This is Part One of a summary of the Small Cap Network’s recent ‘Escaping the Liquidity Trap’ Forum Event at the London Chamber of Commerce (see Part Two here). The event was an open forum discussion including a panel of industry experts and an audience of small and mid cap company managers and market participants such as SME advisers and investors. The discussion was conducted on the basis of Chatham House rules, so anonymity has been preserved in respect of specific comments made by participants. However, as it was a fascinating discussion, we have summarised the main comments in the attached PDF and also below.
Given the breadth of the discussion and the number of participants, this summary has been produced on a best endeavours basis. As it was a lively debate between multiple participants, a number of the comments may be contradictory and – for the avoidance of doubt - the views expressed below obviously reflect those of the speaker in question, rather than the Small Cap Network as a whole.
Part One summarises the responses covering the following main questions:
- What drives illiquidity for SMEs?
- How important is it to have a balanced shareholder register?
- Why are Placings used so often when they exclude retail investors?
- Why aren’t Open Offers used instead?
- How well is the SME market being regulated?
- Is existing regulation being enforced?
- What role do the NOMADS play in SME illiquidity?
- What role do the Market Makers play in SME illiquidity?
What drives illiquidity for SMEs?
- There are serious problems in operating the primary market properly for an SME. The way a primary market is run can set up the secondary market for failure. One of the most interesting examples of the disconnection between primary and secondary markets is not actually in relation to SMEs but was evidenced in the recent float of Ocado.
- When most companies go onto the SME markets, their first concern is understandably one of raising capital. The focus with their advisers is concentrated on due diligence, preparing documentation, and deciding on valuation. Part of that should be assessing where demand meets supply but the key concern is usually to attract institutional buyers for newly issued stock, and that’s because the chosen method is invariably a…
