16th May 2012
The "winding down" and eventual shutting of its doors will mean shareholders in iconic companies such as Arsenal Football Club, brewers Adnams and Shepherd Neame, and in 153 further small companies will have to look elsewhere if they want to trade their shares.
The removal of Plus also spells the end of the dream of an active market for small companies or those where there are few shares freely available. There was simply not enough business to nourish it, with scant if any interest from institutions and funds. And even had investors been prepared to deal more frequently, increasing regulatory pressures on what was intended to be the lightest of light touch markets, would have proved unsustainable.
Solution to a non-existent problem
The Plus Market saw itself as a solution to a problem that did not exist – or did not exist widely enough for a viable exchange. And that was the company wishing to attract outside shareholders with a market quotation but unable, due to smallness, or unwilling to be transparent, due to founding shareholders refusing to either sell enough shares for a realistic market or to give up power or information to outsiders.
Plus believed that offering a buy and sell forum for these companies would attract more firms to its trading platform. It was wrong.
In a world of increasing shareholder scrutiny, it offered an easier route to quotation than AIM, which itself has been under fire for its light touch. While many AIM companies have solid foundations, the market has been disfigured by the ease with which firms with no real business could list.
There was a succession of cash raising exercises for exploration companies which had nothing to explore, for high tech firms with no technology to invest in, and for countless foreign companies which used AIM as a way into the prestigious London market, all the time retaining audit and corporate governance more at home in an emerging nation. Some AIM companies were little more than shells, often used in boiler room high pressure sales operations. AIM, which grew out of the Unlisted Securities Market, a mid 1980s creation, has seen dwindling new listings – and a fall off in earnings.
What goes for AIM, goes in spades for Plus where listing and other requirements were even easier. Fund managers mostly refused to touch the market. Most said it was for lack of liquidity but many saw its reputation as an ultra light touch environment as off-putting. It could be a scary place to invest. So a Plus quote could be negative with potential investors more suspicious than if it had been not quoted at all.
Ofex failed and became Plus
Plus was not the first incarnation of the "third market". In 1995, a number of matched bargain schemes came together under the "Ofex" (or off-exchange) label. Despite the backing of a number of brokers, it failed to achieve critical mass, becoming the Plus Market Group in 2004, following a financial restructure.
Since then, increasing regulatory requirements for extra capital have put additional pressure on Plus. The FSA requires exchange to bolster balance sheets to help avoid market distortions and stress. But with falling revenues and increasing losses, Plus was in a no-win situation.
Plus, whose own shares trade at around 0.25p on AIM, has tried but failed to obtain a round of refinancing. Now it is moving to an "orderly run-off" which could include another market offering to take on the companies currently quoted.
The firm says: "Due to the ongoing operating costs of its business in the context of its regulatory status, the Company's cash balance has reached a level at which the Board has informed the FSA that it intends to commence a process of orderly closure. In consultation with the FSA, the regulated activities undertaken by the Group, which include the operation of the recognised investment exchange, will be wound down over a period of up to six months in order to minimise market disruption.
This will include working to ensure that companies traded on the PLUS-quoted market are able to find suitable alternative arrangements for the trading of their shares. In the interim period, the PLUS market will continue to operate as normal."
Where can the Plus companies go now?
Other options for companies include:
The Alternative Investment Market – for some a half way house to a full listing. Not heavily regulated but costs would preclude companies whose shares are only traded occasionally.
Sharemark from Share plc but shares are only traded weekly on an auction, avoiding the need for liquidity although also preventing easy buying and selling. There are 20 companies currently listed – one is suspended.
Danish-based GXG Markets, is recognised in its home jurisdiction. It has around 25, UK based companies and another ten or so Scandinavian firms. It is now owned by a Swedish company.
BritDaq has ten smaller companies on its list. It offers a matching buy and sell service in private companies.
The Frankfurt stock exchange also has a section where companies can list with little regulation although it too has been disfigured by shell companies claiming real assets.
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