Cornhill Capital Fined Over AIM Placing

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Cornhill Capital have been fined £210,000 by the London Stock Exchange (LSE) over a placing of shares in New World Oil & Gas on AIM. Cornhill was acting as a broker to the company which planned to place some 2 billion shares. That was twice the number already in issue. Cornhill sold shares to its private clients in advance of the placing with the sales to be fulfilled from the placed shares. But the placing required a vote of shareholders and they voted against it. As a result Cornhill was unable to settle the sales with the result that there was extreme volatility in the share price and the listing was suspended by AIM. The company has subsequently delisted.

The LSE said that Cornhill did not have adequate internal procedures to manage the forward selling nor did it have contingency plans for settling the sales in the event the placing was not approved.

Comment: This is yet another example of the problems created by share placings (we reported on the case of IDOX recently also) and the abusive practices that surround them. This was in essence a simple case of uncovered short selling of shares to clients by Cornhill, i.e.” naked” short selling as it is known. This practice is generally illegal (see http://www.lseg.com/markets-products-and-services/post-trade-services/unavista/regulation/short-selling-regulation ) although there are some exemptions.

It is also symptomatic of the “wild west” attitude to share trading in the AIM market. It is good that the LSE has imposed a fine in this case and publicly censured Cornhill – one of the few examples of this happening. But surely a lot more needs to be done to stop this kind of activity by brokers and other advisors in the AIM market.

Roger Lawson

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