Frankfurt and Other Secondary Listings: What They Do and Do Not Mean

Introduction

Look at the bottom of a junior mining news release and you will often see a string of symbols: a TSXV or CSE ticker, an OTC symbol for US investors, and an "FSE" or "FRA" code for Frankfurt. To a new investor, three markets can look like three votes of confidence.

They are not. This guide explains how Canadian juniors come to be quoted in Germany, often without asking, what the German open market actually is, and how to read a secondary listing without reading too much into it.

A Frankfurt symbol tells you where the shares can be traded, not who approved of the company.

The German Open Market

The Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) has a regulated market, where companies go through a full admission process, and a separate Open Market. Deutsche Börse's general terms describe the Open Market as a "Regulated Unofficial Market" for securities that are not admitted to, or included in, the regulated market.

Within the Open Market there are segments:

• Quotation Board. For shares that already trade elsewhere. This is where most Canadian juniors appear.
• Scale. A segment that companies apply to join themselves, together with a capital market partner recognized by Deutsche Börse.

Other German exchanges have run similar unofficial markets. A 2005 British Columbia Securities Commission notice, for example, referred to the unofficial markets of both the Frankfurt and the Berlin-Bremen exchanges.

How a Junior Gets Quoted Without Asking

Under Deutsche Börse's terms, an application to include shares in the Quotation Board comes from an exchange participant that is also a specialist, a firm that makes a market in the security. The shares must already be admitted to trading on a domestic or foreign exchange-like market that Deutsche Börse recognizes. The terms also allow Deutsche Börse to include shares without a participant's application.

What the terms do not require is the issuer's application. A 2016 note by the German law firm Noerr explained the practical result: specialists can apply to include securities in the open market without the issuer's consent or prior notice, typically where they see investor demand. The issuer is told about the planned inclusion, but its objection does not decide the matter; the exchange does. No prospectus is required.

The same note pointed out that because there is no contract between the issuer and the specialist, the issuer cannot instruct the specialist to end the quotation. Termination rights sit with the exchange and the specialist. Under the current terms, a Quotation Board inclusion can be ended on six weeks' notice by either of them, or immediately for cause.

So a Canadian junior can find itself quoted in Frankfurt because a German specialist decided its shares were worth offering to European investors. Some companies do arrange a German quotation on purpose, sometimes as part of a marketing effort in Europe. The symbol looks the same either way.

How Canadian Regulators Have Treated It

Canadian securities law sorts reporting issuers into venture issuers and others, with different disclosure obligations. Under National Instrument 51-102, a company with securities listed or quoted on certain markets outside Canada and the United States can lose venture issuer status.

In 2004 the BCSC issued an instrument confirming that companies trading on the Frankfurt and Berlin-Bremen unofficial markets remained venture issuers. In a February 2005 notice it went further, stating that trading on those markets "does not constitute a listing or quotation" for the purpose of the venture issuer definition. That notice has since lapsed, but it shows how Canadian regulators viewed the German open market: as a trading venue, not a listing.

The Liquidity Question

The shares quoted in Frankfurt are the company's existing shares. A German quote adds a venue; it does not add investors by itself. For many Canadian juniors, most trading happens on the home exchange, and a German quote may see little volume.

That is easy to check. Look at the trading history on the German venue and compare it with the TSXV or CSE. Keep in mind that German venues quote prices in euros, so a price there also reflects the exchange rate between the euro and the Canadian dollar, and a thinly traded quote can sit some distance from the home market price at any given moment. If the German volume is thin, the quote is mostly a convenience for European investors who prefer to trade locally, not a separate market with its own demand.

Why a Listing Is Not an Endorsement

A Quotation Board inclusion depends on the shares already trading on a recognized market and on a participant applying. No prospectus is required, and nothing in that process amounts to a judgment on the company's projects, management or finances. The same is true in a different way of the main venture exchanges: a listing means a company met the exchange's standards, not that anyone vouched for the investment.

Be careful with promotional material that leans on the number of markets a company trades on. "Listed in Toronto, New York and Frankfurt" can describe a TSXV listing, an OTC quotation and a German open market quote that the company never asked for. Our guide to Canada's three exchanges explains what the Canadian listings themselves mean.

What to Check

• The home exchange. Where the company is actually listed, and where most of its trading happens.
• Whether the company arranged the German quote. Its news releases or website may say so. If it did, ask what it hopes to gain.
• Volume on each venue. A quote with little trading adds little.
• The share count. All venues trade the same shares, so the capital structure on SEDAR+ is the one that matters. See reading a junior's capital structure.
• The filings. Continuous disclosure is filed on SEDAR+ under Canadian rules, whatever the number of venues.

This is general information, not advice. Read the filings and speak to your own adviser before making any decision.