Does Iteq have a useful role?


It is a mere infant. Iteq, the new technology market for technology companies, set up by the Irish Stock Exchange (ISE), was just one month old yesterday. With the US Nasdaq and Frankfurt Neuer markets catering for the bulk of the new Irish IT companies, does Iteq have any useful role to play?

It has already started with a firm base of six IT companies. These include Horizon Technology Group, ICON, IONA Technologies, ITG Group, Riverdeep Group and Trinity Biotech. The companies combined are small relative to the number in the overall market; the market capitalisation at €3.4 billion (£2.68 billion) represents just 4.2 per cent of the total Irish market which is valued at €81.3 billion.

However, it is far more important than these figures indicate. First, it is almost as large as the entire Small Cap market which is valued at €5.3 million. Second, it is likely to become more important while the Small Cap market is out of favour.

Although Iteq was established only a month ago, the ISE, in a useful exercise, indexed that market back to December 30th 1999. That shows a 29 per cent increase in the index and a doubling in its value. In contrast, the Small Cap index showed only a marginal 2.5 per cent gain in the index over the same period and significantly, the market value of that market contracted from €5.47 billion to €5.27 billion.

The auguries, based on that data, look good. However, all six companies had been in the main official list; they remain on that list but merely took another listing on ITEQ - ITG didn't specifically ask for the listing even, but this followed consultation. Nevertheless that process has given the embryo index a base but its real success will be judged on its ability to attract new IPOs, and others. With some 40 companies understood to be lining up IPOs over the next 15 months, that's a prize well worth going for.

The new index is directed at companies looking for a primary listing or secondary listing. It provides listings for "companies which may not be revenue earning but which are innovative, high growth companies once they comply with some additional regulatory requirements" according to the ISE. Another stumbling block has been the requirement of companies which make large acquisitions to seek shareholders approval.

Developing companies, for example, often have substantial sales but little or no profits. When making large acquisitions there was a requirement to seek shareholder approval unlike the US where there is no such requirement. Now those companies solely on Iteq will have a similar regime to the US. The new rules go a long way to meeting the criticism that the full listing rules were too rigid for developing technology companies and failed to recognise their unique characteristics.

However, with so many IT companies expanding in the US and Continental Europe, the main focus by the ISE is likely to be on secondary listings. The ISE has also noted that admission to Iteq can be achieved in the same timetable, using essentially the same admission documents as in the other markets.

Many Irish companies which have shares quoted in the US are in the form of American Depository Receipts (ADRs). The new market will also deal in these instruments which, according to the ISE can ensure greater flexibility "of trading across exchanges and therefore more liquidity in their quoted securities". And unlike shares, trading of ADRs on Iteq, which are also traded on the US stock exchanges, is exempt from stamp duty.

The ISE move is a direct response to the growing number of Irish IT companies which have bypassed the exchange. Some of these include Conduit which is listed on the Neuer Market, SmartForce on Nasdaq, Trintech on Neuer and Nasdaq and Parthus and Baltimore on Nasdaq and London. If Iteq cannot expand much beyond the current base, then it will be the enfant terrible of the ISE. However, with the State housing most of the major IT international companies, it would have been negligent of the ISE not to have introduced such a market which should provide a focus for the industry. The real beginning, however, could be when (and if) it trades its first ADR.