Flaunt the imperfections: Information, entanglements and the regulation of London’s Alternative Investment Market

Abstract

The literature on financial market design is predicated on the efficient market hypothesis (EMH), advocating transparency, liquidity and universal information with a view to capturing efficient prices. We provide a counterfactual: the 1995 formation of AIM, the London Stock Exchange’s junior market. AIM employs an alternative mode of market organization based on market imperfections. Our empirical study shows how AIM draws on reputation, social relationships and practitioner knowledge to organize market governance. We argue that the market’s design should be understood as capable of producing informationally efficient prices. We characterize AIM as having a ‘Whitean’ structure, compared with the ‘Fama’ structure of main markets. We conclude that the ‘Whitean’ producer market is a viable design option for financial markets.