Primärmarktkonferenz 2018 des Deutschen Aktieninstituts. Im Bild Christoph Heuer, Head of Equity Capital Markets Goldman Sachs International

IPOs in the crosshairs: reflecting on Deutsches Aktieninstitut‘s Primary Market Conference 2018

2018 should be the strongest year for IPOs in a long time. Thus, the Deutsches Aktieninstitut focused its primary market conference on current questions and developments regarding the topic of initial public offerings. On January 30, at the Steigenberger Frankfurter Hof near Willy-Brandt-Platz, 60 attendants from companies, banks, legal firms and consultancies met for an extensive exchange on the matter.

The spectrum of topics ranged from the new prospectus regulation (ProspektVO), which comes into effect in June 2019 in the European Union (EU), to experience reports from VARTA and Uniper. During the boom years in the late 90s, mainly young startups with new business models came onto the stock markets, nowadays spin-offs, well-established companies or at least proven business models mark the IPO scene.

For these, the rather dry appearing KGaA legal form can serve as a bespoke solution – especially if the old shareholders want to stay in control. An example for an upcoming initial public offering of a GmbH & Co. KGaA is the DWS (Deutsche Asset Management) with Deutsche Bank as limited partner. Through a so-called Joint Committee, the Supervisory Board should have a greater say than usually common in a KGaA. This shows the flexibility of the arrangement of the KGaA system.

Slightly out of focus is the listing of German companies in the USA. In the 90s, German issuers listed peaked at around 30. However, after the Sarbanes-Oxley Act of 2002, more than two-thirds of them delisted and deregistered.

Since 2012, the Jumpstart Our Business Startups Act (JOBS Act) made listing on the US stock markets more attractive, especially for small business with annual turnovers of no more than 1,07 billion USD. German companies who are considering this, should note the following three aspects: 1) The coordination of reliable time tables with BaFin is possible, which is not always a given with the SEC. 2) financial statements need to be submitted in the USA after the US GAAP or the original IFRS, not in the EU version. 3) Essential contracts must be attached with the registration statement. For this reason, trivago had to translate and publish the rental agreement of its new headquarters in Düsseldorf. Whichever proposals the European legislators could extract from the JOBS Act, remained inconclusive at the conference. The listing in the USA offers a solution for companies with very specific conditions.

by Charlotte Brigitte Looß

“Mr. Financial Centre turns 75”

If Lutz Raettig did not exist, Frankfurt would have to invent him. The financial centre on the Main and the financial centre initiative Frankfurt Main Finance owe much to Lutz Raettig. Since 2005, he has been Chairman of the Supervisory Board of Morgan Stanley Bank AG in Frankfurt. From 1995 to 2005, he served as Morgan Stanley Bank AG’s Chief Executive Officer. Read more

Deutsche Börse makes strides towards future in Frankfurt

Deutsche Börse will expand the historic stock exchange building in the heart of the Main Metropolis into the Financial Centre Frankfurt’s communications center and a point of contact for the general public. The protected landmark, home to the renowned trading floor and Frankfurt’s Chamber of Industry and Commerce (IHK Frankfurt), will be the symbolic heart of the financial centre and Deutsche Börse in Frankfurt.

“We are delighted by this commitment from Deutsche Börse. Frankfurt will receive a modern centre and visible symbol of the city and region’s growing prominence as the most important financial centre in continental Europe,” says Dr. Lutz Raettig, President of the Financial Centre Initiative Frankfurt Main Finance. “The decision could not come at a better time. Deutsche Börse is proudly flying the flag for Frankfurt, which is now, as a result of Brexit, a focal point in restructuring the architecture of the European financial industry.”

Lasting until early 2020, Deutsche Börse plans to invest 18.5 million euros in the expansion and has signed a lease with the IHK Frankfurt, the building’s owner, stretching until 2048. Following the renovation, Deutsche Börse will increasingly concentrate on using the visitor center as a modern means for providing education. Guests will learn about the functioning of the stock market and the exchange’s benefits for industry and commerce, thus, its benefits for society.

The Deutsche Börse Group announcement is available here.

Photo: Deutsche Börse AG

CFS Survey: Financial industry does not believe bitcoin price trend is justified / Clear support for stronger regulation

The price of one bitcoin rose from around USD 1,000 in early 2017 to almost USD 20,000 by December. With several peaks and troughs in the meantime, by mid-January bitcoin had shed around 40% of its value. According to a recent survey by the Center for Financial Studies, the majority of the German financial industry does not believe this price trend is justified – 81% of respondents agree on this point.

It is difficult to predict what potential risks could arise for the financial system. Over half the respondents (54%) take a critical view of the development. On the other hand, 41% of the survey participants believe the risks are negligible. Regardless of how they view the potential risks, however, a large majority (78%) believe that the cryptocurrencies market should be subject to tougher regulation.

“The survey makes it clear that concerns are growing among financial market participants regarding bitcoin’s lack of transparency and volatile price trends,” Professor Volker Brühl, Managing Director of the Center for Financial Studies, interprets the survey results.

Although the importance of cryptocurrencies is growing, bitcoin will still not be able to replace our classic monetary system in the long term. The financial industry is in firm agreement on this point (93%). In addition, 79% of the respondents do not regard bitcoin as a generally attractive investment instrument.

“In its current form, bitcoin constitutes a dubious construct that offers no discernible added value. Clear regulatory frameworks and rigorous supervision are therefore required to ensure that investor protection also applies to cryptocurrencies and that potential systemic risks are extinguished at an early stage,” Professor Brühl adds.

Hubertus Väth, Managing Director of Frankfurt Main Finance e.V., emphasizes: “Despite all justified scepticism, the fascination about the technology and its potential remains intact. Regulation should not suppress experimentation.”

CFS Index reaches highest level since the start of the financial crisis

Financial industry reports: Strong growth in revenues and earnings / Employee numbers on an upward trend / Investment volume declines slightly, but remains at a high level

The CFS Index, which measures the business climate of the German financial sector on a quarterly basis, rises by 5.9 points to 120.1 points. This hugely positive development can primarily be attributed to the high revenues and earnings of the financial industry in the fourth quarter of 2017. Furthermore, the financial institutions are now reducing their job cuts and they expect this trend to become more pronounced in the current quarter. The trend for employee numbers among the service providers is also positive. Their level of recruitment is on the rise. However, the financial industry reports a slight decline in investment volume, even though it remains at a high level.

“The industry’s strong performance in turnover and profit will help banks to address the next big challenge, digital transformation. This is reflected in the very positive outlook of the financial services industry, which includes consulting, auditing and advisory,” Professor Jan Pieter Krahnen, Director of the Center for Financial Studies, interprets the results.

The future international importance of the Financial Centre Germany continues to be rated very positively

With an increase of 0.4 points to 135.9 points, the business location sub-index, which measures the future international importance of the Financial Centre Germany, is just slightly below its highest ever level, reached shortly after the Brexit vote in 2017.

“The consistently high level of the index shows that people are placing greater trust in the Financial Center Germany. This should be an incentive for all participants to go about shaping the future of the financial industry in this country with optimism and self-confidence,” Dr. Lutz Raettig, President of Frankfurt Main Finance e.V., interprets the survey results.

Financial industry revenues and earnings are on the rise. Only in 2007, the first year of the survey, have the service providers reported higher figures.

Contrary to their rather modest expectations from the previous quarter, the surveyed financial institutions and service providers strongly increased their revenues/business volume in the final quarter of 2017. The corresponding sub-index for the financial institutions rises by 11.2 points to 122.7 points; that of the service providers climbs 20.3 points to 137.5 points. As for the current quarter, the financial institutions are expecting just a minimal decline. The service providers are anticipating a decline to the level of the previous quarters.

The earnings of both groups also developed especially positively in the fourth quarter of 2017. The corresponding sub-index for the financial institutions climbs 6.5 points to reach a level of 113.9 points. The service providers report huge earnings growth of 26.9 points, clearly exceeding even their own positive expectations from the previous quarter. The earnings sub-index for this group thus rises to 133.6 points.

Investment volume declines slightly, but remains at a high level

Having reached its highest level since the survey began in 2007 six months ago, the investment volume sub-index for the service providers has been on a slight downward trend since the last quarter. It falls by 2.8 points in the first quarter of 2017 to 113.9 points, though this is still a high level. Similarly, the sub-index for the financial institutions falls by 5.1 points to 113.8 points. While the financial institutions are anticipating a further decline, the service providers are expecting their investment volume to increase in the current quarter.

Financial sector employee numbers on an upward trend / Job cuts at financial institutions curtailed

After job cuts increased in the previous quarter, they are now being curtailed at the financial institutions. The corresponding employee numbers sub-index rises by 3.3 points to 98.6 points. The trend is also positive among the service providers, where the level of recruitment is on the rise. The sub-index rises by 3.5 points to 116.8 points. Both groups expect the upward trend to continue, though the service providers are even more optimistic than the financial institutions.

Financial Centre Frankfurt belongs to most secure cities in Europe

The Safe City Index 2017, conducted by The Economist, ranks the Financial Centre Frankfurt 4th in Europe and 11th globally, in a comparison of 60 cities. The Financial Centre Frankfurt scored top ratings in the categories health, digital security and personal security on a European, as well as on a global scale, ratings which are clear indications of a successful security concept developed by Frankfurt.

In the health category, Frankfurt counts among the top three cities, placed right behind Tokyo and Osaka; thus, first in Europe. Meaning, there is no other European city which offers their citizens a better public health system than Frankfurt. The study’s authors were convinced by the equipment of the hospitals, the efficiency of emergency services as well as the network of care facilities. The multitude of parks and green spaces, as well as the high quality of water, lifted Frankfurt to a high ranking within the sub-field of environment.

Frankfurt’s digital security concept has clearly evolved since 2015

Through the ever increasing utilization of intelligent technologies, cities are clearly growing to be smart cities. The central question within the category remains, despite all of the safety advantages of this trend, how cities are securing themselves against hacker attacks and the failure of complex technological systems.

The city gained seven spots within this category in comparison to the Safe Cities Index 2015. The improvement in this category illustrates, that Frankfurt has recognized the challenges posed by digitization regarding security and that it applies increasingly successful measures. Frankfurt reaches the 3rd position in a European and ranks 16th globally.

One more Frankfurt-related stereotype that is no longer applicable

Frankfurt is not dangerous. The study again refutes the outdated and persistent stereotype of the Main Metropolis regarding personal security. After all, ranked 3rd in Europe and 11th globally, Frankfurt achieved a particularly high ranking regarding personal security. If the statistic were to be adjusted by leaving out such crimes that were committed at the airport, then Frankfurt would surely rank even higher. The study results regarding personal security do however go beyond the topic of crime rate and identify terrorism as the currently biggest challenge for global cities in achieving personal security. In this respect, too, the concept developed by Frankfurt convinces the The Economist‘s Safe Cities Index team.

The study attests a successful as well as integral security concept to Frankfurt

As the Safe Cities Index indicates, the considered categories cannot be regarded as separate, but are in fact deeply influencing and dependent on one another. Thus, the success of a security concept hinges on it being integral as well as considering all of the mentioned sectors and categories. Certainly, a challenge that cities will have to address considering the areas of tension of regional and local particularities, global developments and threat scenarios as well as limited financial resources regarding the cooperation with federal and international institutions, challenges that they will have to champion for the purpose of the protection and welfare of their citizens. Frankfurt’s high ranking at position 11 in the overall ranking and the respective 5th position among European cities clearly shows, that Frankfurt has recognized the need for a comprehensive understanding of security and that the implementation of an integral security concept was successful. In the overall rankings, London (20), Paris (24) and Milan (25) all scored lower.

Frankfurt Main Finance has signed MoU with Bahrain FinTech Bay

Frankfurt Main Finance and Bahrain Fintech Bay have signed a Memorandum of Understanding (MoU) on cooperation between the two FinTech Hubs. Dr. Lutz Raettig, President of Frankfurt Main Finance, and Gerben Visser, Founder of Bahrain FinTech Bay signed the agreement.

The goal of the Co-working space Bahrain FinTech Bay is to become the largest FinTech Hub in the Middle East. To achieve this goal the initiative supports young FinTechs in their development, offers them partnership opportunities and a global FinTech partner network. This network will now be supported by Frankfurt Main Finance. For Frankfurt Main Finance and the Financial Centre Frankfurt’s emerging FinTech Ecosystem the cooperation is an important entry point to the Middle East FinTech events and initiatives.

Deutsche Börse AG turns 25

Deutsche Börse was founded as a stock corporation in December 1992, this date marks the start of the digitisation of the entire exchange value chain.

11 December 2017. Frankfurt (Börse Frankfurt). Deutsche Börse AG celebrates its 25 anniversary on the trading floor of the Frankfurt Stock Exchange on Monday. Numerous clients, regulators, former executive board and supervisory board members as well as employees join the bell-ringing ceremony to honour this anniversary.

On 11 December 1992, the former owners of the three independent companies – Frankfurter Wertpapierbörse AG, DTB Deutsche Terminbörse GmbH and Deutsche Kassenverein AG – opted to merge their businesses. The merger became effective on 1 January 1993, marking the foundation of Deutsche Börse AG. This created an integrated market infrastructure provider in Frankfurt and in Germany for the first time.

“European harmonisation plus digitisation were and are the cornerstones on which financial centre Frankfurt has been built. In the 1990s, the creation of Deutsche Börse as AG laid the foundation for boosting the financial centre’s international significance to a level corresponding to the important role the German real economy plays in Europe,” summarized Lutz Raettig, Chairman of the Supervisory Board of Morgan Stanley Bank AG and former Chairman of the Exchange Council of the Frankfurt Stock Exchange for many years, in his laudatory speech.

“Over the past 25 years, Deutsche Börse has developed into Europe’s most important financial market infrastructure provider by far. The driving force behind this achievement was and is our vertically integrated business model that rests on efficient technology in all areas. On this basis we expanded globally and extended our business to include a wide variety of asset classes,” said Andreas Preuss, Deputy CEO of Deutsche Börse AG.
Some of the most important milestones in the company’s history are:

  • Launch of electronic trading system Xetra as an equities trading platform in 1997
  • Foundation of Eurex in 1998 as a merger of Deutsche Terminbörse AG (DTB) and the Swiss futures exchange Soffex to create Europe’s largest futures exchange,
  • Deutsche Börse AG’s IPO in February 2001 and inclusion of its share in the DAX blue chip index in 2002,
  • Introduction of a central counterparty, first on the futures exchange in the 1990s and for Xetra in 2003,
  • Merger of the German post-trading business with Luxembourg Cedel and subsequent 100% takeover of Clearstream in 2002,
  • Foundation along with partners of STOXX index provider and full ownership acquired in 2015;
  • Entry into foreign exchange with the takeover of Germany’s most successful fintech company 360T in 2015.

Photo Source: Deutsche Börse

European General Affairs Council decides to relocate the EBA to Paris

The European Banking Authority (EBA) is moving from London to Paris. This was decided by the European General Affairs Council in a secret ballot on 20th November. The German government had also applied to host the EBA in Frankfurt am Main. The transfer of the EBA from London to another EU country is a direct consequence of the UK decision to leave the EU.

“We congratulate Paris on the relocation of the EBA, but we would have preferred a different decision because we believe that Frankfurt, all things considered, best meets the criteria stipulated to achieve the award,” says Dr. Lutz Raettig, President of the financial centre initiative Frankfurt Main Finance. “The award of the location to Paris means a greater decentralisation of financial market regulation and, in our view, signifies a political decision in favour of the principle of an EU-wide distribution of agencies and institutions. We remain optimistic about the future development of Frankfurt as a hub of financial activity.”

In addition to the Main metropolis and Paris, six other cities had applied to become the headquarters of the institution. The decisive criteria for the European General Affairs Council decision included a smooth continuation of operations, the timely provision of a suitable building, the transport infrastructure and international accessibility, the availability of living space, and the job, school and healthcare services available for the families of the employees.

Deutsches Aktieninstitut presents its second Brexit position paper and claims: Transitional arrangements now!

The Deutsches Aktieninstitut (DAI) presents its second position paper. The paper on the exit negotiations between the European Union and the United Kingdom complements the first position paper from February 2017 and covers further relevant topics, e.g. clearing, benchmark and rating. In the light of proceeding negotiations, the position paper claims to find transitional arrangements that prevent Europe from a Cliff Edge Scenario.

Under the slogan “Exit negotiations between the European Union and the United Kingdom: Minimise Brexit risks and strengthen the European capital market”, the analyses of financial and capital market legislation and concrete examples from practice, illustrate which topics deserve particular attention due to their significance for business and society in connection with the Brexit negotiations.

No deal is the worst deal for all parties affected

“The United Kingdom’s departure from the European Union will have considerable consequences for the European economy and society”, Dr. Christine Bortenschläger, Chief Executive of DAI mentions in the paper, “It is not yet possible to predict how those will look like in detail since the outcome of the ongoing negotiations between the United Kingdom and the European Union is still completely open. This means that companies are losing valuable time they need to adjust to the new situation.”

Risk and consequences of a hard Brexit can be reduced with transitional arrangements

The third country regimes in financial -and capital markets law won’t serve as a sufficient basis to regulate the relations between the 27 EU-states and the United Kingdom, as the second position paper shows. Therefore, the European Union needs a new and broad trading agreement that complements first transitional arrangements. “Transitional arrangements are of decisive importance to buy more negotiating time, enable businesses to prepare for the new situation, and avert a no-deal scenario”, is one of the first position paper sentences.