The Irish Stock Exchange is examining the prospects of launching a new market to cater for smaller Irish firms.

Any new market would not be launched until towards the end of the second quarter of next year, according to exchange sources.

"The intention would be to create a market that better serves smaller companies seeking to list in Dublin," said a spokesman for the exchange.

Market sources say the move is not a reaction to the recent success of the Alternative Investment Market in London in persuading Irish companies to list in London rather than Dublin.

They acknowledge that the impending enactment of the European Union Prospectus Directive next July, which will impose further regulation on listed companies, is one of the reasons behind the move.

Smaller cap companies say they are already struggling to meet the regulatory burden and costs involved in a full market listing. At the same time, Dublin's Developing Companies Market (DCM) has failed to provide an attractive platform for Irish businesses coming to the market.

However, the success of AIM in attracting Irish companies, along with its decision to adopt the lighter regulatory option under the incoming directive are seen as increasing pressure on the Irish exchange. London's Ofex market is similarly looking to combat the growth of AIM.

Recent attempts by the Dublin exchange to launch new initiatives have met with mixed success. It established a dedicated technology market, ITEQ, just as the dotcom bubble was bursting and later failed to attract significant interest in covered warrants.

However, it has been very successful in securing listings by investment funds and specialist debt instruments.