ASX talks up 'Ozdaq' plan

The Australian Stock Exchange is considering an Australian version of the Nasdaq to cater for the special needs of young technology companies -- especially biotechs. And if the regulators agree, the plans could start seeing the light of day in as little as a month or two.

"We have identified biotech as a big, big opportunity for this country, and one of the options we have is to set up a second market to make [floating companies] easier," said Richard Murphy, national manager for quoted products at the ASX.

"The ASX needs to start planning now for what we will be doing in five, 10, 15 years' time."

The success of overseas 'high-tech' markets such as the Nasdaq and the UK's AIM point towards the logic of the move, with specialist reporting and regulatory requirements suited to smaller, faster moving organisations rather than the average industrial IPO-seeking corporation.

Issues such as limits on capital raising, prospectus regulation and investment restrictions have all been established over time at the ASX with big, low-tech and relatively predictable return-generating organisations in mind. But the advent of high spend, variable return and fast-moving industry sectors -- such as biotech and the late, lamented dotcoms -- demand a variation for a system designed to keep tabs on what is primarily a financial and primary industry exchange, said Murphy.

"We would certainly consider changes to the rules required for floating if there was a second market," said Murphy. "Things we need to consider are altering the listing rules to allow higher subsequent raising levels, less restrictive reporting demands and the make-up of boards," he added.

Murphy noted that the demands on small high-tech companies wanting an initial float were particularly high, particularly when it came to prospectuses, legal fees and so on. Although quite acceptable for a multi-million dollar IPO, he said, such costs could be a considerable stumbling block for new, low cap and relatively high-risk venture that depended on speed to get into a dynamic market.

"Our goal is to promote Australia as a local hub for biotech and other high-tech listings," affirmed Murphy. "If this means we have to 'turn off' certain aspects of the current set of ASX rulings then we will certainly consider that," he added.

Some of the regulatory issues targeted by Murphy for investigation would be the presence of investor directors on the board, proportional representation for participating VCs, and the removal of shareholder approval for subsequent raisings below a certain level.

"The difference with biotechs in particular is that they often suddenly find they need more money. If they have to convene an EGM, ask the shareholders and go to a vote, the chances are in a fast-moving industry like biotech they will be too late. If we raised the listing rules limit to, say, 40 per cent without needing shareholder approval that would make a huge difference," he said.

Mixed reaction

However, reaction from the market has been mixed, as evidenced by comments from Kelvin Hopper, founder and managing director of commercialisation and funding specialists Aoris Nova.

"I'm not sure the market will be keen to go with this idea," Hopper said. "Personally, I think it would be better to keep the existing hurdles to listing as they are to ensure the listing companies are really building a robust and sustainable business."

Hopper noted that the regulations already in place on the main board gave investors a sense of security, and that recent changes in tax rulings should help release more money into the market.

"To be honest, there are lots of small biotechs on the market that have set their money-raising targets too low, and so are finding it hard to maintain levels. I'm not sure making a second board with easier access would necessarily solve that," he said.

Market watcher David Blake, of Bioshares, described the idea as "dumb", and self-serving on the part of the ASX.

"If they paid attention to educating investors, they would see companies continue to list on the main board," he said. "This [plan] would make it harder for people to interrogate companies, which would drive investors away."

Not all industry players were so damning, however. Eiffel Technologies CEO Christine Cussen was positive about the plan, and said it would hold great appeal to start-ups and early-stage companies wanting to list.

"It's always hard for people to know when to list, and until a company gets to critical mass, a second market could be a very attractive option," she asserted. "Especially for people wanting a smaller, faster option -- it would certainly help to provide that.

"It would also help avoid that situation where investors in the main market simply want to know the figures and when they will get their returns."