TCS Daily

Neuer Markt Blues

By Jeremy Slater - October 15, 2002 12:00 AM

Europe's last remaining high-tech bubble popped in late September in Frankfurt when Deutsche Boerse announced it would close its high-growth technology offshoot, Neuer Markt.

The nearest thing Europe had to America's Nasdaq will be amalgamated into the Deutsche Boerse's other markets, with many of the new index's listings finding a new home as penny shares. This is a blow for continental Europe's biggest equity market and for the 20% of the German public who are investors in shares or funds.

Most of the investor excitement with Neuer Markt was fueled by new company listings, otherwise known as initial public offerings (IPOs). The market opened in 1997 and grew rapidly over its first three years of trading. At one stage, in late 1999 and early 2000, the Neuer Markt was regularly adding two or three companies a day; many were recording end of first day trading prices higher than the issue price set that morning.

However, interest in the new market waned following the global equity price peak in early March 2000. The number of listings on the Neuer Markt last year was 11 and only one company, REpower Systems, has gone to the market in 2002.

The Neuer Markt, as an investment tool, also had to fight accusations of poor accountancy practices and fraud. Sentiment among retail investors was damaged by a belief that they weren't able to buy into many of the successful IPOs, because they were sidelined by the big institutions. Average investors - rather cynically referred to by some in Frankfurt as "pigeons" - found themselves picking up the crumbs from the cake. Add to this the free fall of high-tech stocks and an already fragile interest in share buying from the German public was further dented.

"There are a lot of problems with the Neuer Markt as it has become illiquid. Institutions and retail investors are not interested in the market and nobody wants to trade," said a Frankfurt-based Neuer Markt trader. "The whole index is down 95% on its peak, it really was a bubble and everybody played the fantasy."

A bubble that was responsible for many newly listed companies' prices spiking on the second or third day of trading before falling as profit takers moved in. Another feature of this market was the massive increase in the price set before officially listing, the subscription price, and the figure that the shares went for at the opening bell of the next day of trading. On one occasion this could be as much as 160%.

It was also a bubble that pushed up the price of some of its star performers by 1,000%. Media company EM.TV & Merchandising was a Neuer Markt star and saw its price rise from a first day opening of €34.50, following a 10-for-1 stock split, to nearly €120 in March 2000.
With such new wealth it was able to make successful bids for the rights for Formula 1 racing and the Muppets, leading wags in Frankfurt to claim that a famous children's TV show would be renamed Sesame Strasse.

However, accounting anomalies led to the company's founder being forced to leave and since then shares in EM.TV have fallen to 68 cents. The Deutsche Boerse claims that the closing of the Neuer Markt has more to do with the introduction of new regulations that will improve transparency than a collapse in investor confidence. It also denies that earlier rules were made too lax to encourage new companies on to the index.

"Companies had to report on a quarterly basis and to a high accounting standard," said Candice Adam, spokeswoman for the Deutsche Boerse. "There will be two listing segments; prime standard, with additional international transparency requirements and domestic standard with lesser requirements."

The closure of the market is expected to happen by the end of 2003. At its peak over 300 companies were listed and currently, according to the Deutsche Boerse web site, 262 continue to trade on the index. It will remain to be seen how many are left by the Neuer Markt's final trading day sometime next year.



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