There has been a stream of stock markets for small companies over the past three decades, but with the latest, the Alternative Investment Market (AIM), in decline, is it time for another go at this problem?

Aim started 2010 with 1,293 companies quoted there – far better that the 10 when it opened 15 years ago, but a fall from 2006 and 2007 when there were more than 1,600.

The 36 companies admitted last year is the lowest annual intake ever and compared with 462 four years ago. True, there is a recession hitting small firms and share prices were volatile in 2009, making flotations tricky, but even the companies already on Aim are jumping ship. Some 293 firms delisted last year, with only nine of them moving to the main market.

Aim is the latest of a line of markets aimed at allowing small firms to raise equity capital and investors to trade their shares readily. The Unlisted Securities Market, the Third Market, Ofex and Plus have tried to perform this role as well as Aim, which, like the original USM, is backed by the London Stock Exchange.

But Aim is polarising into very big companies – large enough not to need a small-companies market – and the minutely small. Songbird Estates, the Canary Wharf owner, has a market value of almost £1bn and the Playtech software group and Bankers Petroleum are close behind - big enough to be in the top 200 companies on the main market. Yet two-thirds of Aim’s companies are valued at less than £25m with 122 of them worth under £2m.

The polarisation caused by companies quitting means the average size of Aim companies is now £43m, double the 2006 average despite share prices collapsing.

For the right companies, Aim still allows capital raising. The £5.5bn subscribed in 2009 is one third of the peak year, but that was 2007 before the recession started. And for the right companies there is liquidity: 4m bargains were traded last year with a record number of shares dealt.

But it means Aim is maturing into another version of the London Stock Exchange’s main market, despite the laxer listing rules that mean a quarter of its quoted companies are foreign firms seeking to exploit Aim’s lower requirements.

That leaves a gap for a strong market that can raise money for genuinely small firms at low rates. No wonder the Treasury is currently looking at alternative sources of capital for small companies. It may be time to fold Aim into the main market and create yet another new small-cap exchange.

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