By Ben Turney | Wednesday 15 July 2015
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
This morning, Metal Tiger (MTR) announced that its outstanding unsettled position in New World Oil & Gas (NEW) has been settled. Two months late, the failure of regulated market participants to fulfil their contractual terms has materially and detrimentally impacted the fortunes of hundreds, if not several thousand, private shareholders up and down the country. The shareholder action group could not reach the 10% threshold to requisition a general meeting directly because of this. While the London Stock Exchange failed miserably to enforce its own rulebooks, the FCA stood idly by and did nothing. This whole episode is dreadful for the reputation of AIM and calls into question how trustworthy or viable is this market?
The only winners in this mess are the regulated City firms who caused the chaos and tore up the rulebook. They are laughing at the pitiful state of oversight and enforcement on AIM and why shouldn’t they?
Left unchecked for years, these firms are a law unto themselves and the New World forward selling fiasco has further emphasised their freedom to do whatever they damn well please. The AIM Regulation team has been a long-standing joke for its impotency, so it is no surprise it failed to act. However, we might have expected different from the London Stock Exchange in protecting the integrity of its market.
It was no better.
Unlike the vast majority of the other scandals that have rocked AIM (Quindell included), the New World controversy has exposed systemic flaws in the functional operation of AIM itself. It was the London Stock Exchange’s Rulebook that was violated, but it was incapable of acting decisively.
The lack of a matched bargaining system is an obvious anachronism open to abuse, but the chaos caused in the settlement system is much more troubling.
Rule 5,000 (Obligation to settle) is a headline decree from the London Stock Exchange. Not only has the London Stock Exchange proven itself incapable of enforcing what should be an inviolable instruction, it was caught in such a state of paralysis by this event that it didn’t even suspend New World, when the settlement issues were so manifest. I have it on good authority that several of the major execution only brokerage firms repeatedly warned the London Stock Exchange of the settlement problems and still it did nothing.
The widespread failure to settle legitimate trades casts doubt on the whole nature of share ownership on AIM. There is no doubt that the regulated firms behind the forward selling fiasco directly interfered with the legal rights of shareholders to participate in their company. Were it not for this, it is impossible to believe that New World’s board would have been allowed to operate such a dreadfully mispriced open offer, whose sole purpose was to save the company’s advisors from the financial consequences of their dreadful blunders.
Prior to this, New World’s board had one of the worst reputations on AIM. The directors have simply further underlined their weakness, incompetence and moral bankruptcy. Their continued presence on AIM speaks volumes about the state this market is in. The company’s Nomad, Beaumont Cornish, has consistently failed in its regulatory duties, since New World first listed, and AIM Regulation had been repeatedly warned that this company is toxic. Much more will follow on that story.
Were AIM policed effectively, the authorities should currently be gearing themselves up to unleash a wave of punitive fines on the regulated firms behind this mess. Cornhill Capital stands to earn at least £1.15million in fees and the forward sellers/naked shorters will make as much as £5million in profit. Retail investors and ordinary shareholders in New World will bear the full brunt of this.
By any decent, just or moral assessment of what has happened this is an unacceptable outcome.
Sadly, I fear that the London Stock Exchange and the FCA will live up to their reputations on AIM and attempt to…
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