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German Exchange to Close Neuer Markt

Bourses: The tech-heavy listings system, similar to Nasdaq, lost almost all of its value amid scandals and insolvencies.

September 27, 2002|From Associated Press and Reuters

FRANKFURT, Germany — Germany's stock exchange operator said Thursday that it will close its tech-heavy Neuer Markt after a 2 1/2-year plunge that has wiped out almost all the upstart market's value.

Deutsche Boerse said dissolution of the Neuer Markt--Germany's answer to America's Nasdaq market--was aimed in part at reassuring investors with clear, tough new rules on corporate financial disclosure after a series of scandals.

Companies still traded on the Neuer Markt will shift to a more tightly regulated listing system, officials said.

Neuer Markt-listed firms, some of which were consulted on the move, and stock analysts said they hoped the new structure would bring back investors.

"We think this is absolutely positive," said Gudrun Geissler, head of investor relations at Pfeiffer Vacuum Technology, a maker of vacuum pumps and one of the market's profitable companies.

The surprise move follows the demise of the Swiss New Market segment in July.

The Neuer Markt's launch five years ago gave German software and Internet companies a high-profile trading platform and helped those companies attract billions in capital from investors.

It also spread pro-shareholder practices such as publishing quarterly earnings--a novelty for many German companies.

But a string of financial scandals and scores of insolvencies among listed companies have sullied the market's image.

At the height of the dot-com era, firms streamed to list on the market, sparking huge interest from German small investors--many of whom had their fingers burned as tech stocks crashed.

The market's Nemax All-Share index traded Thursday at 411, down 95% from its March 2000 peak of 8,140.

By contrast, the Nasdaq composite index has fallen 76% from its March 2000 peak.

The number of companies listed on the Neuer Markt has fallen from 342 in June 2000 to 264 through delistings and bankruptcies.

The Neuer Markt also was tarnished by scandals such as that of Comroad, a navigation systems company that prosecutors say faked most of its earnings from 1998 to 2000.

The government, not Deutsche Boerse, is responsible for policing market fraud, but Comroad and other scandals hurt Neuer Markt's image.

The German exchange will reshuffle its market structure by early 2003, putting the Neuer Markt and its SMAX small-cap segments into a new segment called Prime Standard, in which companies will be required to issue quarterly earnings statements and meet with securities analysts.

Companies that don't meet those standards will be listed on the other segment, Domestic Standard.

The Neuer Markt will be phased out by the end of 2003 as firms decide which new segment to join.

On Thursday, some of those investors who helped fuel the segment's surge cheered the Neuer Markt's demise in Internet chat rooms. "Where will I now be able to burn my money?" said one retail investor on the WallStreetonline Web site.

Fund managers said Deutsche Boerse had little hope of restoring the battered market's image.

"It is better to have a harsh end than to have an endless tragic saga," said Trudbert Merkel, fund manager at Deka Group.

"The Neuer Markt was dead anyway."

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