The Deutsche Börse AG, the company which operates the German stock exchange, announced late Thursday that it planned to shut the door on its technology and high-growth Neuer Markt segment by the end of 2003. The closure is part of a major drive to overhaul the structure of the stock exchange, create market transparency and boost investor confidence.
Germany’s Neuer Markt, once touted as Europe’s answer to the tech-heavy U.S. Nasdaq, was launched in April 1997 as the leading European market for new economy issues. Young, growth-oriented companies from the fields of telecommunications, biotechnology and multi-media were listed in what was intended to be a fast-track path to high dividends.
In the early days, when the high-tech and Internet segment was mushrooming with new start-ups, the Neuer Markt grew rapidly, expanding from just two listings in the initial year to a record 133 at the market’s peak in 2000. At the time there was nothing like it in Germany, and the Neuer Markt’s leading share index, the NEMAX50, quickly reached all-time highs of 9,000 points.
An entire industry of market analysts, investment bankers, and financial consultants thrived in the off-shoots of the Neuer Markt. It was trumpeted as the fast path to riches for small-time investors looking to dabble on the stock market. And many readily accepted the market’s get-rich-quick promises as a financial mantra – that is until the new economy bubble burst and the market began to falter.
After a record spurt in early 2000, interest in the high-tech and telecom sector quickly dried up. Over the last two years what little was left of investor confidence evaporated in the wake of a wave of corporate failures and financial scandals. Since the beginning of 2002, more than 60 companies left the Neuer Markt. On Thursday the NEMAX50 was hovering at around 367 points.
"The Neuer Markt is not functioning any more... the market segment for growth stocks is a farce," said Germany’s financial daily, Handelsblatt. "The move to shut it has been anticipated by many and is long overdue."
New structures bring new hope
Deutsche Börse launched a campaign to revive the Neuer Markt last year, vowing to keep the high-profile segment afloat. At first it tried to restore investor confidence by kicking out so-called penny stocks and tightening up listing rules. But when investors continued to stay away, the exchange was forced to take drastic steps.
Wolfgang Gerke, economics professor and an expert in banking and stock markets at the University of Erlangen, told DW-RADIO that the Deutsche Börse was forced to do something and it did the right thing. Pulling the plug on the Neuer Markt was the only "logical step."
Now the Börse is reorganizing trading on its exchanges by dividing the entire market into two new segments with different transparency standards, the Domestic Standard and Prime Standard.
The Domestic Standard segment will have minimum transparency requirements, and is primarily designed as a starting block for newer and smaller companies who are not quite ready to have all of their costs become public.
The Prime Standard will have increased transparency regulations along the lines of international requirements such as quarterly earnings reports, adherence to international accounting standards, presentation of a corporate calendar, at least one analysts’ conference per year, "ad hoc" disclosure (company announcements issued through Deutsche Börse), and ongoing reporting in English.
"The new segmentation is aimed at higher integrity and attractiveness of the capital market for investors and issuers. Investors can differentiate between the regulatory standards with which the companies have agree to comply, and issuers meet their individual financing needs," the Deutsche Börse said on Thursday.
But market experts warn not to expect too much too soon. Investors will only come back once the stocks begin to rise. And that will only happen once the economy starts to get better, says Gerke.