Deutsche Börse is the world’s largest stock exchange organization by revenue, profitability and market capitalization. In April 2012, Deutsche Börse Group announced that it would close the First Quotation Board of the Frankfurt Stock Exchange because of “massive and frequent suspected cases of market manipulation.”
The First Quotation Board segment of the Frankfurt Stock Exchange open market has been closed to new admissions since December 2011 and will close entirely on December 15, 2012. This means that companies currently listed on the First Quotation Board segment must upgrade to either the Entry Standard, General Standard or Primary Standard segment of the exchange or they will be delisted. For the approximated 450 affected companies the question now arises whether they intend to comply with the stricter rules or prefer to leave the stock exchange. The closure of the First Quotation Board will make the Second Quotation Board now known as the Quotation Board, an appealing option for issuers seeking to become publicly traded.
All companies qualify to be included in the Quotation Board when their shares are listed or included at another international or domestic exchange-like market recognized by Deutsche Börse, and also when they apply for admission to the Open Market. By using a listing from accepted regulated markets, issuers are able to easily enter the Second Quotation Board of the Frankfurt Stock Exchange.
The Second Quotation Board offers two venues for trading: the XETRA 1 for global electronic trading, accessible by individuals and institutions across the world; and the Frankfurt Stock Exchange Floor/XETRA 2 for German investors. Issuers on the Second Quotation Board have the advantages of access to a globally recognized venue with a timely and easy and cost efficient listing process and without burdensome reporting requirements.
Companies now listed on the First Quotation Board wanting to have their securities publicly traded on the Frankfurt Stock Exchange can up-list to the “Entry Standard” of the Frankfurt Stock Exchange if they are able to meet the new minimum requirements, or list on another regulated exchange-like market recognized by Deutsche Börse and dual list on the Frankfurt’s Quotation Board.
Issuers already listed on the Entry Standard segment of the Frankfurt Stock Exchange prior to July 1, 2012 are “grandfathered” and do not have to meet the new Entry Standard Requirements.
The “Quotation Board”
The new Frankfurt Stock Exchange market segment “Quotation Board” provides initial and secondary listings of bonds and secondary listings of shares. This means that for the initial listing of shares on the Frankfurt Stock Exchange the “Entry Standard” is the easiest tier for listing qualification.
An initial listing without a public offering will no longer be possible on the Frankfurt Stock Exchange as of December 31, 2012.
In addition to the obligation to publish a prospectus further requirements for the inclusion of shares for trading on the “Entry Standard” have been established. The issuer must have issued capital of at least €750,000 and must have been in existence for at least two years. The nominal value per share must be at least €1.00 and the minimum free float after listing must be 10%. The shares in the free float must be held by at least 30 shareholders or owners.
The application for admission must be filed by the issuer together with a qualified trading participant such as a bank or other approved financial service providers. In the course of the application the issuer further has to demonstrate that it is ready for the capital market and that it has been sufficiently informed about its obligations as a capital market participant, including that it has appropriate risk management and internal control systems in place.
In addition to the mandatory yearly financial statements, all listed entities must publish a half-yearly financial statement with an abbreviated balance sheet, profit and loss statement, notes and management report. Issuers from an EU-country must prepare the financial statements and notes according to internally accepted accounting rules or according to the local laws of the jurisdiction in which the issuer has its registered office. Issuers from outside the EU are only allowed under certain circumstances to prepare the financial statements under the respective local law.
All ongoing reporting obligations must be fulfilled directly by the issuer and all information must be submitted in electronic form with Deutsche Börse . These new ongoing obligations apply also to issuers whose shares are already included in the “Entry Standard”, i.e. “grandfathering” is not possible.
For the purpose of the upgrade to the Entry Standard the requirements for the inclusion in the Entry Standard include the publication of a prospectus approved by the German Financial Supervisory Authority (BaFin). Issuers who cannot fulfill the requirements of the “Entry Standard” or the much stricter ones of the “Prime Standard” or “General Standard,” will be delisted on December 15, 2012.
Alternative Listing on Accepted Exchanges
For issuers whose securities are listed or included on an alternative international or domestic exchange-like market recognized by Deutsche Börse, dual listing is a more timely and cost effective option than meeting the new Entry Standard segment requirements. In order to determine which alternative exchange is the most beneficial to an issuer seeking the Frankfurt listing, a variety of factors should be considered including domicile, operating history, funding needs and float structure. An alternative listing may prove to be less expensive and require less time than up-listing from the First Quotation Board by meeting the new criteria for listing on the new Quotation Board.
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