As evidence that Sarbanes-Oxley has made it too burdensome for small companies to go public, many have pointed to the rise of London's Alternative Investment Market (AIM)
, where several American companies have chosen to list. This market is basically a haven for shakier companies that can't list on more established exchanges. A new academic paper suggests that AIM itself represents a model of financial market regulation
that warrants exploration. The basic idea is that if you have a system like Sarbanes-Oxley in place, you could also have a market that is exempt from the regulation. Smaller, shakier companies would flock to this market, but investors would know to be wary about investments in these firms. Such a market might resemble the NASD-owned OTC BB market
, which trades penny stocks, except that even that market is currently subject to SOX. You can see this concept in place to some extent in the private stock exchanges
being established by Wall Street banks, which offer companies a place to list without being subject to regulation. But these are off limits to most investors, and for smaller companies, listing on them doesn't make much sense. One possible objection is that if a SOX-less market were to exist, companies of all sorts would try to list on it, but they'd be imperiling their reputation by doing so. Most likely, the majority of companies would opt to remain on established, reputable exchanges. Seeing as the SEC is actively looking for ways to reform Sarbanes-Oxley
, it might be worthwhile to explore the possibility of allowing for the establishment of such an exchange.