Fresh probe adds to Deutsche Boerse's woes

Mr Carsten Kengeter is being investigated over what he knew about London Stock Exchange takeover talks when he bought €4.5 million (S$7.08 million) of Deutsche Boerse shares.
Mr Carsten Kengeter is being investigated over what he knew about London Stock Exchange takeover talks when he bought €4.5 million (S$7.08 million) of Deutsche Boerse shares.PHOTO: REUTERS

Markets watchdog investigating suspicious trading in shares of listing in its Scale segment

FRANKFURT • Deutsche Boerse's chief executive officer is having a bad year.

His US$14 billion (S$19 billion) London Stock Exchange (LSE) Group deal collapsed, he is being investigated for insider trading, and a German regulator is reviewing the reliability of his entire management team.

Now, Mr Carsten Kengeter faces a further test. 

The CEO has been touting Deutsche Boerse's new Scale market as the ideal way for small German companies to raise capital. But just four months after Scale's debut, Germany's markets watchdog, Bafin, is investigating suspicious trading in the shares of one of its listings.

Naga Group, a Hamburg-based fintech company, saw its shares soar after its initial public offering, then plummet days later.

"If there are problems with the IPO, that's a bad sign and that creates a bad reputation for the new Scale market," said Mr Alexander Thomas, capital markets partner at law firm Pinsent Masons.

"If there is market manipulation, it's not Deutsche Boerse's fault, but it makes for a bad reputation. You destroy the confidence you want to create."

POOR START

If there is market manipulation, it's not Deutsche Boerse's fault, but it makes for a bad reputation. You destroy the confidence you want to create.

MR ALEXANDER THOMAS, capital markets partner at law firm Pinsent Masons.

The investigation into potential market manipulation of Naga's shares comes on top of a five- month-old probe into what Mr Kengeter knew about LSE takeover talks when he bought €4.5 million (S$7.08 million) of Deutsche Boerse shares in December 2015.

Another probe into the management team, which regulators said was triggered by the insider trading case, began last Wednesday. The reviews come before the company was due to report second-quarter earnings yesterday.

The Naga episode shows how even the biggest stock exchanges can stumble when they venture into the world of smaller stocks. 

Naga's IPO earlier this month was only the third for Scale. Stock-exchange operators around the world have created markets for tiny stocks, but few of the companies make it big and most shareholders lose money.

Bafin is looking for evidence of market manipulation or insider trading in Naga's shares, a spokesman said. It can send the case to prosecutors if it finds evidence of wrongdoing.

Naga said it will cooperate with Bafin and that it wants to avoid future volatility in its shares, and that the initial rally was fuelled by short- term speculation.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 27, 2017, with the headline 'Fresh probe adds to Deutsche Boerse's woes'. Print Edition | Subscribe