AIM Regulation has published new guidance for the AIM community in a revised format of 'Inside AIM'. The guidance clarifies how nominated advisers (Nomads) should assess:
- the free float of an AIM applicant, and
- an AIM company's financial policies and procedures when considering whether it has sufficient systems and controls to enable it to comply with the AIM Rules.
Click here to read the guidance or read on for the key points to note.
In contrast to the UK Listing Rules, the AIM Rules do not prescribe a level of free float (that is, the number of shares to be held in 'public hands') for issuers. The free float, however, is an important factor for Nomads to consider when ascertaining whether an applicant is appropriate for AIM as it will have an impact on the liquidity and orderly trading of the market.
AIM Regulation clarifies some of the key factors which should be considered by Nomads when assessing the free float of an applicant:
- Nomads must consider how the securities of an applicant are likely to trade post admission, following discussion with the relevant broker and potential market makers. Consideration must also be given to the spread and nature of the shareholders comprising the free float.
- Failure to raise initial target funds may indicate fundamental issues of appropriateness – and if so, these must be explored further by the Nomad.
- A Nomad should question the rationale for an applicant to seek an AIM admission where there is a limited free float.
- Where there are concentrated shareholdings (for example, due to family or business connections), free float issues should be considered in conjunction with issues of undue influence, control and ongoing corporate governance arrangements within the company.
Financial policies and procedures
AIM Rule 31 requires a company to have in place sufficient procedures, resources and controls to enable it to comply with the AIM Rules. When a Nomad is reviewing a company's financial policies and procedures as part of its assessment of compliance with AIM Rule 31, AIM Regulation has clarified that it is not enough to merely review the relevant documents. Rather a more meaningful approach is required, which would include an assessment of whether those policies are capable of working in practice, taking into account the Nomad's knowledge of the company and management. AIM Regulation also notes that such systems and controls must be in place by admission.
What do we think?
The free float guidance is particularly helpful for Nomads and potential AIM applicants. Whilst most Nomads are likely to be familiar with the suggested factors for consideration, the guidance provides the market with welcome transparency of AIM Regulation's expectations. Whilst no free float requirement is thought to be an attractive feature for potential AIM applicants, the guidance recognises that sufficient liquidity, orderly trading and good corporate governance are just as important to investors. Consequently, a Nomad's robust assessment from the outset is fundamental to ensuring sufficient liquidity in the AIM market, particularly in the absence of a prescribed level of free float.
The guidance concerning how a Nomad should assess compliance with AIM Rule 31 is likely to provoke a mixed reaction. Whilst adopting a more practical approach to an assessment of compliance should be more valuable, it is unclear just how far Nomads will need to go to achieve this. If more steps are required, additional time and costs are likely to be incurred for Nomads and AIM companies.