Plus Markets to Shut Doors

London-based Plus Markets Group has announced that its formal sales process (FSP) has been terminated with immediate effect. The company will wind down its exchange operations over the next six months as a direct result.

Plus Markets comprises the cash equities recognized investment exchange (RIE) Plus SX, a derivatives exchange, Plus DX, and its turnkey 'exchange-in-a-box' technology product, Plus TS. The company announced that it would be receiving offers to safeguard its financial future on 3 February 2012, and indicated in April that it was in discussions with interested parties.

Today's regulatory announcement, however, states that discussions were not leading to satisfactory offers in a desired timeframe, leading to the decision to terminate the FSP and commence proceedings for retiring the platform. Discussions are ongoing with the UK Financial Services Authority (FSA) to this effect.

"The Board regrets to inform shareholders that, due to the ongoing operating costs of its business in the context of its regulatory status, the Company's cash balance has reached a level at which the Board has informed the FSA that it intends to commence a process of orderly closure. In consultation with the FSA, the regulated activities undertaken by the Group, which include the operation of the RIE, will be wound down over a period of up to six months in order to minimize market disruption," the group said.

Plus Markets declined to comment directly when contacted, stating that they were unable to add to the regulatory announcement posted on their investor relations website.

Existing companies on Plus are likely to face a dilemma; do they go to Aim, and not all will be able to, do they delist completely, or do they go to one of the matched bargain markets like Sharemark?

Operational Expenditure
However, a person with knowledge of the process, speaking on background, confirmed that operational costs were in fact the prime factor. Plus Market's balance sheet, when last published in mid-2011, stood at around £4.6 million (approximately $7.4 million). The source said that had been eaten into over time, and although the company wasn't bankrupt, the decision was taken that continuation would be untenable.

The situation is unlikely to have been helped by proposals from the FSA regarding minimum levels of cash held by exchanges. The regulator has stated that exchanges and clearing houses should maintain liquid financial assets equivalent to six months' operational costs, with the same in net capital. Plus Markets Group was one of ten institutions identified by the FSA as being subject to the proposal's requirements.

Despite the FSP being terminated, the source added, there is a chance that there may yet be a private sale, as Plus Markets is still in discussions with several parties. The announcement, they said, could prompt a faster negotiation process. This move is also related entirely to Plus SX, with Plus DX and Plus TS being separate, although any dissolution of the company would infer the sale of these assets.

Next Steps
Plus Markets will be working with the companies listed on Plus SX to find a new venue to sell their shares. As the market is for small, growing companies, it is likely the London Stock Exchange's (LSE) Aim platform will be a natural fit. Not all, however, believe that Aim will be an easy transition.

"The demise of Plus is going to make it even more difficult for smaller companies to raise capital at a time when bank lending is tight," says Chris Searle, corporate finance partner at accountancy firm BDO. "And existing companies on Plus are likely to face a dilemma; do they go to Aim, and not all will be able to, do they delist completely, or do they go to one of the matched bargain markets like Sharemark? All in all, it's a sad day for the public equity markets in the UK."