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Investing 101 - Jun 3, 2004 - Printable Version
- Response From Berliner Freiverkehr and The Berlin-Bremen Stock Exchange
by The Faulking Truth
Here is the initial response from Holger Timm of Berliner Freiverkehr, along with the letter that they have been sending to American companies that have requested delisting from the Berlin-Bremen Stock Exchange: Dear Mr. Faulk,
Please give me a number, where I can reach you to give you detailed
information. We are not working for any clients in the USA or do any
shortselling ourselves.
In the moment we try to find out with the SEC and NASD what is going on
there. Please find below as a first information the wording of a letter we
send out to the companys.
regards
Holger Timm
We are in receipt of your letter dated ................, 2004 and are
convinced that there must be some misunderstanding with regard to your
background information on trading of ............... . It appears that
recently there may have been some negative press about secondary listings on
the Berlin stock exchange, which has led to misunderstanding and
misinterpretation by the companies concerned.
We would like, therefore, to explain the circumstances in detail. For 20
years now, stocks from all over the world have been traded - at times very
actively - on all German stock exchanges. Our company specialises in
facilitating the purchase of international stocks in Euro for German
investors. We currently look after over 7000 firms, mainly from the USA.
Such dealing on the OTC-market in Germany does not generate any costs for
these companies whatsoever, as our company fulfils all local requirements
and forwards all reports from the home country to the German exchanges.
According to the rules of the German stock exchange, secondary listing in
Germany is possible at any time and without the approval of the respective
company, as long as the stock is already listed on an internationally
recognised regulated market. Since the rules of the OTC-Bulletin Board have
been continually improved and tightened in the last few years, in Germany it
has become a recognised, regulated market and therefore our company intends
to trade all US titles here.
In the past, several US firms even paid our company a flat-rate for this
service because in this way they were able to expand their shareholder
structure considerably. As you can see, therefore, the reason for these
listings does not lie in the intention of engaging in short selling
activities - rather the opposite is the case. German investors and also
professional market participants are not allowed to short sell, neither are
they in a position to do so. Every stock that we sell in Germany must be
immediately covered in the USA and delivered. If delivery does not follow
directly, the buyer initiates forced covering. Securities lending for an
OTC-stock is not possible in Germany. In this respect, a listing in Germany
rather helps to check short selling in the USA.
We would like to emphasise, once again, that we are in no way involved in
any illegal activities and it goes without saying that we are monitored very
closely by the German SEC. Our company does not engage in short selling, we
simply arrange for German investors the cost effective purchase of
interesting international stocks in Euro.
After considering the above aspects, should you still prefer your stocks not
to be traded in Germany we will respect your wish and apply for delisting on
the Berlin stock exchange. However, as the rules in Germany are very
clear-cut we would like to point out, by way of precaution, that another
broker on another German exchange could still take up a new listing at any
time and we would have no influence on the matter.
We would very much like to continue attending to your stocks and would also
be prepared to inform you of any deals happening in Germany. At the moment,
we have the impression that certain American law firms are purposely giving
companies false information in order to attain lucrative assignments.
If you should require any further information, please do not hesitate to
send us the name of a contact-person in your company. We would be happy to
call you and give you more detailed explanations.
Yours sincerely,
Holger Timm
And this is the response I received from the Berlin-Bremen Stock Exchenge:
Dear Mr. Faulk,
we assume that you are interested in information re OTC-BB securties on
our exchange. You have to be careful according country specific rules an
regulations. I think there are a lot of misunderstandings.
Please note that these securities are not listed on our exchange, but
traded in the Third Market Segment. On our exchange, about 10.000 stock
of foreign companies are dual traded. Trading foreign securities is a
common service of all German exchanges to German investors in order to
avoid high banking fees involved with trading on a foreign exchange.We
often received comments from companies that welcomed the dual trading on
our exchange.
Price manipulation:
We understand that some OTC-BB companies fear prices may be manipulated
on our exchange. Irrespective of the market segment, price manipulation
is a punishable act by German Criminal law.
Short selling:
In Germany, short sellings are only possible subject to severe
restrictions. One of those arises from the general rule that all trades
in Germany have to be settled within two days. If a trade can not be
settled within two day due to failure to deliver, the counterparty will
buy the security on the market and recover the damage caused from the
short seller ("buy-in"). This process called "forced execution" is
regulated on all German Exchanges.
Dual trading:
To be dual traded on a German Stock Exchange, the security must be
listed on another Exchange requiring ongoing reporting and ensuring
market surveillance. Since this is the case for the NASDAQ OTC-BB
Segment, such securities may be traded on German Exchanges. Since the
security is already publicly traded without restrictions as to who may
purchase it, the consent of the company is not required. Nor do we need
any documents from or regarding the company.
The Berlin Stock Exchange only needs an application filed by one of its
"Specialist" (comparable to the "Specialists" in the US). The
"Specialist" applying for the dual trading is obliged to inform the
company about the application filed. He usually applies for dual trading
without being contacted by anyone (neither the company nor anyone else)
asking for it.
Ongoing obligations:
Being traded on our exchange does not create any obligations whatsoever
for the companies themselves, this also being a reason for not asking
for their consent. There are no fees raised by the exchange for a dual
trading. Since the companies do fulfil their ongoing obligations with
the exchange of listing, German investors have the possibility to gather
company information. The applying "Specialist" will monitor the status
of listing of the companies and inform us if trade is for example halted
because of missing reports. Trade will then also be halted over here. If
a company is delisted from the exchange of first listing, it will also
be delisted over here.
Pricing process in the Third Market:
The pricing process in the Third Market is the same as in the two other
segments, the Official Market and the Regulated Market. All price are
checked by our market surveillance, by the regulator and by BAFin (the
Federal Supervisory Authority for Financial Services).
According to German exchange rules, the pricing process requires our
"Specialist" to check the prices on the exchange of primary listing
constantly. During US off-trading hours, our "Specialist" will not trade
if the new potential price would differ to an unreasonable extent and
without an apparent cause (such as for example a recently published
price sensitive information) from the last price on the reference
market.
Delisting:
As a matter of principle, the delisting of a dual traded company can
only be requested by the "Specialist" who filed the application for
trading. Thus, the company has to contact the competent "Specialist". If
he decides to request the delisting, the Exchange will carefully balance
reasons also considering protection of investors. For example, if a
company has been traded for some time, German investors need to be
granted the possibility to sell their stocks. Another example would be
if a company is also listed on another German exchanges, there is no
comprehensible reason to delist it only from the Berlin Stock Exchange.
In case you have any further questions, please don't hesitate to contact
us.
regards
Eva Klose
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