THE Irish Stock Exchange is aiming to have its new Developing Companies Market up and running by the middle of this year, subject to agreement with the Department of Finance on the tax breaks that investment in the new market will allow.

But already there are growing doubts about how effective the new market will be in providing a market for small to medium sized companies who currently find the stock market an unattractive or unhelpful vehicle for their expansion.

However, Stock Exchange general manager, Mr Tom Healy, is positive about the future of the DCM: "It should be a natural route for Irish companies now looking to the Alternative Investment Market in London. "We believe that there are a good number of SME's who are likely candidates for the DCM," he said.

There is unlikely to be a minimum market capitalisation for the market, he added, but market sources believe investors are unlikely to find anything with a market capitalisation of less than £5 million very interesting.

The exchange hopes to have about a dozen companies listed within the DCM's first 18 months.

Mr Healy emphasised that the DCM will not be a vehicle for green field or start up companies, and added that a trading record of probably one or two years would be needed for a listing.

This is aimed at ensuring that there are none of the casualties such as Sportsfield that plagued and ultimately discredited the Smaller Companies Market when it was launched a few years ago.

Excluding start ups will mean that companies like telecommunications group, Stentor, which has yet to start trading, will still have go to the AIM for funding.

Stentor is currently raising £3.5 million on the AIM. The current discussions between the Stock Exchange and the Department of Finance are aimed at getting tax breaks for investors who put money into new issues on the DCM.

"We have proposed that investors in the DCM should receive BES type tax breaks on their investment in a new issue." But by making the proposed market attractive to private investors who benefit from tax reliefs, the Stock Exchange risks making the DCM unattractive to small to medium sized companies which are aiming to attract institutional investment.

Companies such as the Bray packaging group ILP went for a London listing specifically with the aim of getting institutional investors into its share register. It would be unlikely to find a market based on tax based investment by private investors an attractive proposition.

However, Mr Healy is confident the new market can work. He said discussions with industrial development organisations such as Forbairt and Shannon Development, had indicated a pool of likely candidates for the DCM.

One key to the attractiveness of the market will be its cost - with a DCM flotation likely to cost about £80,000 this is unlikely to be an inhibiting factor.