The London Stock Exchange (LSE) is launching a consultation to change the rules for companies that want to list on London's Alternative Investment Market (Aim) to stop volatile trading on its exchange.
The LSE, which regulates Aim, is proposing to increase the amount of money that companies that want to list on Aim as investment companies – that is, companies which have no operations but wish to raise money to reinvest themselves – have on the books before listing from £3m to £6m.
"We've noticed smaller companies do sometimes suffer from volatile market trading, which isn't healthy for the companies or image of market as a whole. The price of the companies before they've even made an investment can swing wildly based on what they might or might not do," a LSE spokesperson said.
It is hoped that the nature of companies that come to market will change by raising the amount of cash a company must have to £6m, which would also necessitate tighter scrutiny of strategy and institutional investors.
The best known example of this is Gates Ventures, which investors ploughed money into days after listing on Aim in March. By June its value had risen by over 1500 per cent, before its shares were withdrawn from trading on Aim in July.
It is also changing the rules for companies already on the market but become "cash shells" – which wind down existing operations and allow a bigger company to buy it, the bigger company effectively taking over its listing. It is proposed that the time period for a company to sit as a "cash shell" should be shortened from a year to six months.
The idea behind this is that companies simply won't be able to sit on AIM for a whole year doing nothing.