London Stock Exchange may launch hi-tech market

THE LONDON Stock Exchange is examining the feasibility of setting up a new growth companies' market to halt the drift of UK technology companies to rival exchanges abroad.

The move comes in response to a chorus of criticism from British venture capitalists, investment bankers and investors. They blame the lack of a high quality designated technology exchange for London's failure to capitalise on the worldwide wave of enthusiasm for Internet-related stocks, which has driven valuations for companies such as Yahoo! in the United States and Germany's Software AG to astonishing levels.

Critics point to the example of markets such as Germany's Neuer Markt and the Nouveau Marche in France, which are proving magnets to start-up companies and investors alike and have become increasingly important sources of business to City-based firms. Close Brothers, a leading adviser to UK small and medium-sized businesses, recently bought a firm in Germany specifically to capitalise on the Neuer Markt boom.

Andrew Freyre-Sanders of Dresdner Kleinwort Benson says British funds are still as much as 40 per cent underweight in IT in comparison with the rest of the market. The Internet subsector of the Stock Exchange's IT Index has just eight stocks.

However, the idea of a distinct growth-companies exchange for London is being resisted by traditionalists in the Stock Exchange unwilling to admit that Aim - London's Alternative Investment Market, which next month celebrates its sixth anniversary - has been a flop.

They also point to the success of the IT sector index within the main market, which now covers 112 stocks and which GEC, the giant defence electronics group, is now seeking to join.

Clare Mascall, head of corporate affairs at the LSE, says the exchange plans to release a MORI poll of technology companies at a conference it is hosting on hi-tech investment in London on Thursday showing that 62 per cent of those surveyed believe London is supportive of technology companies, and 63.5 per cent believe that the situation has improved over the past five years.

Ms Mascall said: "We are studying the issue. But no decision has been taken. There are 318 hi-tech stocks on the market with a total market cap of pounds 1.2bn - almost one-third of London's total market value. The sector rose in value by 89 per cent last year. The Neuer Markt did very well last year, but it has not performed so well recently." The government is also looking closely at the issue as part of its drive to improve the competitiveness of the UK economy.

An option is to join Euro.NM, the umbrella grouping of European hi-tech exchanges, which is dominated by the Neuer Markt. In less than three years it has achieved a combined market capitalisation of $51bn and mustered more than 200 listings, and is now attracting secondary listings from Nasdaq stocks such as FortuneCity and CyberNet.

Two UK companies Antonov and Polydoc, have joined Euro.NM and London has observer status. However, this would mean a controversial move to quarterly listings.

Critics say London may already have left it too late. Bob Jones, chairman of Equiinet, a UK Internet start-up, says he would like to float the business in the next few years but does not believe there is at present a suitable UK exchange. "Unfortunately Aim has come to be regarded a second division market," he said.