Political and regulatory news
Issue 3 - 17 July 09
Revised rules for AIM investment companies
The London Stock Exchange has updated the rules for investment companies traded on AIM, including creating a requirement to publish an investing policy.
The London Stock Exchange has updated the rules for investment companies traded on the Alternative Investment Market (AIM) market. The changes seek to introduce a more tailored approach to suit their particular characteristics.
The most significant change is a new requirement to publish, and follow, a detailed investing policy. This statement is similar to those required for investment companies with a full listing in the UK. It should set out the company’s investment parameters and explain how it will invest its assets on an ongoing basis. The policy should help shareholders understand the risks they face and what the practice of the company is. Material changes to the investing policy will need shareholder approval. The investing policy will also be used by the London Stock Exchange to assess the appropriateness of the company for admission to the AIM market.
The publication of the new rules follows a process of consultation by the London Stock Exchange. Draft rules were first published in December 2008 (AIM to modernise investment company rules). The AIC successfully lobbied for a number of changes on behalf of its AIM Members. For example, to prevent undue pressure being put on members to publish a policy, the AIC sought a definitive date which would give sufficient time for a text to be agreed. The rules now provide for publication by 1st December 2009. The AIC also successfully lobbied to remove any requirement to publish the investing policy in the half-yearly accounts.
The AIC also clarified some critical issues in its discussion with the London Stock Exchange. The draft rules suggested that the board of directors should be independent from the investment manager. It has now been confirmed that the intention of the rule is that independence between the investment manager and the board of directors of the company should be maintained. However, this is not an absolute requirement and, where there are issues relating to independence, these can be dealt with through adequate disclosure so that investors are aware of the situation. A similar amendment has been made to the paragraph of the rule dealing with independence between the board, nominated adviser and any substantial shareholders.
Also, the London Stock Exchange has said that investing companies seeking admission to AIM must be straightforward in their structure, securities and investing policy. In particular, an investing company is expected to issue primarily ordinary shares. The AIC highlighted difficulties experienced by investment companies with ‘C’ shares, arguing that these securities should be admitted to trading as they are an accepted and fair mechanism to raise funds which do not create undue complexity. The London Stock Exchange has clarified that the Exchange would expect an investing company to issue primarily ordinary shares or equivalent, which may include ‘C’ shares depending on their terms. Any other securities would be expected to be a lesser part of the company’s security structure, typically considered to be less than 50% of the overall share capital. While still highlighting a case-by-case approach, this is a welcome acknowledgement that ‘C’ shares do offer a legitimate fund raising approach.
These changes create new challenges for AIM traded investment companies, notably in preparing investment policies. However, where the rules allow shareholders to get a clearer picture of the activities of AIM traded investment companies they may help maintain confidence and demand for their shares. AIM also still offers a differential regime from that available for fully listed companies so helps maintain choice for the sector and retains its attractions as a trading platform for investment company shares.
The updated “AIM Rules for Companies – 1 June 2009” can be found here.
The new AIM Note for investing companies can be found here.
This is the last article in this edition.
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