The UAE needs a less regulated and more flexible alternative market for smaller companies that are not prepared to give up substantial control of their businesses.

"It may be better to open an alternative exchange for family-owned businesses and companies that have smaller capitalisations," Dr Nasser Saidi, Chief Economist, Dubai International Financial Centre (DIFC).

He said there were more than 6,000 companies in Jebel Ali Free Zone alone and family-owned companies comprised more than 85 per cent of businesses here.

"And there are interesting opportunities for listing in these sectors," he said.

Imad Awad, Head, Equity Capital Markets, NBD Investment Bank, agreed that an alternative market similar to the Alternative Investment Market (Aim) was needed.

The AIM is a sub-market of the London Stock Exchange (LSE) that allows smaller companies to float shares in a more flexible regulatory system than the one that applies in the main market.

"The market here should sooner or later have an AIM market," Awad told Emirates Business. "The region needs at least one market like this. You will attract more professional investors plus you will also create a place for entrepreneurs to fund projects."

These comments come as analysts forecast that the IPO market will see a dip in the short term due to negative sentiment among investors and issuers.

Globally, IPO activity in terms of numbers has been much lower in third quarter (159 deals) compared with second quarter (267 deals) and dropped significantly compared with third quarter last year (440 deals), figures from Ernst and Young show.

However, the value of IPOs in the GCC almost doubled to $11.7 billion (Dh42.9bn) in the first three quarters of this year compared with last year's figure of $5.9bn. But this trend is expected to take a downturn due to the impact of turbulent financial markets, overall market uncertainty and the slowdown in many of the world's economies.

It is felt that focusing on untapped markets – such as smaller companies and hesitant family businesses – could provide a new source of momentum.

Professor Tim Jenkinson of Said Business School, Oxford University, said an alternative market in this region was "feasible" and "something that should be on the top of the agenda". "This does not necessarily mean that the GCC has to have an alternative market now," he told Emirates Business. "It depends, it could be in three years or five years' time, but there is no doubt in my mind that the idea of an unregulated or less regulated market is here to stay and a lot of growth is going to be there."

Citing official figures, he said, more and more listed companies were now shifting to the less-regulated AIM. And every year at least 100 overseas companies were listing on the alternative bourse.

The AIM, which was launched in 1995 and has raised almost £24bn (Dh139bn) for more than 2,200 companies, provides flexibility through less regulation and no requirements for capitalisation or the number of shares issued. Some companies have since moved on to join the main market, although in the last few years significantly more companies transferred from the main market to the AIM. In 2005, about 40 companies moved directly from the main market to the AIM, while only two companies moved from the AIM to the main market.

"It is a striking fact that at the LSE in terms of real companies listed – by real I mean not investment banks or investment vehicles – there are now twice as many quoted on AIM than on the main market," added Jenkinson.

"There are about 1,600 companies quoted on the AIM and about 750 on the main bourse," he said.

Jenkinson said markets have created new regulations every time there has been a crisis. And while this was well-intended some companies felt that going public in a main market could mean board of directors would spend most of their time worrying about compliance and not value creation.

"There are certain questions that have been raised about whether regulation has now gone too far," said Jenkinson.

There has been widespread debate in the wake of the market crisis about whether over-regulation could be more dangerous than under-regulation. Some say that over-regulation will not only tend to slow economic recovery, it may even sow the seeds of a subsequent crisis.

Allan Meltzer, professor of political economy at Carnegie Mellon University and the author of A History of the Federal Reserve, said lawyers and politicians wrote rules and markets developed ways to circumvent those rules without violating them.

"The financial markets offer many examples," he said. "In the 1970s Federal Reserve Regulation Q restricted the interest rate that banks and thrifts could pay depositors. In response, the market developed money market funds that circumvented the regulation.

"In the late 1980s the government set up the Resolution Trust Corporation to buy the mortgages held by failed thrifts. The result: Most of the thrift industry was eliminated and the taxpayers ended up taking a loss of about $150bn in the early 1990s.

"The perennial argument from regulators is: 'If only I had more power'. But this is not so. Regulators did not see the chicanery at Enron. Nor did they prevent the dotcom bubble or the Latin American debt problems in the 1980s." United States securities regulator Roel Campos last year suggested that the AIM's rules for share trading had created a market like a "casino".

"I am concerned that 30 per cent of issuers that list on the AIM are gone in a year," Campos told the Guardian.

"That feels like a casino to me and I believe investors will treat it as such."

The comment resulted in several angry responses, including one from the LSE pointing out that the number of companies that went into liquidation or administration in a year was actually fewer than two per cent. The AIM has since issued new rules requiring that listed companies maintain a website.

The AIM faced additional criticism for allowing Langbar International to list. The £375 million Langbar scandal is the biggest case of fraud to hit the exchange to date.

It was discovered in November 2005 that Langbar had none of the assets it declared at listing and this was due in part to the failure of the nominated adviser to carry out due diligence and the exchange failing to ensure that the AIM's rules had been complied with.

After the fraud was uncovered the AIM changed the rules for advisers in 2006 and on October 19 2007 it fined Nabarro Wells £250,000 and publicly censured it for breaching the AIM's rules.

But fraud happens in both regulated and non-regulated markets, said Jenkinson.

"That is why the role of financial intermediaries and advisors is critical."

He said an AIM-like market in the region could target family-owned businesses, which the UAE's bourses have long been wooing.

"What makes the AIM attractive is its low regulatory and reporting burdens – it's flexible, low cost and cheap yet you could go public rapidly within a couple of months. AIM is worth studying," Jenkinson said.