The USM is to be closed by 1996, largely because key distinctions between it and the main market were eroded by European Union listing rules introduced three years ago.
Ever since, the exchange has been blowing hot and cold over whether to replace it. Initially, it wanted to abolish the second tier, but it set up a working party after the death sentence sparked protests from industry and the City.
Two months ago, the Independent disclosed that the working party had recommended a successor to the USM - the 'Enterprise Market', with a separate management but still under the aegis of the exchange. But the proposal generated a lukewarm response from its board, provoking an even bigger outcry. Some venture capital firms are even considering setting up a pan-European smaller companies market of their own.
Last week the exchange said it was pressing ahead with market research from Mori to gauge the level of support for the new tier. The poll is to be completed by March.
Stung by the criticisms, Giles Vardey, the Stock Exchange's market development director, said: 'The exchange is wholly committed to finding sustainable ways of meeting the needs of smaller growing companies . . . I want to make it absolutely clear that the board has not rejected the working party's idea of an enterprise market.
'What we need is stronger evidence of demand for a separate market on these lines which would still be sufficiently different from the Official List to be viable.'
Insiders say the Stock Exchange is worried that the USM's successor may not attract enough applicants to justify its existence. 'It is a case of being damned if you do and damned if you don't,' one said.
To some extent the USM's waning appeal since the EU changes came in bears out the exchange's concern. The flow of new issues to the junior market has fallen from a peak of 108 in 1988 to about five last year. At its height more than 500 companies were quoted on it, but the number has fallen to about 250.
However, many professionals believe the enterprise market, with more flexible entry requirements and easier rules covering acquisitions, could help to revive interest.
Eddie McCutcheon, corporate finance director at Albert E Sharp, said: 'The new market is likely to be well supported by the City. If the exchange does not set up an enterprise market, there is a real possibility someone else will have a crack at it.'
Peter Lucas, deputy chairman of New Issues Register, which runs a database of private investors, shares that view: 'There is a great demand for such a market. The success of the 535 market alone (which facilitates share dealings in unquoted companies) suggests the need for change.'
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