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Germany to close Nasdaq clone

Paris, Sept. 27: Two-and-a-half years ago, the bursting of the dotcom bubble erased most of the market value of Germany’s technology sector. Now, the market itself is being scrapped.

Deutsche Boerse, which runs the Frankfurt stock exchange, announced on Thursday that it would close the Neuer Markt — the technology-related market that is Germany’s answer to the Nasdaq — by the end of 2003.

In its place, Deutsche Boerse plans to establish two new categories of shares. One category will have much more stringent standards of corporate disclosure than were required by the Neuer Markt.

The reputation of the market has been battered by a string of bankruptcies and shareholder lawsuits. MobilCom, the German telecommunications provider that was the first stock listed on the Neuer Markt five years ago, had to be bailed out by the German government two weeks ago. But it was simple arithmetic that sealed the Neuer Markt’s doom: the value of the companies listed has dropped 96 per cent from its peak in March 2000, when they were worth more than $ 400 billion. The name, which translates as “new market”, has become a synonym for failure.

“This move has to be judged as positive,” said Martin Schuette, an analyst who follows small-capitalisation companies at Merrill Lynch in Frankfurt. “We have to win back the confidence of private investors.”

Deutsche Boerse’s new market categories, the Prime Standard and the National Standard, are intended to cater to foreign and German investors, respectively. To list shares on the Prime Standard, companies would have to comply with a set of standards, including quarterly financial reports, international accounting standards and scheduled meetings with analysts.

“We want to organise our markets consistently in line with the investors’ needs,” said Volker Potthoff, a board member of Deutsche Boerse. “To do this, we will safeguard maximum transparency with clear rules and provide a consistent index world to support their investment decisions.”

Throughout its history — but most acutely in the last two years — the Neuer Markt has been plagued by incidents of accounting legerdemain. The top executives at one listed company, EM.TV & Merchandising, face trial in November on charges that they manipulated its share price. Schuette said he believed the Prime Standard would be attractive to foreign investors, provided the authorities establish rigorous standards of transparency and enforce them vigilantly. The Domestic Standard, with minimum disclosure standards, holds less appeal. “I would not invest there,” Schuette said.

The early success of the Neuer Markt helped stoke the growth of Germany’s technology industry. It also nurtured a culture of share ownership in a country that historically viewed markets with suspicion. Nearly 13 million Germans, or about 20 per cent of the population, own shares, compared with 13 per cent in 1999 and 9 per cent in 1997. While Germany still trails the US, where nearly half the households own stock, shareholders have become a powerful constituency.

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