Call for a guardian to look after small firms

The Quoted Companies Alliance (QCA) has called on the Government to review whether the UK’s primary equity markets are “fit for purpose”.

The move follows the recent announcement that the Plus-quoted market is closing, after it failed to attract an “acceptable” takeover offer.

The Plus market, which put itself up for sale in February, said it planned to implement an “orderly closure” after suffering a drop in its cash reserves.

Plus said it would help the companies whose shares are traded on its exchange, including football club Arsenal and brewer Shepherd Neame, to find “suitable alternative arrangements”.

It ended efforts to sell itself because talks with potential suitors did not result in a “deliverable offer”.

Plus grew out of Ofex, an exchange for British small cap stocks that required less regulation than the London Stock Exchange or AIM.

The company made a loss of £5.8m ($9.34m) on revenue of £3m in 2010, its sixth consecutive loss-making year.

In a letter to Chancellor of the Exchequer George Osborne and Business Secretary Vince Cable, the QCA said the closure of Plus highlighted the need for the Government to have a “joined up policy” for helping small and mid-size quoted companies to raise money.

The QCA wants the Government to appoint a business leader who will assess whether primary equity markets are helping small and mid-size quoted companies to grow.

The QCA believes the Government should review the incentives available to encourage investors to support growing companies.

The QCA wants small and mid-size firms to achieve “greater visibility” through the creation of a new quoted asset class. The group also believes that UK indices should be constructed and calculated in a way that “more accurately reflects constituents and their contribution to the UK economy”.

The QCA is calling on the Government to lead the debate across Europe on the efficiency of primary equity markets.

Tim Ward, the chief executive of the QCA, said: “The closure of the PLUS-quoted market means that more than 150 small and mid-size quoted companies are going to need to find alternative ways to raise finance.

“At a time when banks are reluctant to lend, this is no easy task. We need to ensure that they have a variety of options to choose from and healthy equity markets to support them.

“This is why the Quoted Companies Alliance is calling on the Government to take urgent action and ensure that small and mid-size quoted companies have primary equity markets that help them raise the vital finance that is necessary to promote growth.

“Billions of taxpayers’ money has been spent on bank funding. Now is the time to look at equity and the important role this plays in financing growing companies.”

Ian Marwood, a Leeds-based partner in corporate finance at Grant Thornton, said that its lighter-touch rules had worked against Plus, because investors were becoming wary of levels of due diligence.

A Treasury spokesman said the Government recognised the importance of junior markets, and supported “proportionate” regulation, which balances the needs of investors against the regulatory burden on issuers and the markets. For example, the Government is supporting the creation of an SME growth markets framework in the review of the EU markets in the Financial Instruments Directive (Mifid).

Mifid has been in force for four years, and is regarded by the FSA as the cornerstone of the EU’s regulation of financial markets.

In October last year, the European Commission (EC) adopted a proposal to revise Mifid. These plans are going through a legislative negotiation process, and are unlikely to take effect until at least 2015. The Treasury spokesman highlighted the fact that the UK had implemented EU “deregulatory changes” a year ahead of schedule.

The spokesman added: “These changes raised the limit and number of investors to whom an offer can be made before the requirement to produce an EU-compliant prospectus is triggered. These increases will be of particular benefit to small companies, such as those on AIM Markets, who frequently undertake initial or secondary public offers for fairly small sums of money.”

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