You Need to Watch This Market

AIM -- the London Stock Exchange's Alternative Investment Market -- turned 13 last month. Why does this matter to U.S. investors? Since the Sarbanes-Oxley Act was passed in 2002, AIM has attracted smaller companies from across the globe -- including U.S.-based companies -- that could not afford the added regulatory expenses of listing on major U.S. exchanges. American brokerage firms like Inter Active Brokers (Nasdaq: IBKR  ) , Charles Schwab (Nasdaq: SCHW  ) , and E*Trade (Nasdaq: ETFC  ) have responded to the growth of this market by allowing investors access to it. The following is a recent article written by Padraig O'Hannelly for our sister site, Fool UK (fool.co.uk) with the headline "AIM Becomes a Teenager." It has been updated and Americanized by Todd Wenning.

AIM became a teenager last month, and it has come a long way in those 13 years.

The exchange started in June 1995 with just 10 companies listed. Since then, more than 2,900 businesses have listed on AIM, and it is currently home to 1,655 companies. More than 56 billion pounds [Note: A pound is worth roughly $2] in funding has been raised on AIM, with more than half of that in the past two years.

It took about six months for the AIM All-Share Index to be created -- it was launched at an opening value of 1,000 in January 1996, by which time the market consisted of 120 companies with a combined value of more than 2 billion pounds.

The dot-com boom saw the AIM Index rise to a peak of 2,924, but it subsequently fell as low as 542 after the start of the war in Iraq in 2003. At a current price of 860, AIM is at levels not seen since August 2004, and it's still down 14% from where it started. Compare that to the FTSE All-Share, which is up 50% over the same period.

Although it was originally set up to raise capital for small, indigenous, entrepreneurial companies, in recent years it's shifted focus toward larger international businesses, often in mining or property. Five years ago, there were only 60 non-UK companies on AIM, but by the start of this year, there were 347. According to the Financial Times, average amount raised at IPO has increased from 17 million pounds in 2005 to 231 million pounds last year.

Part of the attraction for international companies seeking to list in a major financial center is undoubtedly the favorable regulatory regime in the U.K., and in particular on AIM. While accountants Baker Tilly report that administrative overheads have increased for AIM companies since regulations were tightened up last year, AIM remains a much cheaper alternative to the American NASDAQ, its main rival, owned by Nasdaq OMX (Nasdaq: NDAQ  ) .

Many were skeptical of AIM when it opened in 1995, and while it is undoubtedly a risky market, its failure rate of 3% is lower than many expected. Sadly, the performance of its index has been disappointing. Nevertheless, I think British investors are lucky to have such an interesting market on their doorstep.

Here are a handful of stocks that trade on both the AIM and a major U.S. exchange:

Company

Headquarters

Market Cap

Industry

ReneSola (NYSE: SOL  )

China

$1.78 billion

Semiconductors

Quest Capital (AMEX: QCC  )

Canada

$229 million

Financials

Energy XXI (Nasdaq: EXXI  )

Bermuda

$202 million

Oil & Gas Exploration

*Source: Capital IQ, a division of Standard & Poor's.

Nasdaq OMX Group is a Motley Fool Inside Value pick. Charles Schwab is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Todd Wenning thinks it's worth noting that there's a River Wenning in northern England, but has yet to prove it was named for his ancestors. He does not own shares of any company mentioned. The Fool's disclosure policy speaks English quite well, thank you.


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