In Mumbai this week to showcase the capabilities of the Frankfurt Stock Exchange as also to further partnerships, Dr Lutz R. Raettig, Chairman of the Stock Exchange Council of the Frankfurt Stock Exchange, spoke of the impending need for India and Germany to work towards establishing more liquid markets. Deutsche Borse, which operates the exchange, holds five per cent stake in the BSE. Dr Raettig is also Chairman of the Supervisory Board, Morgan Stanley Bank AG, Frankfurt.

Excerpts:

What is the purpose of your visit?

It is to present the capabilities of the Deutsche Borse and discuss ways and means to get closer to one and another. We have a couple of structures which are similar and we both need more and bigger equity markets. Germany has an industrial base — which not only consist of very large companies but also medium-size ones — which in many cases, both in India and Germany, are owned by families; and some of them at some point of time have reached their growth limits. They now have to do something either by taking loans or maybe floating bonds or equity.

In the long run, we are all working on the same rules, identical technical structures which have systems to speak to and integrate with each other. There is still some way to go for regulators to get closer to each other, but, in a way the financial crisis has helped in this respect. Though it is a very unpleasant help, nevertheless it has made regulators talk more to each other and try to plug loopholes, harmonise and agree on common standards, which is important.

What is the regulatory framework you are looking at to encourage cross-border investments?

That should not be different from what the framework is with other countries. It should have relatively open access. We, for instance, have a very large number of Indian companies in Germany that people do not know. They are into selling, producing, offering consultancy and IT services.

In the community where Deutsche Borse has its headquarters, there are 60 Indian companies from the IT sector. They are not listed, but maybe one or the other will get listed at some point of time.

What has not made them list?

It is because they do not have to. They set their pace. In many ways, companies are finding out how successful you can be in Germany before talking to the financial market and getting more money out of it.

How attractive is India as an investment destination for Germany?

I think more and more individual investors and, particularly, institutional investors, are taking a significantly closer look at the emerging markets; and India is one of them. For them, it is important that markets are liquid enough and basically follow the same rules they are normally used to, as opposed to too many restrictions.

The International Organisation of Securities Commissions and the Bank for International Settlements have expressed concerns over high frequency trading moving asset prices away from their fundamentals. What steps are being taken at Frankfurt?

No steps have been taken at the moment. It is debated, what will come out of this has to be seen. It is ultimately up to the regulators to define what they think is tolerable. With regard to academic studies, I do not think we have proof or consensus but there is a strong suspicion on the part of regulators of a danger of being run by machines.

What do German investors look for to invest in GDRs and such instruments?

They want to invest in growth markets and India is one among them. I cannot quantify the amount to be invested as it is dependent on how liquid the market is. Big institutions do not invest in markets that are illiquid.

How liquid is the Indian market?

I think it is getting more liquid than it was and is on the right path. I think a lot of people are looking at it and know how liquid it is.

Any interest in commodities, as such Deutsche Borse holds five per cent in the BSE.

I cannot speak of Deutsche Borse but the concept of shareholding and cooperation at the same time is a strong documentation of being serious.

How easy is it to list on the Frankfurt Stock Exchange?

A number of Chinese companies are listed as also some Russian companies. The process is relatively easy. The prospectus is not cumbersome. One has to disclose some figures, management quality and market positions as also their three-year record.

There are different levels at which you can enter the market. It is not much different than London's Alternative Investment Market. The difference is AIM has more listings, but liquidity at Deutsche Borse is significantly higher.

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