8 Big Reasons To Go Public On The Frankfurt Stock Exchange Instead Of The OTCBB
Article by Merger Law Associates
More than 3,000 US companies have chosen a Frankfurt Stock Exchange (FSE) listing and that number is definitely growing. The Frankfurt Stock Exchange’s trading volume grew by a staggering 39% when comparing December 2009 to December 2010. If you are thinking of going public on the OTCBB or Pink Sheets, here are 14 reasons to consider the FSE instead.
1. All Shares are Free Trading. That statement bears repeating. All shares are free trading on the FSE. In other words, unlike the OTCBB and Pink Sheets, the FSE does not restrict the sale of shares owned by officers, insiders and directors. This alone has many heads turning.
2. No Naked Short Selling. Naked short selling was completely banned in Germany in June of 2010. The importance of this fact cannot be overstated. Some critics blame short sales as a major cause of market downturns, such as the crash in 1987 and 2008. Short selling has an even darker side because of a percentage of short sellers who are not above using unethical tactics to make a profit. It occurs when short sellers manipulate stock prices, usually on the OTCBB and Pink Sheets, by taking naked short positions (where they sell the stock without actually owning it) and then using a smear campaign on chat rooms to drive down the target stocks, where they then buy the stock at a big price differential from where they sold it short. Short selling is a tremendous problem on the OTCBB and the Pink Sheets, and one that doesn’t seem to have a good solution. Today, short selling is a wide-spread problem for OTCBB listed companies. This is why every other stock listed on the OTCBB is trading in the sub-penny range.
3. Extremely Fast Time to listing. A listing on the Frankfurt Stock Exchange is much faster than any other listing in the world. This is an important consideration when going public. Most companies go public because they wish to raise capital. Waiting 12 months to become listed on the OTCBB or Pink Sheets does not help their cause. Conversely, a listing on the FSE takes only 5 to 6 weeks from scratch. The FSE prides itself on the speed with which its companies can become listed.
4. No Sarbanes-Oxley. This is a big one. Two separate studies, one conducted by a group of executives and academics, and another by McKinsey and Co. for New York Mayor Michael Bloomberg and New York Senator Charles Schumer, both reached the same conclusion; excessive regulation has made the U.S. stock exchanges (including the OTCBB), a less-than-favorable place to go public, and singles out the Sarbanes-Oxley Act, as the main reason. So what is the Sarbanes-Oxley Act, and what’s all the fuss about? Sarbanes-Oxley was enacted in 2002 in response to the failures of several large companies like Enron and WorldCom. It’s intent was to protect investors. Basically, the act requires full disclosure on just about everything and most believe that the requirements went way overboard. It comes down to expense. 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 listed on the OTCBB or Pink Sheets (or any other US Stock Exchange)
5. The OTCBB is not actually an official stock exchange. The Frankfurt Stock Exchange is an official stock exchange. OTCBB listed securities are traded by broker-dealers who negotiate directly with one another over computer networks or phone. As such, under US securities rules, OTCBB stocks are considered “penny stocks” by licensed brokerage firms, and SEC rules require that all purchases of OTCBB stocks by stock brokers must have been unsolicited by their clients. This literally prohibits brokers and their firms to lawfully solicit that their clients purchase OTCBB securities. Because of this, liquidity on the OTCBB has no real chance of developing. Unlike the OTCBB, the Frankfurt Stock Exchange is an internationally recognized stock exchange, just like the NASDAQ or NYSE. In fact, the FSE is now arguably the most internationally accepted stock exchange in the world, with companies from more than 80 countries listed, with greater than 40% from North America. Trades executed by international investors on Xetra have increased continuously in recent years and, as of the end of 2010, more than 65% of the total trades were from countries outside Germany, with more than 22% from US investors and more than 24% of from UK investors.
6. The FSE has direct access to greater than 1/3 of the worlds investment capital. The Frankfurt Stock Exchange 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 Frankfurt Stock Exchange represent a full 35% of the world’s investment capital. This means that a listing on the Frankfurt Stock Exchange 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.
7. The liquidity of stocks listed on the Frankfurt Stock Exchange is the highest in all of Europe, including the London and Paris Stock Exchanges. In fact, Market liquidity and trading volume on the Frankfurt Stock Exchange is number three in the entire world, behind only the NASDAQ and NYSE. Obviously, it goes without saying that the liquidity and trading volume of the Frankfurt Stock Exchange far exceeds that of the OTCBB. In fact, there is literally no comparison.
8. Much less ongoing cost than the OTCBB. Due primarily to Sarbanes-Oxley (see above), the ongoing costs of trading on the OTCBB is not only exorbitant, but can be cost prohibitive. The ongoing cost to be listed on the Frankfurt Stock Exchange pale in comparison. Less cost, more liquidity, greater access to capital. Its all starting to make sense.
Published by Merger Law Associates
About the Author
Merger Law Associates Ltd. is a 21st Century financial consulting practice catering to emerging growth companies.
AI
