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  • Writer's pictureMark Watson-Mitchell

Alternative Markets

The growth of the alternative UK stock markets – Rule 163, the USM, the OTC, OFEX, 535, JP Jenkins, PLUS and NEX.

From Jonathan’s Coffee House to the LSE

The London Stock Exchange is one of the world's oldest stock exchanges and can trace its history back to the Royal Exchange, which was based upon the Antwerp Bourse and set up by Thomas Gresham and Sir Richard Clough way back in 1571.

The Great Fire of London destroyed Gresham’s building leaving the brokers doing business elsewhere in the City of London. When it was rebuilt in 1669 the Royal Exchange realised that stockbrokers were a rude bunch of characters and they were banned.

Over the following 100 years or so the scene of broker’s dealings switched to other places around the City of London, such as Jonathan’s Coffee House.

In 1773, together with about 150 brokers, Jonathan formed a club and set up a much more formal ‘stock exchange’.

A veritable force in world markets

Over the years the London Stock Exchange established itself and has subsequently become a veritable force in world markets. Its rules and regulations, much like English Law, have been respected and copied all over the world.

Thousands of companies have come to its market and raised capital for further investment in their businesses or let the market establish a buying and selling price for their shares, which enabled holders to dispose of their positions.

Compliance to the rules and regulations became increasingly strict and exceedingly well defined.

The old market ‘floor’

Not all the companies seeking to raise fresh monies were prepared to adhere to the narrow confines of the LSE rulebook. However, they needed markets for the shares of their companies for various reasons, whether for funding or for disposal or simply to use as a gauge of value by which to offer their shares to take over another company’s capital.

Way back in 1963, when I first went on to the Floor of the old Stock Exchange, we used to have stockjobbers calling prices from their books and price boards positioned around the House.

At one end of the market was the ‘Kaffirs’, where a number of jobbers dealt in mining companies, at another end there were the investment trusts, other pitches listed building stocks, with similar property, banks, industrials etc pitches scattered around.

The ‘quick and the dead’ and ‘matched bargains’

On the column where my broking company had its direct lines to the dealing room, there was one jobber who made markets in entertainment, holiday camps, and betting businesses.

That jobber was S Jenkins, he also made a ‘matched’ market in the shares of companies that were not quoted on the Stock Exchange but had good businesses and lots of shareholders. The latter needed a market to help identify the value of their ‘unquoted’ stocks.

They were what we used to call the ‘quick and the dead’ – like local breweries, greyhound racing stadiums, cemetery’s and crematoria, undertakers, football clubs, and local department stores.

The Stock Exchange allowed such dealings on a buyer matched to a seller basis under Rule 163 in its rulebook.

The birth of The Unlisted Securities Market

Over the years the younger and growth-oriented businesses started to use the market for raising capital, which in due course spawned the Unlisted Securities Market – that was in 1980.

The USM was an ideal way for brokers and investors to participate in the growth of companies too small to qualify for a full listing on the Stock Exchange.

To gain a Full Listing for a company it needed to have at least three years of trading history and be prepared to ‘float’ at least 25% of its equity.

For this new market companies did not need to show a full three years of history and were expected to offer not less than 10% of their shares to the investing public.

A number of those companies, previously dealt in under Rule 163, switched straight on to the USM because of its more relaxed structure.

The Over-the-Counter market

At the same time a very much less regulated market was growing outside of the City – the ‘over-the-counter’ market, which was operated by licensed dealers in securities.

Unfortunately, that led to several ill-based companies being dealt in by even less reputable dealers.

163 becomes 535

Back on the market the Stock Exchange altered its rulings and what was previously traded under 163 switched to trading under the Rule 535 status.

USM becomes AIM

The Unlisted Securities Market had a few hiccups along the way, even so, the Stock Exchange closed the USM in June 1995 and introduced The Alternative Investment Market, with very much the same ruling strictures.

AIM has been an incredibly successful market and brought heaps of business to brokers, bankers, lawyers and the like. It too has been up and down and had several near misses, but it motors onwards.

JP Jenkins and OFEX

In the early 1990’s Sid Jenkin’s son John and one of his dealer colleagues, set up JP Jenkins as an alternative platform for unquoted companies who did not want to or could not afford to pay for the costs of a listing on the USM.

When the USM became AIM in 1995, the JP Jenkins company established the OFEX Market to offer a ‘lighter touch alternative’ to AIM. It became a very successful market structure and at one stage had several hundred companies quoted through its system.

OFEX becomes PLUS becomes NEX

Unfortunately, OFEX failed to secure some required funding in late 2004 and collapsed. It was subsequently subsumed and resurrected as PLUS Markets.

But the financial crisis of 2008 started to rot away its foundations and it made a massive £8m loss that year. The next year was worse, with a £10m loss. Its demise was predicted in May 2012, but a bid from ICAP saved the day.

That market, which is now known as NEX Exchange, was recently acquired by Aquis Exchange (LON:AQX), in a £2.7m deal.

NEX Exchange, classes itself as the UK based stock market for growth enterprises. It is one of only four equities-focused Recognised Investment Exchanges (RIEs) in the UK.

It works with 51 registered brokers, seven market makers and has 89 companies currently listed on its two markets with a combined market capitalisation of approximately £1.9bn.

JP Jenkins and Peterhouse

The JP Jenkins name was acquired by Peterhouse Corporate Finance in April 2013. Today it operates as a trading platform for unlisted companies, enabling prospective investors and existing shareholders to trade in their shares.

It provides a trading facility in companies that may have de-listed from the LSE, AIM, NEX Exchange Growth Market or companies that have raised finance through crowdfunding and EIS schemes.

Listed below are just a few of the companies using the JP Jenkins platform.

Alpha Prospects Symbol: APHP Price: 2.50p

An investment company in both unquoted and quoted fast growing or strong recovery prospects companies.

Camper & Nicholsons Marinas Symbol: CNMI Price: 8.5p

Top-tier marina management business for the last 40 years providing services to clients from over 25 countries worldwide.

Dyson Group Symbol: DYS Price: 7p

Research, development, manufacture and sale of technical ceramics products for the steel, glass and other industries.

InterQuest Group Symbol: ITQ Price: 13p

Specialist technology recruitment business for analytics, networks, information security, change management, digital and information technology sectors.

Millwall Holdings Symbol: MCR Price: 175p

Taking in the operations of Millwall Football Club and related activities.

NCI Vehicle Rescue Symbol: NCI Price: 40p

A UK based insurance brokers focused upon car, home, pet and personal lines insurance products. It also operates an online vehicle breakdown recovery service.

Rangers International Symbol: RFC Price: 18p

Holding company for Glasgow based Rangers Football Club, one of the world’s most successful clubs.

Richoux Group Symbol: RIC Price: 1p

Operates 15 restaurants under four different brand names: Friendly Phil’s Diners, Richoux, Villagio and The Broadwick.

Viscount Mining Corporation Symbol: VML Price: 0.23p

This company is a project generator and explorer, it has a portfolio of gold and silver properties in Colorado and Nevada.

The NEX Exchange Growth Market

This is a market for earlier stage, entrepreneurial companies seeking access to growth capital. Its regulatory framework is specifically designed to meet the needs of smaller companies.

The exchange states that its admission criteria and ongoing obligations are as simple as possible to allow management to focus on running their business and generating returns for shareholders, while still protecting investors.

Listed below are just a few of its 89 constituents

Adnams NEX: ADB Price: £93.50

Based in Southwold, on the Suffolk coast, this company is a brewer, distiller, pub owner and retailer. Brewing for over 140 years, it produces a range of award-winning cask and bottled beers, which are now available in pubs and supermarkets nationwide.

Ananda Developments NEX: ANA Price: 0.29p

Focused on the medicinal, therapeutic and wellness cannabis sectors and currently has three key areas of endeavour. It has an interest in Israel Cannabis, a global leader in medicinal cannabis research; as well as a 15% shareholding in Liberty Herbal Technologies developing a technology for the dry vaping of medicinal cannabis; and indirectly it owns 50% of the DJT Group which is pursuing a licence to grow THC cannabis in the United Kingdom.

Coinsilium NEX: COIN Price: 3.6p

Since 2014 this company has been investing in seed-stage Blockchain tech ventures, helping founders through the key stages of growth. It describes itself as a venture builder, investor and advisor, supporting early-stage blockchain technology companies and the digital token economy. In 2015 it was the first ever IPO of a blockchain company. It harnesses its experience and wide-ranging network to invest in some of the world's leading blockchain projects.

Daniel Thwaites NEX: THW Price: 120p

This award-winning craft brewery, pub, hotel and leisure company was founded in 1807. Based in Lancashire, this company has a portfolio of some 250 tenanted pubs. Across the country it also has a fast-growing managed inns business, with accompanying lodges and spas. The focus of its business is upon providing customers with big hospitality in its outstanding properties situated in great locations.

Eight Capital Partners NEX: ECP Price: 0.025p

Based in London, this company provides equity, debt and equity-related investment capital to companies seeking capital for growth and development, consolidation or acquisition, or pre-IPO financing. It has specific interest in the technology, media and telecoms and the financial services sectors.

European Lithium NEX: EUR Price: 0.073p

This mining exploration and development company is focussing on its Wolfsberg Lithium Project in Austria. The wholly owned mine is located in Carinthia, some 270km south of Vienna. It aims to be the first local lithium supplier into an integrated European battery supply chain for electric vehicle makers.

Hydro Hotel NEX: HYDP Price: 725p

Dating way back to 1895 this company states that from its elevated setting, the 4 Star rated Hydro Hotel boasts one of the best hotel panoramic and sea views in Eastbourne and East Sussex. It offers an array of function rooms, large lounges and 82 bedrooms, the majority of which have been refurbished since 2016. It has over 420 shareholders.

Lombard Capital NEX: LCAP Price: 2.75p

Based in Bedford, this company is an investor in pre-IPO companies and companies on AIM and NEX. It is also now focused upon the unique opportunity of producing secure bond investments where the instrument is fully secured by re-insurance or by tangible assets. Strong progress is being made towards this target.

National Milk Records NEX: NMRP Price: 127.5p

As part of the integrated UK dairy supply chain, this company guarantees milk quality and supply. Every day, for testing, it receives a sample of milk from every dairy farm. It tests half of the individual dairy cows in the country every month. Just like the hard-working dairy cow, the company works 24 hours a day for 365 days a year.

Netalogue NEX: NTLP Price: 3.75p

This company offers a leading business to business ecommerce software platform for building enterprise class website solutions for manufacturers, distributors and wholesalers. It includes sophisticated online catalogues, online stores, buyer self service and complimentary mobile ecommerce app functionality.

Newbury Racecourse NEX: NYR Price: 755p

For just 29 days every year this racecourse company stages top class Flat and Jump horse racing. It also creates income from promoting exhibitions, conferences and outdoor events on its premises. On its grounds the company also has the Rocking Horse Nursery for very young children. Of potentially greater interest is a joint venture agreement with David Wilson Homes to redevelop the racecourse and also construct some 1,500 new homes.

NQ Minerals NEX: NQMI Price: 3.5p

Based in Australia this is a gold and base metal exploration and development company, which is looking to move into near-term revenue generating production. Its Hellyer Mine in Tasmania, acquired earlier this year, contains over $1bn of gold, silver, zinc and lead in situ and is believed to have significant existing infrastructure. The company plans to fast-track its mine into production within 12 months, thereby hoping to generate both cash-flow and profitability. The company also has two other metal projects.

Sativa Investments NEX: SATI Price: 6p

As an investment vehicle it looks to take advantage of the highly fashionable and rapidly growing medicinal cannabis market. It seeks returns from investing in well-placed opportunities, concentrating on the areas of research, development, production, testing and compliance, pharmacology, commercialisation, and the sale and marketing of medicinal cannabis.

Shepherd Neame NEX: SHEP Price: £10.10

Since 1698 Britain’s oldest brewer has been based in Kent. This family business brews widely acclaimed premium ales including ‘Bishops Finger’, ‘Whitstable Bay Pale Ale’ and ‘Spitfire’. From its brewery in Faversham, it also brews internationally renowned lagers such as ‘Samuel Adams Boston Lager’. All of its beers are sold through various channels across the South East of England and nationally. The company also has a growing presence in international markets.

The Barkby Group NEX: BARK Price: 4.75p

Focused upon Gloucestershire, Oxfordshire and West Sussex this company is a boutique hospitality group offering premium gastropubs, inns and function spaces. It owns five gastropubs with some 42 hotel rooms in total. Its intentions are to build up to around ten sites over the next five years. The group also owns the recently acquired Centurian Automotive, which has its quality used car showroom nestled in 150 acres of the Northamptonshire countryside.

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