Ghost of Failed Predecessor Hangs over Latest Venture
THE spectre confronting the embryonic AIM is the short- lived Third Market.
Launched, like AIM, to provide equity finance for young and growing companies, the Third Market was conceived in the heady months leading up to the Big Bang deregulation of 1986. It began in 1987 and was less than four years old when it died at the end of 1990, having never lived up to initial expectations.
The Third Market never captured investors' imaginations and failed to attract enough companies. Only 92 joined, of which about 24 were still being traded at the death.
The Third Market was killed, in effect, by the Stock Exchange in February 1990, when its trading requirements for UK primary and secondary markets were reformed to conform with European Community directives. Those requirements conveniently excluded the new market, but it was already dying.
The Third Market embraced start-up projects, Business Expansion Scheme companies and venture capital concerns considered too small and too speculative for the full market or USM.
The accountants KPMG Peat Marwick envisaged the typical entrant as capitalised at pounds 3m, with profits of less than pounds 500,000 - eerily similar to predictions of the likely size of AIM's entrants.
In April 1986, Michael Howard, now Home Secretary but then the corporate and consumer affairs minister, said the Government had been concerned to see fuller market facilities developed to enable shares of smaller and less well established companies to be more tradeable. "I very much welcome the Stock Exchange's decision," he said.
Mr Howard had reason to be grateful, as it seemed the Exchange was getting the Government off the nasty little hook of sorting out the burgeoning over-the-counter market, where licensed but ill-regulated dealers sold stocks over the phone to gullible punters. But in the end, the 1987 stock market crash smothered both the Third Market and many of the licensed dealers.
When the USM was introduced in 1980, the Stock Exchange intended it to be the official forum for dealing in the shares of small companies. But as the roaring 1980s unfolded, the venture capital industry poured billions of pounds into creating small businesses.
Such companies needed access to a securities market to raise development capital - and for the original investors to cash in - but many fell short of even the USM's light regulations. To the horror of the Exchange authorities, some of these young businesses turned to the OTC as an outlet.
The Securities and Investments Board said that OTC markets should be organised through a Recognised Investment Exchange. The licensed dealers' body, Nasdim, was asked to draw up proposals. …