April 7 was the last day Primion Technology traded on the Börse, the German stock exchange. The German security technology company delisted because the company’s directors found the listing too expensive. Spanish technology company Azkoyen had taken over the business and controlled 90 percent of the shares. Other shareholders, fearing that they would not be able to get rid of their shares after April, sold them at a loss.
A delisting like this is mostly a bitter experience for shareholders. According to a study by Solventis Bank, in 2014 shareholders lost on average 18.9 percent in the first three months after a company announced it would be pulling out of the stock exchange.
More companies may pull out of the Börse in the future, fleeing from new regulations that give shareholders more rights, after a new directive from the European Union goes into effect in 2016.
“Compared with German securities trading law, the new directive is a tightening of the law to the benefit of the investors,” said Kai König, a partner at the Munich law firm Dornbach.
Companies committing violations against insider rules can face a penalty of up to 15 percent of turnover, while private individuals could have to pay up to €5 million.
Among the most important changes under German law are the stock deals of executives: If members of the management and supervisory boards trade in the stocks of their companies, they must only do so through a personal wealth manager who acts independently.
Insider trading has also come under the microscope. Now, the cancelling or changing of a stock order can also be considered a prohibited insider deal.
Companies committing violations against insider rules can face a penalty of up to 15 percent of turnover, while private individuals could have to pay up to €5 million. The sanctions will be made public on the websites of the national supervisory authorities.
Ad-hoc disclosures are also subject to new rules. In the future, companies must also report any interim step that could lead to a decision affecting the price of shares, such as large contracts or takeovers. Starting in 2016, many of the companies being traded in the German stock exchange’s secondary market, the more lightly regulated, unofficial Open Market will have to report news that could affect the share prices. That reporting obligation only exists now for companies in “Entry Standard,” the premium segment of the Open Market.
“In 2016, all companies will be added that have actively had themselves listed in the unofficial market,” said Oliver Rothley, from the law firm Taylor Wessing in Munich. These include companies that have moved there from the more regulated market called “downgrading” in the business, possibly to avoid reporting obligations.
The German federal government is currently advising a change to the Stock Corporation Act, which is meant to make it difficult for companies to get rid of minor stockholders without compensation.
On first glance, this new directive appears to better protect the rights of investors. However, it could have an unintended knock-on effect.
Normally, companies that found the obligations of the regulated market too onerous have gone onto the unofficial market. Because the companies that are listed in the unofficial market will have to make ad-hoc disclosures starting in 2016, they will have an increased incentive to leave the Börse entirely. In addition, there was a decision by the German Federal Supreme Court in 2013 that when a company de-lists and pulls out of the Börse, it is not obligated to provide compensation to the shareholders for their stocks.
The German federal government is currently advising a change to the Stock Corporation Act, which is meant to make it difficult for companies to get rid of minor stockholders without compensation. The Bundesrat, or upper house of parliament, is currently concerned about the fact that no such passage exists in the draft for the amendment to the law governing publicly listed companies. The German Justice Ministry said it remains uncertain if the amendment will be improved.
This article first appeared in the weekly business magazine WirtschaftsWoche. To contact the author: firstname.lastname@example.org