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As director of markets for the London Stock Exchange, Martin Graham oversees its domestic and foreign business, including the increasingly foreign-focused Alternative Investment Market, London’s platform for small companies. Since we last spoke to Graham in 2006, both the LSE and its sub-market have taken steps to globalize, increase listings, and address liquidity concerns. We checked in with the market manager for a definitive look at what London offers today’s public companies.

EM: What kind of milestones has the LSE reached since 2006?

Graham: First and foremost, we successfully completed our merger with Borsa Italiana, creating Europe’s leading diversified exchange group, with nearly 50% of the FTSE Eurofirst 100 by market capitalization and Europe’s most liquid order book by volume and value traded.

We have also continued to expand beyond Europe. Our Prime Minister opened our new office in Beijing in January, giving us a permanent presence in the world’s fastest growing major economy. We are also pursuing new opportunities in Latin America. In May, Fresnillo became the first Mexican company to join our markets, and last October, Grupo Clarin conducted the largest Argentine float in a decade when the company issued GDRs on our main market. Our successes in this relatively new region show how London has firmly cemented its position as the most popular market for international issuers over the past few years.

We have also continued to innovate, creating new opportunities for our customers. Last November, we opened the Specialist Fund Market, our new market for investment funds—such as hedge funds and private equity funds—which targets sophisticated investors.

EM: How has the merger with Borsa Italiana supplemented the LSE’s offerings?

Graham: The merger with Borsa Italiana is strategically significant because it brings together two highly efficient and complementary businesses. It has broadened our product base, our customer base, and the range of assets we can develop, giving us new platforms for growth. It brings together the strengths of Borsa Italiana in Italian cash equities, derivatives, ETFs, securitized derivatives, and fixed-income products through MTS as well as highly efficient post-trade services, with our international equity markets and information products.

The launch of AIM Italia will provide another route to capital for Italy’s dynamic SME sector, giving us the potential to tap into a high-performing industrial base of around 4,000 companies, currently providing 20% of Italy’s industrial exports and 13% cent of its employees.

EM: How many companies are currently listed on AIM?

Graham: In total there are now over 1600 companies quoted on AIM, including 600 international companies, operating in around 100 countries.

EM: The AIM now offers several different trading products in addition to equities. Why was this key to further its growth?

Graham: We recognize that companies in different industries and countries, and at different stages of their lifecycle, cannot all be expected to fit in to exactly the same pattern, so we offer a range of different ways to join our markets.

Smaller companies can choose AIM. A larger company that wishes to access specialist, professional investment capital can choose to list GDRs here in London. Or, a company that wants to attract the widest possible range of investors can choose to take a ‘primary’ listing which has the most comprehensive set of requirements and could also make a company eligible for inclusion in the FTSE index series.

One of the AIM’s key characteristics is flexibility, so it makes sense that its framework can accommodate different products. For example companies from emerging markets can issue DRs on AIM. Companies can also choose to have their stock listed in over 20 global currencies.

EM: What separates AIM from American small-cap markets?

Graham: I think one of the key differences is that in London the analyst coverage and institutional investment available to smaller companies is significantly greater than that offered on the U.S. markets, where small companies find it very difficult to get attention. The U.S. markets are also very domestically focused.

Here, we have a community of international advisers and market participants focused on small companies, and this has undoubtedly contributed to the success of AIM, even drawing U.S. firms to London. There are currently a total of 74 U.S. firms quoted on AIM, more than from any other country, other than the U.K.

U.S. firms, and indeed their peers from around the world, have been attracted to AIM by the opportunity to raise capital from AIM’s institutional investor base on a market that has a flexible regulatory system, specifically designed to suit the needs of companies at an early stage of their growth cycle.

EM: A large percentage of AIM’s growth has come from foreign listings. Why does it appeal to international companies?

Graham: Well, in short, London is the ideal platform from which ambitious companies can fulfill their wider international aspirations. In our interconnected world, it’s now possible for dynamic companies to become global leaders faster than ever, reaching out to new markets and new sources of funding.

Most companies’ prime motivation for listing is their desire to raise capital, and London offers them access to the world’s deepest pool of international capital, with $1.9 trillion in international equity assets under management; 30% more than New York or any other major financial center.

Also, AIM’s institutional investor base can support further fund-raising rounds. During the first six months of this year, around 70% of the money raised on AIM was through further issues by existing companies. This activity shows how AIM companies are reaping the rewards of constructive, long-term relationships with their investors, allowing them to return to the market to fund the next stage of their growth cycle.

Coming to London can also significantly raise a company’s global profile and give that firm added credibility when dealing with customers and suppliers. Coming to London allows firms to trade alongside their international peers. The U.S. oil firm Resaca Exploitation, which came to London in July this year, now appears on AIM alongside over 100 other oil and gas producers.

EM: Do you believe that the AIM’s lighter regulatory structure gives it an advantage over other small-cap markets?

Graham: Certainly. Its regulatory [system] is one of AIM’s competitive strengths. AIM’s principles-based regulatory framework was specifically designed to provide a balance that enables entrepreneurs to flourish while giving investors confidence about the standards of disclosure.

As AIM has grown, the Exchange has made sure that its regulatory structure maintains the right balance between the flexibility that allows companies to grow, as well as an appropriate degree of investor protection. Last year, the Exchange introduced rules to encode best practices for nominated advisers and introduced AIM Rule 26, which requires all companies to have a website containing information about their activities.

EM: Why are nomads so important to the AIM listing process and how do you regulate them?

Graham: Nomads are a central feature of AIM. They fulfill a vital role in maintaining the quality of companies admitted to AIM and provide advice and guidance to AIM companies about their responsibilities under the AIM rules. It is Nomads, rather than the Exchange, who asses a company’s suitability for AIM and they are responsible for carrying out checks on companies before agreeing to sign a declaration that the particular company is appropriate and ready to come to AIM.

We operate a high level of scrutiny on Nomads. The Exchange has an active program of Nomad monitoring, which is carried out by its AIM Regulation Team, which is in regular contact with the Nomad community.

EM: The LSE has begun developing a new Tokyo-based growth market. How will it be similar to AIM? How will it differ?

Graham: This is an exciting venture because we believe the market will address the funding gap faced by growing companies in Japan and elsewhere in Asia. The market will draw on our experience and expertise as the creators and operators of AIM and on the TSE’s expertise and strong infrastructure in the Japanese market. It will be tailored to the Japanese market but because it will be for professionals, only it won’t need to meet some of the common requirements in Japan, designed to protect private Japanese investors.

EM: Have you noticed any new trading trends on AIM? Which sectors see the most volume?

Graham: Companies from almost every conceivable industry—from biotechnology to Bollywood film producers—call AIM home. This sectoral diversity helped the market to survive market conditions that saw other growth markets fail. Oil and gas in particular continues to be very strong—the number of bargains struck year-to-date has grown from 482,945 in 2007 to 719,946, an increase of 50%.

EM: Has liquidity in the AIM market increased since 2006? How does its liquidity compare to other European markets?

Graham: We recognize that liquidity is a central issue for so many small companies and we are always looking for ways to develop the market structure and provide issuers with access to the support they need to develop liquidity in their securities. We [recently] launched a new equity research service that is designed to help boost the liquidity of small cap stocks by improving investor understanding of their business.

This product, PSQ Analytics, is a direct response to feedback we received from issuers and investors about their desire to improve information flow about companies on our markets and increase liquidity for small quoted companies. We are going to be working with independent research providers to give issuers access to affordable equity research to enhance their exposure to a wider investment base and, at the same time, providing investors with increased analysis to make informed investment decisions. PSQ Analytics will ultimately enhance liquidity for small-cap stocks.

EM: Is there anything else you’d like our readers to know about today’s AIM?

Graham: Despite the fact that these are challenging times for the financial sector, we approach the future with confidence. I strongly believe that AIM has the credentials and momentum to continue in its role as the world’s growth market, and I look forward to seeing many more ambitious companies from around the world join AIM over the coming years.