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Replies to post #232279 on NorthWest Biotherapeutics Inc (NWBO)
06/08/19 4:08 PM
06/08/19 4:46 PM
Companies are astounded that their permission was never sought before their shares began trading in Berlin. But under German rules, their permission is not necessary. Any stock traded on any recognized exchange in the world can be traded in Germany, provided that certain minimum criteria are met. All that is needed for a company's shares to begin trading is for a broker to nominate it. The broker then buys the shares from the home market, quotes them in euros and trades them in Germany. Officially, the idea behind the system is to make it more affordable for German investors to trade foreign stocks, by avoiding the very high costs associated with cross-border clearing and settlement. In total 5,275 US securities trade on the Berlin Stock Exchange. Some market experts in Germany, however, see the Freiverkehr system as one primarily designed to prop up the regional exchanges by giving them something to trade. Although many companies have managed to stop their shares from trading on the Freiverkehr over the past year, this came down to the good will of the German brokers and the exchange. There is no legal argument available to these companies to order a cessation of trading. In fact it might not even be possible once shares in a company are owned by German investors. "There is really no way of 'delisting' from the Freiverkehr," says Oliver Kessler, a partner at international law firm Lovells in Frankfurt. "The only thing a company can do to try to achieve a 'delisting' is to fail to meet the preconditions for inclusion, which it may be able to do by failing to provide any information requested of them by the exchange." Suspicious nominations Many companies are suspicious about why about 1,000 OTC bulletin board companies were nominated for trading in Germany shortly after a long-running problem with Canadian brokers had been resolved and the NASD extended its Rule 3370 to include non-member broker dealers in April 2004. German brokers however, have legitimate reasons for applying to trade overseas stocks in large numbers. "We have a lot of competition here," says Holger Timm, CEO of Berliner Freiverkehr, one of the major brokers on the Berlin exchange. "The different stock exchanges are in competition with each other as are all the market-makers. Bulletin board companies are more interesting for us because we get better margins. We trade big caps too but don't make as much money on these." Timm thinks the US companies have been jumping to the wrong conclusions. "The whole story that trading in Germany is damaging the share prices of these companies is complete nonsense," he says. "We have been doing this for 20 years. It cannot hurt these companies if German investors want to buy their shares." However, Timm says that after news began to surface of US companies' concerns about being naked shorted through Freiverkehr trading, he received a telephone call from a man claiming to represent hedge funds interested in doing just that. "An individual claiming to be a consultant for some hedge funds asked me how to do it [naked short selling]. I said there was no way, but he insisted that there must be and that he wanted to know the secret." Freiverkehr brokers cannot lend stock but as market makers, can short sell, so long as their books are covered within two days. If there is not enough liquidity in Germany to complete a trade, the German market-maker would go to a market-maker in the US to get it done. According to brokers, naked short selling is not possible in Germany because of the strict settlement requirements. Although every trade is automatically reported directly to the federal regulator BaFin, experts on the German securities market describe regulation of the Freiverkehr as "insignificant". Many rules simply do not apply. While an ordinance was recently introduced to cover market manipulation, the rules are very broad and enforcement experience is lacking. Retail investors that buy on the Freiverkehr via their brokers tend to stick to foreign blue chips. The companies that have complained, however, are all micro-caps worth less than $50 million. They are predominantly early stage biotech, defence technology and internet companies. "What could be happening is that market manipulators in the US are so short on some of their positions that they are trying to cover some of their naked short positions overseas," says Rich Kaiser, CEO of Yes International, an investor relations consultancy that has helped 15 US companies to get their shares off the Freiverkehr. "The Berlin Stock Exchange is probably being used as a conduit but the scheme works by exploiting flaws in the US trading system, particularly at the DTCC [see main story]. If they trade on overseas exchanges through offshore accounts, the trades take longer to settle and become harder to trace."
AI
