The Frankfurt Stock Exchange for Indian Issuers
Indian companies are accessing the Frankfurt Stock Exchange (“FSE”) and other foreign capital markets in search of capital and liquidity for their shares. The Entry Standard of the FSE is an appealing option for Indian issuers seeking an access point to European capital markets. By Brenda Lee Hamilton, Attorney
With the Entry Standard, Deutsche Börse has created a simple, fast and cost-efficient way of including shares in exchange trading, which is particularly suited for small and medium-sized companies.
About the Frankfurt Stock Exchange
The FSE is owned and operated by Deutsche Börse, which also owns the clearing company Clearstream. The FSE is the largest stock exchange in Germany and boasts a share turnover of over 90% , the world's 3rd largest trade-place for stocks, as well as the world's 6th largest by market capitalization. The FSE’s fully electronic trading system Xetra® is one of the leading electronic trading platforms in the world. With its launch in 1997, the FSE succeeded not only in strengthening its own competitive position. It also created attractive framework conditions for foreign investors and market participants.
Regulations Affecting Foreign Listings by Indian Issuers
Under current laws and regulations in India, Indian companies cannot list equity securities such as their shares on non-Indian exchanges. The only equity based securities of Indian companies that can be listed on an exchange outside of India are Global Depositary Receipts, American Depositary Receipts, Foreign Currency Convertible Bonds and Foreign Currency Exchangeable Bonds. In order for an Indian company to have its shares listed on an exchange not in India is to use a foreign (non-Indian) holding company structure wherein the foreign holding company owns the Indian company. Under this structure, the foreign holding company can list its shares on the FSE and avoid being limited to an Indian stock exchange. Establishing this structure allows foreign investors to invest in equity of the holding company even where of its assets are located in India and held by an Indian subsidiary.
Acceptance of Indian GAAP Financial Statements
Indian GAAP financial statements satisfy the FSE financial statement requirements without incurring the expense of complying with the International Financial Reporting Standards which simplifies the listing process and reduces the time and cost of the listing.
Access to Capital
The FSE has access to greater than 1/3 of the investment capital in the world. The FSE 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 FSE represent a full 35% of the world’s investment capital. This means that a listing on the FSE 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.
The FSE does not impose restrictions on the sale of securities including securities held by officers, directors and beneficial owners. There are no tradability restrictions or registration requirements.
Prohibition Against Naked Short Selling
In June of 2010, Germany passed regulation banning naked short selling. Critics blame short sales as a major cause of the US market downturns. Naked Short sales occur when short sellers manipulate stock prices by taking naked short positions, where they sell the stock without actually owning it and then use negative news announcements, to drive down the stock price so that they can cover their short position at a much lower price.
Timely Approval Process
A listing on the FSE is takes as little as 3 to 6 weeks from the time it is submitted to completion.
This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed in the material do not guarantee similar outcomes.
ABOUT THE AUTHOR: Brenda Lee Hamilton, Attorney
Brenda Hamilton our law firm’s founder has counseled clients in securities law transactions advising issuers in going public transactions, equity and debt offerings, corporate law matters and restructurings, securities transactions and disclosures, corporate identity theft and hostile takeovers. Ms. Hamilton assists clients in all of the going public process including filing of Form S-1 Registration Statements and Form 211 and symbol assignment from the Financial Industry Regulatory Authority (“FINRA”).
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.