BioWorld International Correspondent

MUNICH, Germany - Deutsche Boerse AG, the company that operates Germany's most important stock markets, is closing the Neuer Markt as part of a larger restructuring in the company's exchanges. The Neuer Markt was launched in 1997 to provide an opportunity for high-growth, high-technology companies to raise capital in public markets.

Since its peak in March 2000, the Neuer Markt's index has lost more than 95 percent of its value. Bankruptcies, accounting scandals, criminal prosecutions and legal disputes over company delisting marred the market's public image in recent months.

Starting in early 2003, the markets overseen by Deutsche Boerse (DB) will have two segments: "Prime Standard," for which companies will have to meet high international standards of accounting, reporting and analyst criteria, and "Domestic Standard," where other companies will be traded. Deutsche Boerse expects that companies with mainly local shareholders will opt for the Domestic Standard segment.

The end of the Neuer Markt is in many ways the end of an era in German capitalism. Prior to its existence, many venture-backed companies in Germany lacked a venue for the final stage in their development. Trade sales were virtually the only option for venture capitalists to realize gains in their investment, as the road to a public offering was long and usually led out of the country. The option of going public on the Neuer Markt helped the German venture capital industry to mature, in the process making Munich Europe's second largest center of venture financing, following greater London.

Many Germans also had their first experience buying stocks with the Neuer Markt. In a country where the number of stock owners, even indirect owners through mutual funds, only recently topped the number of union members, this counted as something of a revolution. By investing in high-risk companies, Germans forced a re-evaluation of their reputation as extremely conservative savers.

But several of the companies on the Neuer Markt showed that high returns were indeed tied to high risks. For example, the media company EM.TV rose to record heights between October 1997 and early 2000: €100 invested in the company's IPO would have returned €33,000 at the market's peak. In a few months, however, EM.TV's former chairman will be in court, accused of criminal securities fraud. The company is long since bankrupt, as are 29 other formerly listed companies.

The new segmentation by Deutsche Boerse also will help the exchange comply with new national legislation. Previously, the regulations of stock markets had largely been matters of private contracts between DB and the listed companies. In the summer of 2002, the law on financial markets was revised to include criteria for listing companies. This will give Deutsche Boerse greater leverage in delisting companies. At present, several firms have been able to block their delisting by tying DB up in civil litigation.

The Frankfurter Allgemeine Zeitung, one of Germany's leading newspapers, estimates that even after the crash in the index's value, more than 170,000 jobs are tied to companies listed on the Neuer Markt. Larger biotech companies listed on the market, such as BB Biotech AG, of Schaffhausen, Switzerland (market cap: €1.093 billion), or Qiagen AG, of Hilden, Germany (market cap: €728 million), are likely to be part of the Prime Standard segment.

The longer-term effects are difficult to assess. Only one firm has gone public on the Neuer Markt so far in 2002. Venture capitalists in biotechnology are operating under the assumption that the IPO window is closed for the foreseeable future. By the time that market conditions - and companies - are ripe for public offerings, the Neuer Markt likely will be just a memory.