacht Help Group, a Gibraltar-based supplier of crews, spare parts and agency services to the yachting world. Although in terms of the world of super-yachts the acquisition is worth about as much as it would cost to hire one of Roman Abramovich's yachts for about a week, it is an important step for DeuxMill. Gibraltar is a regular stopping and refuelling point for traffic entering and leaving the Mediteranean, and the company expects the acquisition to be earnings enhancing in the first year.