What is the Alternative Investment Market (AIM)?

What is the Alternative Investment Market (AIM)?

The Alternative Investment Market (AIM) is a sub-market of the London Stock Exchange (LSE) that is designed to help smaller companies access capital from the public market. AIM allows these companies to raise capital by listing on a public exchange with much greater regulatory flexibility compared to the main LSE stock market.

The Alternative Investment Market (AIM) is a specialized unit of the London Stock Exchange (LSE) catering to smaller, more risky companies.

The companies listed on AIM tend to be smaller and more highly speculative in nature, in part due to AIM’s relaxed regulations and listing requirements.

Types of Companies Listed on the Alternative Investment Market

The Alternative Investment Market attracts small companies from various market sectors that are looking to raise capital – usually somewhere between £1m and £50m – through an Initial Public Offering (IPO). However, some AIM-listed companies have registered huge amounts of capital raised beyond this range, up to as much as £100.

The companies listed on the AIM come from 37 different market sectors and from over 25 countries across the globe. Companies operating in the market sectors of Healthcare, Finance, Oil and Gas, Technology, Industrials, and Consumer Services are the most frequently represented in the AIM.

The Sarbanes-Oxley Act of 2002, which substantially increased regulatory requirements for all publicly traded companies in the U.S., spurred dozens of U.S.-based companies to seek a listing on the more welcoming AIM in London.

Most companies listed on the AIM use the opportunity as a stepping stone to getting listed on the primary exchange, the London Stock Exchange. Investors are attracted to trading the alternative market due to significant tax benefits and the belief that it’s the right place for “the next big thing.” According to a study conducted by TD Direct Investing, the majority of AIM investors are relatively young investors in the 30- to 44-year-old age bracket.

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Investing in companies listed on the AIM offers excellent potential returns on investment, but investors need to be keenly aware of the fact that most of the stocks trading on the AIM exchange are considered to be high-risk investments and commonly experience high levels of volatility associated with the market.

Why was Alternative Investment Market started?

AIM was created to serve smaller companies that sought to seek capital to grow but couldn’t afford the costs associated with listing on the London Stock Exchange’s Main Market or could not meet the stringent requirements needed to float.

The Main Market requires companies seeking to float to have existed for three years, to have a market value of at least £700,000, to be willing to float a minimum of 25% of their share capital, and to have enough working capital for at least one year’s trading. AIM does not have these requirements which means that smaller, more entrepreneurial companies are less likely to be put off by floating on AIM.

Alternative Investment Market Reputation as a Less-Regulated Market

AIM is seen as a more speculative investment forum due to its relaxed regulations compared to larger exchanges. The regulation for companies listed on AIM is often referred to as being light-touch regulation, as it is essentially a self-regulated market where nomads are tasked with adhering to the broad guidelines.

There have been cases of nomads failing to do their duties, as it were, and AIM is not a stranger to outright fraud—to be fair, no major exchange is either. As a result, AIM tends to attract sophisticated and institutional investors who have the risk appetite and resources to perform independent due diligence.

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AIM has been criticized for being a financial wild west where companies with questionable ethics go for money. This criticism has held up in some cases, particularly with extraction companies operating in impoverished regions of the world. However, AIM has also shown the value of having a gap market where risk-hungry investors can help accelerate cash-starved companies along their growth path, benefiting the company, its investors, and the economy as a whole.