Unlisted Securities Market (USM): A Historical Perspective on London Stock Exchange's Market for Smaller Companies

August 31, 2024 4 min read Finance Economics Unlisted Securities Market USM London Stock Exchange Smaller Companies Stock Market History

A comprehensive article on the Unlisted Securities Market (USM) that was part of the London Stock Exchange, covering historical context, key events, definitions, importance, and more.

Introduction

The Unlisted Securities Market (USM) was a segment of the London Stock Exchange (LSE) created to facilitate the trading of shares in smaller companies. Launched in 1980, the USM provided an alternative for companies that did not meet the rigorous listing requirements of the main market. It was instrumental in offering growth opportunities for smaller firms and increasing their access to capital.

Historical Context

The Unlisted Securities Market was introduced as a response to the changing economic landscape in the late 20th century. During this period, there was an increasing need for smaller companies to access capital markets without being subject to the stringent requirements imposed on larger firms. The market was operational until it was abolished in 1995, after which its functions were essentially absorbed by the Alternative Investment Market (AIM).

Key Events

1980: Establishment of the Unlisted Securities Market.
1984: A peak period where the number of companies listed on the USM increased significantly.
1995: Abolishment of the USM and transition to the Alternative Investment Market (AIM).

Types/Categories

While the USM itself was a specialized market within the LSE, it catered to a range of sectors, including:

Technology
Healthcare
Manufacturing
Retail

Importance and Applicability

The Unlisted Securities Market played a critical role in:

Capital Raising: Enabled smaller companies to raise funds for expansion.
Market Accessibility: Provided an entry point for smaller firms into public trading.
Flexibility: Offered more lenient regulatory requirements compared to the main market.

Detailed Explanation

Requirements and Regulations

Companies seeking listing on the USM had to meet fewer requirements compared to the main market. For example, there were relaxed rules regarding the minimum market capitalization and less stringent disclosure norms.

Trading and Valuation

The trading volumes on the USM were relatively lower, leading to higher volatility in share prices. However, the market was significant for investors looking to diversify their portfolios with smaller companies.

Mathematical Formulas/Models

Valuation Models

The common valuation models used in the USM included:

Discounted Cash Flow (DCF) Model
Price/Earnings (P/E) Ratio
Comparative Company Analysis

Charts and Diagrams

    graph LR
	  A[Unlisted Securities Market] --> B(Technology)
	  A --> C(Healthcare)
	  A --> D(Manufacturing)
	  A --> E(Retail)

Considerations

When dealing with the USM, potential investors and companies had to consider:

Liquidity Risk: Lower liquidity could lead to higher price volatility.
Regulatory Changes: Changes in regulations could impact market operations.
Investment Risk: Higher risk associated with smaller companies.

Main Market: The primary trading market for larger companies on the London Stock Exchange.
Alternative Investment Market (AIM): Established post-USM to cater to smaller companies with even more flexible requirements.
IPO (Initial Public Offering): The process by which a private company offers shares to the public for the first time.

Comparisons

USM vs. Main Market: The USM had more lenient requirements, while the main market had higher regulatory standards and liquidity.
USM vs. AIM: AIM further relaxed the requirements established by the USM, providing even more accessibility for smaller companies.

Interesting Facts

The USM was initially seen as an experiment in capital market liberalization.
It was instrumental in the initial public offerings (IPOs) of several now-prominent companies.

Inspirational Stories

Many companies that began their journey on the USM have grown significantly and moved to larger markets, showcasing the importance of accessible capital markets for smaller firms.

Famous Quotes

“The USM was a groundbreaking step in democratizing access to capital for smaller businesses.” – Financial Analyst

Proverbs and Clichés

“Small beginnings often lead to great endings.”

Expressions, Jargon, and Slang

[“Going public”](https://financedictionarypro.com/definitions/g/going-public/ ““Going public””): The process of offering shares to the public for the first time.
[“Listing”](https://financedictionarypro.com/definitions/l/listing/ ““Listing””): The inclusion of a company’s shares on a stock exchange for trading.

FAQs

What was the main purpose of the USM?

The primary purpose of the USM was to offer a platform for smaller companies to raise capital and trade shares without adhering to the stringent requirements of the main market.

Why was the USM abolished?

The USM was abolished in favor of the Alternative Investment Market (AIM), which offered even more flexibility and support for smaller companies.

References

London Stock Exchange historical documents
Financial analysis reports from the 1980s and 1990s
Academic papers on market segmentation and capital accessibility

Summary

The Unlisted Securities Market (USM) was a significant part of the London Stock Exchange, providing a vital platform for smaller companies to access capital markets. Although it was abolished in 1995, its legacy continues through the Alternative Investment Market (AIM). The USM played a crucial role in democratizing access to capital and paved the way for the future growth of numerous companies.