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Frankfurt Listings 101


The popularity of the Frankfurt Stock Exchange (“FSE”) is demonstrated by the increasing number United States companies seeking listings. There are presently more than 3,200 United States companies listed on the Frankfurt Stock Exchange. The FSE is owned and operated by Deutsche Börse, which also owns the clearing company Clearstream. The FSE is the largest stock exchange in Germany and boasts a share turnover of over 90% , the world’s 3rd largest trade-place for stocks, as well as the world’s 6th largest by market capitalization. The FSE’s fully electronic trading system Xetra® is one of the leading electronic trading platforms in the world. With its launch in 1997, the FSE succeeded not only in strengthening its own competitive position. It also created attractive framework conditions for foreign investors and market participants.

To many US companies the FSE seems to be the “wild wild west” because of the lack of regulation of the German markets in comparison to those of the United States. The FSE encourages investor relations activity, road shows and other promotional activities and the securities of companies listed on the FSE are free trading even those held by controlling shareholders and management of the listed company.

Access to Capital The FSE has access to greater than 1/3 of the investment capital in the world. The FSE receives massive exposure to investor capital with more than 250 international trading institutions and more than 4,500 traders worldwide. Investors directly connected to the FSE represent a full 35% of the world’s investment capital. This means that a listing on the FSE gives companies access to greater than 1/3 of all the investment capital in the entire world. And Germany happens to be home to the largest capital market conference in all of Europe, with over 5,500 participants and more than 100 exhibitors every year.

Enhanced Liquidity The FSE does not impose restrictions on the sale of securities including securities held by officers, directors and beneficial owners. There are no tradability restrictions or registration requirements.

Prohibition Against Naked Short Selling In June of 2010, Germany passed regulation banning naked short selling. Critics blame short sales as a major cause of the US market downturns. Naked Short sales occur when short sellers manipulate stock prices by taking naked short positions, where they sell the stock without actually owning it and then use negative news announcements, to drive down the stock price so that they can cover their short position at a much lower price.

Timely Approval Process A listing on the FSE is takes only 5 to 6 weeks from the time it is submitted to completion. Limited Regulation To adhere to the requirements of Sarbanes-Oxley is extremely costly. So costly, that, since passage of the Sarbanes-Oxley Act, many U.S. companies have found the ongoing expense to be reason enough not to be public and have gone private. FSE is a Stock Exchange The FSE is an internationally recognized stock exchange, just like the NASDAQ or the New York Stock Exchange. The liquidity of stocks listed on the FSE is the highest in all of Europe, including the London and Paris Stock Exchanges. Market liquidity and trading volume on the FSE is number three in the world, behind only the NASDAQ and NYSE but without their listing requirements.

Frankfurt Listing Categories In Europe, there are two ways of accessing the capital market: the European regulated markets and markets that are regulated by the stock exchanges themselves. On the FSE, companies that are listed in the Regulated Market are admitted to the General Standard or to the Prime Standard. Companies that trade on the Open Market which is regulated by the stock exchange may be admitted to the First Quotation Board or to the Entry Standard segment if they meet additional transparency requirements. Issuers in the General Standard and the Prime Standard fulfill the highest European transparency requirements and gain all the advantages of a full listing. The Entry Standard is particularly suited for small and medium-sized companies.

First Quotation Board All companies with an initial listing in Open Market are included in the First Quotation Board. It is directed at domestic and international companies for a cost-efficient and fast admission of their shares to trading. The First Quotation Board application for inclusion must contain a clear description of the security to be included as well as provide detailed information on the issuer’s business in the form of a prospectus or issuer data form which is subject to approval by the national regulatory authority. Companies listed in the First Quotation Board must comply with the rules of European law including insider trading rules, market abuse directive as well as the provisions governing public offerings.

The basic requirements for the First Quotation Board are as follows: The company must have had €500,000 in paid in capital, or assets, at some time prior to listing. The €500,000.00 in paid in capital or assets and must be confirmed by a letter from a certified auditor or admitted attorney. The company must provide a list of 30 shareholders, their address and the number of shares they own. The Application must be submitted by a market participant. Proof of minimal nominal value of shares to be includes or certificates amounting to $.1 Euro. Entry Standard This is a segment of the Open Market. Its legal framework is defined by the “General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market on the Frankfurt Wertpapierbörse”. This segment is open to companies that want to include their securities in trading quickly, easily, and cost-effectively with reduced formal requirements.

Entry Standard companies have to publish audited annual financial statements, including a management report, in German or English within six months after the end of the reporting period. The financial statements must be prepared in accordance with national ac- counting standards (nat. GAAP, e. g. HGB in Germany) or International Financial Reporting Standards (IFRS*). Interim reports must be published no later than three months after the end of the first six months of every financial year. In addition, company news items that could be of significance for the valuation of the company’s shares must be published. A brief company profile, updated annually, must be made accessible on its website, as well as a continuously updated corporate action timetable.

General Standard This segment is subject to the statutory requirements for the Regulated Market. The General Standard regulations are binding for all companies seeking a cost-effective listing in an EU-regulated market. The General Standard is suitable for companies that primarily target national investors. Issuers in the General Standard who are domes- tic issuers must publish an annual financial statement within four months after the end of the financial year. This includes the annual financial statement, which is approved in accordance with the national legislation of the country in which the company is domiciled, a management report and a so-called “Balance Sheet Oath”. If the company is an allied company, the annual financial statements must also be compiled at the consolidated company level, where the international reporting standards in accordance with IFRS / IAS or under specific preconditions US GAAP, Canadian GAAP or Japanese GAAP must be applied. In addition, a domestic issuer must publish a half-yearly financial statement within two months after the end of the reporting period. Interim reports must be published for the quarters 1 and 3, including essential events of the reporting period. The issuer also has to publish company news items that could influence the stock market price in ad hoc disclosures. Reaching, exceeding or falling short of reporting thresholds must also be disclosed.

Prime Standard Above and beyond the requirements for the General Standard, the Prime Standard requires issuers to meet international transparency requirements. This is because the Prime Standard is tailored to the needs of companies wishing to position themselves to attract international investors. It offers investors the highest transparency standards in Europe. Issuers in the Prime Standard have to fulfill additional transparency obligations compared with companies in the General Standard. For example, they are obliged to prepare quarterly financial statements and to maintain a corporate action timetable in the Internet. Prime Standard companies have to report in English and in German and must hold at least one analyst conference per year.

This memorandum is provided as a general informational service and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed in the material do not guarantee similar outcomes.

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