Regulation light – Germany’s Entry Standard

On 25 October 2005, a new stock exchange segment was created in Germany: the Entry Standard of the Frankfurt Stock Exchange. The young stock exchange segment is particularly targeted at small companies and offers a smart way to get listed. London’s famous Alternative Investment Market (AIM), which attracted 2,948 new firms from 1995 until 2007, served as a model. The Entry Standard, however, differentiates in many ways. It can be described as a typical “unGerman” creation. Only three pages of rules are sufficient to regulate the going and being public.

The Entry Standard belongs to the so-called alternative stock markets, which are exchange regulated stock markets. Throughout Europe, stock exchanges have established these form of listing platforms in order to offer companies less regulation.

Indeed, there is a demand for such platforms. Since State regulation is based on the ‘one-size-fits-all’ approach and there is a trend to introduce even more regulation, small companies regard the EU Regulated Market as overregulated. They are burdened with huge costs and administrative work to fulfil the requirements.

The objective of this work is to analyse and evaluate the Entry Standard from multiple different perspectives. The analysis will focus partly on describing State regulation in Germany compared with exchange regulation and partly on analysing the success factors of the Entry Standard in comparison with not only the Regulated Market but also with the former Neuer Markt and other European exchange regulated markets.

It will be shown that the creation of the Entry Standard brought about a paradigm shift. Exchange regulated markets can serve as important platforms to close the “equity gap” of small and medium sized companies.