The London Stock Exchange today announced the launch a new research service designed to address the need for greater coverage of small cap companies listed on the LSE’s main market and AIM. The research service, called PSQ analytics, includes three independent research providers: Independent International Investment Research, Argus Research, and Pipal Research and will charge companies around £10,000 in order to be covered. The service will be free to investors, and research will be distributed via PSQ’s website as well as leading information networks.Companies which choose to be covered under PSQ analytics will be assigned randomly in a pre-determined order to one of the three firms providing the research. The research providers have spent a fair amount of time working together in order to set up a process by which the three providers share common methodologies and produce research that shares a uniform presentation format.
Currently, the PSQ website contains sample research on Planet Payment, Abbey Protection, The Local Shopping Reit, and DQ entertainment, all four of which are London listed small cap companies, and all four of which partook in a pilot of the service. Research in general put out by PSQ will consist of factual data and analysis but won’t offer investment advice, specific recommendations or price targets.
Random assignment of a research provider and a lack of specific investment advice may serve to mitigate bias somewhat; however, rightly or wrongly, investors have traditionally been wary of paid-for research, feeling that the knowledge of exactly where one’s paycheck is coming from may be too big a factor to completely dismiss. It remains to be seen whether PSQ will be able to overcome this particular hurdle.
This is not the first time a service such as PSQ has been launched. In fact the Nasdaq launched a similar service in 2005 called IRN (the Independent Research Network). Nasdaq ultimately ended up shutting down the IRN service two years after its inception due to weaker-than-expected demand from investors. The service did have a few differences from PSQ however, chief among them being that coverage under the service cost around $100,000, a significant investment for small cap companies. Bright Meridian, another firm with a similar aim opened its New York Headquarters in October of 2006 but is now defunct. Finally, the NRE, or National Research Exchange, is another firm which offers Intermediated research. The company states that it helps “public companies to secure greater visibility and liquidity in the public markets…NRE serves as a neutral broker between entities that sponsor equity research and those that provide it.”
Smaller companies have found it increasingly difficult to get research coverage in the wake of a number of changes to the research industry (the Global Research Settlement, Reg FD, etc.). Hopefully, PSQ analytics will be able to reverse this trend and allow the smaller cap companies on the LSE to attract investor interest, which in turn could result in an increase in liquidity, have a positive impact on share prices, and possibly reduce a company’s cost of capital. This is not the first time that a model such as this has been tried however and it still remains to be seen whether PSQ can avoid the fate of previous exchange’s attempts at similar services.