The Neuer Markt's Trigger-Happy Regulators

The bourse cracked down on companies that don't obey its rules. Then it found out some of them had done nothing wrong

By David Fairlamb

One reason Germany's Neuer Markt quickly became the dominant exchange for European growth stocks after it was established in 1997 is that it implemented stringent, U.S.-style disclosure standards. Neuer Markt companies, for example, have always had to file quarterly reports -- something blue chips listed on some older Continental exchanges aren't yet required to do. Neuer Markt companies also must publish annual reports by Mar. 31 of every year.

But strict rules haven't stopped an 80% slump in the Neuer Markt's value since it hit an all-time high last April. Nor have they prevented a series of scandals involving exchange members who flout the rules. Since March, Deutsche Börse, the exchange's parent company, has been cracking down. But now the effort has turned into a major embarrassment because Deutsche Börse has proved no better than the miscreants at coming up with accurate information in a timely way.


 Too bad. Better enforcement is badly needed on the Neuer Markt. There have been several scandals involving top managers buying and selling their company's stock and not telling shareholders. Case in point: Early last year, Thomas Haffa, CEO of EM.TV & Merchandising, sold off stock worth $18 million without informing the market. Shares in the company have since slumped 95%. Many companies also routinely flout the disclosure rules by failing to produce their figures on time.

Since March, however, executives can be fined for buying or selling shares without telling other stockholders. And the Börse has taken to naming and shaming companies that don't report their results on time. It even delisted one company, Internet service provider Gigabell, for failing to provide details of last year's third-quarter results by this February.

Trouble is, Deutsche Börse itself has been unable to get its facts right. It turns out that 5 of the 30 companies that were named (and supposedly shamed) on Apr. 6 for failing to provide timely details of their year 2000 accounts had actually published them well ahead of the deadline. "It was a real shock when we discovered that we were on the list," says a spokesman for Rhein Biotech, a small Dutch biotechnology startup. "We filed our results in plenty of time. So we couldn't understand what had happened." Execs at the other wrongly identified companies -- Holland's Teleplan International and Germany's CyBio, Adcon Telemetry, and Gericom -- were similarly horrified.


 Embarrassed by the gaffe, Deutsche Börse has called each of the companies to apologize. It says it is now working on a new list of wrongdoers that will be produced by mid-April.

Luckily for all concerned, the error doesn't seem to have affected the share prices of the falsely accused. But it could well have caused share prices to tank, given the sensitivity of investors right now. Nor does the gaffe seem to have damaged investors' attitudes towards the Börse and its efforts to improve standards.

The general feeling among institutional investors in Frankfurt and London is that the Börse is right to clamp down in a bid to improve standards, even though it ended up with egg on its face this time. "This was embarrassing for sure, but they're doing the right thing," says Gertrud Denzer, a fund manager at Union Investment, a money management firm in Frankfurt. "Ensuring that companies obey the rules is critical for restoring confidence in the Neuer Markt." Now, it's just a matter of getting things right.

Fairlamb covers European markets in Frankfurt

Edited by Thane Peterson