Reputation and self-regulation in securities markets: A study of the London Stock Exchange's Alternative Investment Market (AIM)

The continual debate over the appropriateness of self-regulation in securities markets has largely focused on North American self-regulatory organizations (SROs). Proponents and detractors typically advocate for more or less ‘regulation’, which is taken to mean legislation or administrative agency rule-making backed by public enforcement. This thesis adds to the debate by conducting a case study of an often-overlooked securities market, AIM, which began in 1995 as the Alternative Investment Market of the London Stock Exchange. This thesis conducts a holistic analysis of AIM. It begins with an analysis of black-letter law and legally enforceable regulation, but it does not end there. It continues by gathering evidence of market practice, regulation ‘off the books’, and how private rule-making on AIM has evolved over time, bringing to light how AIM has significantly changed since its 2007 heyday. The main contribution of this thesis is to provide empirical evidence and analysis of 25 years of self-regulation on AIM, which is operated and regulated by the London Stock Exchange plc (Exchange). AIM, despite boasts as ‘the world’s largest growth market’, has received little serious legal scholarly treatment in the past decade. A second contribution is to demonstrate how reputational incentives and informal regulation, such as norms and unwritten rules that are imposed by both local market participants and the Exchange as private regulator, constitute an integral part of securities regulation and profoundly influence market conduct. Taken as a whole, this thesis seeks to shift the focus from calls for more or less regulation, and instead emphasizes the need for contextual inquiry of how reputation and informal regulatory mechanisms contribute to self-regulation in any securities market, given its public regulatory environment and private rule-making incentives.