Germany Set to Tighten Listing Rules

Article excerpt

German regulators have welcomed measures in the government's proposed Financial Market Promotion Act, designed to improve investor confidence in the country's equity markets, especially the battered Neuer Markt.

Last week the all-share index of Frankfurt's high-growth market dipped below the psychologically important 1,000 mark for the first time since the month it was launched when it hit 997.25 on Thursday. The index started with a base value of 1,000 as of December 31, 1997. In comparison a year ago the same index stood at 5,669.23.

The German government has proposed new laws that it hopes will help restore faith in listed companies by making them liable for damages if they provide false or misleading ad hoc announcements, or if they do not make announcements about market-sensitive information on a timely basis.

Other changes include the publication of deadlines for lock-up agreements and transactions by insiders, and giving stock exchanges more freedom to set their own rules.

The government plans to introduce the legislation by 2002, if it gets parliamentary approval.

Shearman & Sterling, the law firm, highlighted the need for legislation in its recent Neuer Markt report: Gateway to European Capital Markets - key to growth. Roland Berger Strategy Consultants and Dresdner Kleinwort Wasserstein (DrKW) also contributed to the report.

The government proposal suggests that BAWe, the German securities regulator, gain new powers to fine companies up to E1.5m ($1.3m) if they fail to comply with the rules on ad hoc announcements. For example, companies will only be able to report comparable figures so that investors will be able to see real changes.

Regina NoAner, a spokeswoman at BAWe, welcomes the move. She says: "It strengthens our hand as previously we could fine a company for not making an announcement or making it late, but we had no powers over marketing abuses."

DrKW studied ad hoc disclosures in the Neuer Markt report. The bank found that for the year starting July 13, 2000, the 20 companies with the best price performance on the Neuer Markt publish on average 7.71 ad hoc disclosures per year with a 0.92% degree of error.

In contrast, the 20 companies with the worst price trend released on average 13.21 disclosures with a 2% margin of error. DrKW says: "Many of the poor performers obviously try to curb this downward trend with an expansive information policy."

The bank also examined the quality of all the quarterly reports of companies listed on the Neuer Markt in 2000 and 2001. DrKW says: "We found a very mixed bag with regard to the quality of reporting. Clear and precise details were just as common as incorrect calculations and excessively aggregated figures. …