From this weekends article from uk-analyst.com

Time to board the Ofex Express

Says Luke Heron of WatsHot.com

It is an irony in itself, but the downside of which I don't resent. For a good many years, my name was synonymous with the OFEX market, a fact that did not do me any favours as the market hardly covered itself in glory. However, it was and remains my belief that the concept of a three-tier market in the UK is the only way forward. Historically, my support for what was at the time, a widely discredited, joke, matched bargain facility was rather similar to my own reputation. Those who spoke out in favour of OFEX won few friends. The reality now is vastly different. When Simon Brickles joined Plus Markets Group, the AIM traded owner of OFEX, he brought with him a new credibility, coupled with a determination to create a realistic alternative to AIM. Forget all that you have heard about OFEX not wanting to compete with AIM, that is hogwash. Inside of two years, it is my believe that what is now OFEX (though will most likely be called Plus) will have more constituents than AIM.

For those that wonder how an argument can be made for a three-tier market and at the same time claim that OFEX wants to compete with AIM; let me explain. The concept of a three-tier market is perfect. A low-level entry for established, but smaller, high growth companies - this entry-level market also includes junior resource stocks and other start-up businesses. Ideally, these companies will have a market capitalisation of sub 10 million pounds. The second-tier will be still be smaller and mid-sized enterprises, but have established a period of trading, profitability, institutional support and perhaps other criteria, which separate them from the entry-level companies. The top tier, currently the main market fully listed giants, the majority of whom have their shares traded via auction, or SETS (Stock Exchange electronic trading service), make up the third and final instalment of the UK list.

Originally SETS was intended just for FTSE 100 companies, but that soon changed. I headed up the desk that handled the average pricing system for large FTSE trades at the time of launch at Merrill Lynch. It was a complete disaster - not through my own doing I hasten to add. Since then, it has improved dramatically and the electronic order book that executes hundreds of trades a second has now been rolled out onto AIM. This is where the threat is for traditional market makers. With around 50 stocks now covered on AIM, the likes of Winterfloods, Teather & Greenwood, Shore Capital etc etc, are slowly but surely, having their playground taken away from them. Make no mistake, the market makers are still dominant in well over 1,000 AIM traded equities and even some fully listed companies, but there will come a time when this is not so.

It is little surprise that the automatic order-driven trading service is so successful. SETS is flexible and transparent, ensuring that every buy or sell order receives maximum exposure, resulting in a seamless and cost-effective execution - this is more than can be said for AIM itself. Order book trades in UK and Irish securities are covered by a central counterparty operated by the London Clearing House. No person-to-person broker-to-market maker contact, just buys matched against sells. The irony here is that this is precisely the way the most junior of the three-tier markets, OFEX, started out. Indeed, it is perhaps the most remarkable feature in the evolution of the financial markets, that will eventually see matched bargains for the upper tier and a market maker based facility for smaller companies. A complete reversal. The demographics of the UK markets have literally been turned on their heads in the space of just 8 years.

You may question the need to hear all of this and I apologise if this is already familiar to you - it is not my intention to patronise, however the transition at OFEX itself has been remarkable. The reason that so many brokers and market makers supported the circa 3 million fundraising by Plus Markets in September was itself a recognition that OFEX is the future for smaller companies.

There was a time when even to utter the words credibility, efficient, cost effective alongside the OFEX market, would conjure up looks of disgust. But now, the OFEX market is one which represents an almost identical regulatory structure in the terms of the protections it offers to investors, as AIM. In fact, you (as a private investor) will have no less protections offered to you as you would on AIM and shortly, the tax advantages, including SIPP eligibility, will make it even more attractive. Furthermore, with 4 market makers, 3 currently on stream and a further market maker set to go live in the next couple of months; the ease at which it is possible to buy and sell is no different to companies of a comparable market capitalisation on AIM. In fact, it is far better on OFEX than it is on AIM in many cases. When the SETS system is rolled out, companies with too few shareholders or those with little liquidity, will find themselves in a real squeeze. Like them or loathe them, market makers for smaller companies, will always be here and you can take it for granted that on OFEX, they are there to stay.

The purpose of this article is, I admit, to try and persuade those with reservations about OFEX, to consider taking a leap of faith. In time, I simply do not believe that those who like AIM the way it is now, will able to transact the kind of deals they do now, anywhere other than OFEX. I will eat a very large slice of humble pie if, come the shell company deadline on AIM; a good few AIM listed companies do not make the step to OFEX. There is no where else for them to go.

It is not just shell companies though. AIM listed constituents with a market capitalisation of sub-10 million really have no place on AIM. The costs simply do not make it worth while in the majority of cases. There will come a time when, like dominoes, AIM traded constituents will take the decision to move. It only takes one. The first companies are inevitable, as soon as it starts, I seriously think that AIM will have trouble holding on to a vast quantity of its constituents. Excuses for maintaining a senior listing will fade, as more and more realise that in many cases it is nothing more than a vanity-fuelled exercise. Some claim that the reason they are listed there is because it is the only way they could get funding. This is changing. If the investment proposition is strong enough, there is an army of institutions and wealthy individuals that would happily back an OFEX listed company. Merrill Lynch, Gartmore, SVM, Nigel Wray - the list goes on and on and includes the biggest names in the City. The ONLY reason companies go to AIM is because that is where they are directed by the broker/NOMAD as they themselves are incapable of raising money for many propositions anywhere other than AIM. This too is changing. The humble public offer is also making a welcome return.

It is time to take a leap of faith. I don't cover that many companies on OFEX at the moment, but there is a mountain of undervalued gems still waiting to be discovered. Two constituents that I follow on WatsHot, Ashpool & MyHome, have doubled in the past 12 weeks. There is more to come from both of these constituents and others too. An Indian music company, Saregama, has just seen a return to profitability. Sound Alert is showing great promise too. Techclean, a little known sub-1m market cap franchise company with just a handful of shareholders, has recently seen director share purchases and is now seeking permission to restructure the capital of the business in order to pay dividends. Again, an opportunity is clearly apparent here. There are countless others. These situations will not remain unnoticed indefinitely. There is a sea of change sweeping over the junior market - but it could leave many behind. This is a rallying cry to all those that snub OFEX. If you don't get over your own misconceptions of what OFEX is, you will miss out. It has moved from being a haven for the stupid, to a haven for the brave and now it is a haven for those with foresight. My advice is to be one of the latter, not end up looking like the former.

There are very few brokers that do not trade in OFEX shares and therefore, one can transact bargains with great ease. If your broker doesn't currently deal in OFEX, it is foolish, backward and entirely disconnected from the City. It is my contention that over the course of the next 12 months, there will be at least 100 AIM listed constituents that decide to take the step up to OFEX. I say step up, as for many, whose shares rarely trade and enjoy very little liquidity, OFEX really could be a breath of fresh air. Aside from that, the fact that a company could realistically save in excess of 100,000 per annum just switching markets and sacrificing little else, is reason enough in many cases. With European legislation also threatening listing costs, one has to question how long AIM will be financially viable for many of its constituents.

In the last 6 weeks, through the new Plus Markets trading platform, it has become possible to transact buy and sells of AIM listed companies away from the LSE. I imagine that in the next 4-6 months, Plus will merge its trading platform with OFEX. This is likely to coincide with a raft of AIM constituents joining OFEX, many of whom have seen greater liquidity in their shares via Plus, than via the their official AIM listing on the LSE. It is not a question of if, but rather when this all happens, as it surely will. When Plus and OFEX become one, when the enlarged Plus Market has AIM constituents fleeing to it in their droves, retail punters that enjoy smaller company investing will have little place to go. Don't get left behind. It is time to change, it's time to board the OFEX express.

cheers GF.

No problems at all now on that market re to liquidity.

cheers GF.

Disagree.

Try and sell some of your holdings in decent volume and will be offered way below the bid price.

FACT.

Ive done it, no problems at all. I suggest you revisit the new market and try it out yourself.

cheers GF.

Back to top.

cheers GF.

MATT,

Certainly in the past what you say was correct, but recently I think things have changed on OFEX, and there is competiton between Mm's in at least some stocks.

I currently only hold one Ofex stock, CDE, and I have noticed some decent sized sells there at close to the bid, although the stock is in short supply, so maybe they were pleased to take it anyway.

IMHO, Ofex is about to become a much bigger market, and will, IMO, become the market for smaller junior companies to list on, before moving up to the AIM market.

Despite what some people think, the Ofex is regulated at least as much as AIM, and maybe more so, so I think the risk element is certainly no greater than AIM, and could be less.

One of the key things about Ofex is that it is much less expensive to get a listing than on AIM, but it is pretty tightly regulated (isn't everything these days).

Matt,

One or two Ofex stocks have had a good run lately.

My own favourite is Concorde Oil and Gas, which I have held since the early days, and I have strted a thread on CDE here on Moneyam, if you want to read about the company.

Liquidity in the longer term here shouldn't be an issue, as they are committed to transferring to AIM as soon as they conclude a deal and lose their cash shell status.

MYhome is another superb performer, IMO, and has trebled recently, is a sound business model, and makes a profit!

Look at the growth at Myhome, another small acorn starting to sprout into a larger tree.

IMHO Ofex has some gems, and these are likely to become more common as the AIM cash shells move down due to the new reguations. More companies will increase liquidity, and interest, IMO.

And OFEX is due to be renamed PLUS Markets, or similar, I believe, so a new name may indeed herald the start of a new and more exciting era for our most junior market.

Mighty Micro,

Yes indeed, in fact some people say Ofex is now MORE regulated than AIM!

Recent events with LGB, and possibly NML, possibly suggest that this may have some substance to it.

And Ashpool and Heritage Petroleum have had fantastic runs. watch out for Ashpool going even higher very soon, Command TV is about to announce NEW CLIENTS.

I think if you go deeper into Lukes article above it will be companys coming down from Aim onto ofex that will be the norm and not the other way.

cheers GF.

Just like to say aswell its just as easy to buy an Ofex stock with the majority of brokers as it is any other stock. Just as cheap aswell, this used to be the thing that used to put me off initially.

cheers GF.

PMK/ofex website very well presented and worth a look. you even get a sliding line to run over a share showing daily trades. PMK sp still good value.

GF,

Squaregain allow online trading of Ofex stocks, another incentive to those that haven't traded it before.

Yup and so do the Share Centre. I think Jarvis and T D Waterhouse do aswell. Others use phone accounts. Its all so easy and not a thing to put investors off.

cheers GF.

Feonic up nearlly 50% already this morning. please take a look at the individual thread.

cheers GF.

Like the look of a couple of other stocks there too:

SHE (Sheba Exploration) - mc 1m - drilling update due soon - last RNS reported good progress.

DOM (Dominion Energy) - mc circa 3m - raised money a few weeks back - any positive drilling results could see some gains.

All IMHO.

Yup theres a lot missing out here Double6.

cheers GF.

Just gone up 61% now Feonic, and still far far more to come. We still havent had the whispers from the City yet here either.

Just picked up some ofex shares I like the look of--CEG china education, CDE-concorde oil, and China biotech CBHO wish me luck--anyone else in these?

They look corkers MP. My own preference is Ashpool ASHP where Command TV is about to release new clients list in the next few days, the present established ones beleive it or not are QUIZMANIA and THE X FACTOR.

cheers Gf. Ps, dont be suprised to see some link up with Poker very soon.

Rumours on other boards of big client notification tomorrow from Command TV part of the Ashpool company. Big buying already this morning but no move in share price as yet.

cheers Gf.