THE introduction of the Developing Companies Market (DCM) is in doubt as the Government and Stock Exchange have so far failed to agree on the necessary tax breaks, it emerged at the Irish Capital Markets and Investment Conference yesterday.

It was originally planned that the market be up and running by the middle of this year and that investment funds be channelled into smaller companies.

The Government is proposing a five year BES type tax break for investors in the new market. Dr Michael Somers, chief executive of the National Treasury Management Agency and a Stock Exchange board member, told the conference this was not enough.

"Having small companies listed would be in the Stock Exchange's favour," he told the conference in Dublin yesterday. "But the only tax concession available from the Department of Finance is for investors to hold the same stock for five years. That is no use to the exchange and would present serious liquidity problems."

Other sources at the exchange confirmed it was still in negotiations with the Department of Finance about the issue. "We are hoping to come to a compromise where you would be able to trade between different companies in the DCM," the source said.

Dr Somers said £3 billion left the country last year in private capital or residual flows and the amount in the first quarter this year was almost £600 million, according to Central Bank figures.

A lot of that money could remain in Ireland, if the market was more developed, according to Ms Ann Fitzgerald, secretary general of the Irish Association of Investment Managers. She added her voice to the calls for the market's launch to be made a priority.

"The Developing Companies Market, in effect an incubator unit for full SE membership, should get full support. From it will come many companies of the future.

Dr Somers told the conference the market has yet to be convinced that Ireland will be among the first group of countries to enter monetary union.

Pointing to the "spread" or difference between Irish and German five year bond interest rates, he said it was obvious the market had yet, to be convinced.

Danish rates are closer to Germany's than ours, he said. And Denmark has an opt out of monetary union negotiated.

He also pointed out that if the authorities were fully convinced monetary union would go ahead they would be issuing debt in deutschmarks rather than pounds.