The Anglo File: New U.K. Exchange Aims for a High-Tech Market

However, the proposed Techmark exchange could be a case of style over substance.
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The

London Stock Exchange

is expected to announce next month that it will launch a separate market for high-technology stocks. Sadly, this looks suspiciously like another chapter in the rebranding of Britain, where the emphasis is on style, not substance.

Since the

New Labor Party

came to power more than two years ago, Prime Minister

Tony Blair

and his party faithful have spent an inordinate amount of time trying to convince the world that the only ruling Britannia does now is in the area of being hip and modern. No more bowler hats and stiff upper lips here, Blair says -- it's all

Paul Smith

clothes,

Conran

restaurants and modern art sharks in formaldehyde.

It seems the LSE has a part to play in all this, too. The government is keen to encourage and support new British companies involved in high-tech industries. To raise their profile, the exchange is proposing to create a new stock exchange, expected to be called

Techmark

, dedicated to high-tech companies.

Taking Aim at AIM

According to reports, the exchange envisions Techmark starting out with at least 100 companies. Most of these companies will be drawn from the main exchange rather than from the

Alternative Investment Market

, which was launched in 1995 by the LSE to specifically meet the needs of smaller, growing companies. According to the conventional wisdom, AIM has failed to do this -- hence the need for an exchange like Techmark.

No one at the LSE was available for comment.

The main criticism leveled at AIM is its lack of liquidity, which has left many companies on it floundering in obscurity. AIM compares unfavorably with Germany's

Neuer Markt

, which has established itself as Europe's most successful exchange for high-growth companies, particularly in technology-related industries.

The exchange, the

Exchequer

and the government clearly see Techmark as the U.K.'s answer to the Neuer Markt. Not everyone, however, is quite so convinced.

Another AIMless Exercise

"Look, just relabeling something won't change anything," complains Niccolo Caderni, managing director of

Viscount Securities

, which invests in start-up companies. "The problem is not just AIM, the Exchequer, the LSE or the institutions -- all of them are the problem. We need to change corporate Britain."

Caderni singles out the financial institutions for much of the blame for not helping small businesses. "I spend a lot of my time trying to convince institutions to invest in these companies but it's jolly hard. They're not really interested," he says.

Dru Edmonstone, editor of

Durlacher's AIM Bulletin

, says the Techmark bears all the hallmarks of an idea from "Tony Blair and his merry band of men," and the exchange may well end up "shooting itself in the foot" if it goes ahead with the plan.

Instead, Edmonstone argues that the exchange should put more effort into developing AIM, which he believes has actually been relatively successful despite its suffering reputation. He points out that since 1995, AIM has grown into an exchange of 326 companies with a combined market capitalization of more than 6 billion pounds, and as of the end of July, it had raised 2.4 billion pounds.

Ironically, the very nature of the LSE means the more successful AIM is, the more it will fail. If a company does well on AIM, it gets promoted to the main exchange, and if a company starts doing badly on the main exchange, it gets demoted to AIM. Since 1995, more than 50 companies have progressed from AIM to the main market.

To help AIM, Edmonstone argues that Chancellor of the Exchequer Gordon Brown should reinstate the tax break called the capital-gains reinvestment relief, which he abolished 18 months ago, making it no longer possible to get reinvestment tax relief on shares already traded on AIM.

Perhaps the main argument against establishing Techmark is that successful exchanges such as the

Nasdaq

, Neuer Markt and, to a lesser extent,

Easdaq

already exist. As Edmonstone says, "In my view,

the LSE has already missed the boat." And no amount of rebranding can make up for that most precious commodity in the high-tech world: lost time.