This will be one of the first headaches to greet the new Exchange chairman, John Kemp-Welch, when he takes over from Sir Andrew Hugh Smith in July.
Last week Giles Vardy, the Stock Exchange's director of market development, unveiled a seven-point plan to promote the interests of smaller companies and 'obviate the need for a new exchange'.
But Katie Morris, chief executive of Cisco, the City Group for Smaller Companies, insisted: 'There is now wide support across Europe for the establishment of a pan-European Enterprise Market. Only an independently managed, dedicated market focused on their requirements can achieve this end. The Stock Exchange proposal may not protect it from the competition that a properly focused European market might attract.'
And the Brussels-based European Venture Capital Association in Brussels, which has 300 members with pounds 26bn invested in 15,000 companies, is to press on with plans to draw up a blueprint for an alternative stock market.
William Stephens, the EVCA's its secretary-general, said: 'We are putting together a working group to make recommendations for new market structures. We are inviting everyone who is interested.' to participate.'
The Stock Exchange's main proposal was to upgrade the dealings which that currently take place under the Exchange's rule 535.2, which permits buying and selling orders in otherwise unquoted unlisted public companies to be matched by approved brokers and market-makers.
The trading system is also to be enhanced to allow prices of less-liquid securities to be displayed on screens. The idea is that this would encourage trading, making it more liquid, which would in turn attract a wider range of investors.
There is also to be a specialist smaller companies group formed at the Stock Exchange, with backed by a dedicated marketing team. to educate companies about the benefits of the Exchange's markets and promote smaller-company issues.
Last year, the Exchange formed disbanded a working party of its own set up to decide how to replace the Unlisted Securities Market, after it recommended the creation of an Enterprise Market to foster entrepreneurial companies. Under European Union rules, the USM has to be wound up by 1996. But in December Sir Andrew Hugh Smith decided not to publish the working party's recommendation that the USM be replaced by an Enteprise Market. He disbanded the working party soon afterwards.
Instead, in December the Exchange commissioned Mori, the opinion research organisation, 'to establish the level of demand for a market separate from the Official List'. Last week, Mr Vardy refused to publish Mori's findings.
However, there appears to be a conflict of evidence between the Exchange and CISCO. The Exchange claims that small companies want a market with a low level of regulation and low cost. CISCO's research suggests that investors require a high level of disclosure and a well-regulated market.
An Exchange press officer said: 'We did speak to Cisco about our proposals before we announced them, and they were very supportive. We will watch developments with interest.'
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