London's AIM could face backlash

LONDON (Reuters) - London's fast-growing Alternative Investment Market (AIM) should not allow listed international companies to fall short of acceptable standards, a senior investment banker said on Tuesday.

"AIM should not become a depositary for international companies that have not had the necessary due diligence done," Richard Grainger, executive chairman at investment banking group Close Brothers CBG.L.

Grainger also warned that finance houses could face investor anger if international companies they brought to the market did not live up to expectations.

"I have heard commentary that institutions are being more selective as far the companies coming to AIM (are concerned)," he said.

"I think people are going to give more consideration to the quality and jurisdiction of where some of the companies are coming from," he added.

AIM was launched in 1995 and attracts companies from across the world, including Russia, China, the Middle East and even the United States, where it is seen as a rival to Nasdaq for smaller companies seeking an exchange listing.

By the end of October, 286 of the 1,582 companies listed on the market were international. So far this year 96 international companies have listed on AIM, compared with 120 in the whole of 2005.

The London Stock Exchange (LSE) (LSE.L: Quote, Profile, Research, Stock Buzz) is reviewing the way AIM is regulated to see if any changes are needed to reflect the market's increasingly international makeup.

AIM is regulated by nominated advisers, known as "nomads", often stockbrokers or investment banks which sponsor companies and are responsible for due diligence and for making sure they comply with market regulations after they are listed.

More than 35 billion pounds has been raised on the market since its inception.

A recent survey by British broker Arbuthnot Securities (ARBB.L: Quote, Profile, Research, Stock Buzz) found investors were concerned about the quality of companies being listed on AIM.

Grainger said there would be concerns if all the nomads were not carrying out their duties.

"Regulation is an important part of daily life," said Grainger.

"I think that rather than the market bearing the brunt, I think that one or two houses could if there is a series of their floats which go sour".