The Alternative of Private Regulation: The London Stock Exchange's Alternative Investment Market as a Model

7 Pages Posted: 20 Oct 2012

See all articles by Edward Peter Stringham

Edward Peter Stringham

Trinity College; American Institute for Economic Research

Ivan Chen

affiliation not provided to SSRN

Date Written: October 2012

Abstract

Most people assume that markets require a strong set of government rules and regulations to eliminate problems associated with transparency and fraud. Commonly overlooked is the fact that stock exchanges did, and to a large extent still do, provide a set of private rules and regulations. One modern stock exchange that relies heavily on private rather than government regulation is the London Stock Exchange's Alternative Investment Market (AIM). Founded in 1995, AIM is an exchange regulated market in which private regulators, called Nominated Advisors or Nomads, oversee individual firms and decide whether they can list their shares. This system of private regulation reduces regulatory barriers and has attracted many new firms. But rather than being ‘a race to the bottom’ in which anything goes, the private regulators work to put their stamp of approval only on firms that warrant trading. The market has attracted a lot of investment, and the survival rate of IPOs is in line with that of other more regulated markets.

Keywords: Financial Services Authority, United Kingdom Listing Authority, Securities Exchange Commission, self‐regulatory organisations, financial deregulation, private governance

Suggested Citation

Stringham, Edward Peter and Chen, Ivan, The Alternative of Private Regulation: The London Stock Exchange's Alternative Investment Market as a Model (October 2012). Economic Affairs, Vol. 32, Issue 3, pp. 37-43, 2012, Available at SSRN: https://ssrn.com/abstract=2163967 or http://dx.doi.org/10.1111/j.1468-0270.2012.02172.x

Edward Peter Stringham (Contact Author)

Trinity College ( email )

Hartford, CT 06106
United States

American Institute for Economic Research ( email )

PO Box 1000
Great Barrington, MA 01230
United States

Ivan Chen

affiliation not provided to SSRN

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