The Frankfurt stock market is represented by the holding company Deutsche Börse AG.
It has 250 members and over 75% of German market share and is responsible for the settlement of all exchange transactions in securities and futures in Germany. It operates the only German futures exchange, the Deutsche Terminbörse (DTB). Most securities traded on the exchange are held in the Deutsche Kassenverien (DKV), the central depository.
There are eight German exchanges altogether. Co-operation between them has increased since 1992 when the regional exchanges took a 10% share of Deutsche Börse. Dusseldorf, the next largest exchange, has 9% of the market. There is no transfer of orders between exchanges, though there are plans for a centralised order book encompassing at least Frankfurt, Munich, Berlin and Dusseldorf.
The main indices are the Dax (the 30 leading blue-chip shares), the Dax100 (100 leading shares) and the Mdax (the 70 shares below the top 30). The Mdax has recently proved to be a more useful indicator than the Dax 100 because it produces greater variations from the Dax.
Transaction costs for institutions are approximately 0.25% of the market value of share transactions and for individuals between 0.5 and 1% with a minimum investment for practical purposes of DM6000.
The Dax index, available from 9am to 5pm, changes every minute. The Mdax is particularly active in the morning when it changes every two or three minutes with an opening auction for every share trading. Mdax movements are slow in the afternoon. Indexes do not change unless 30 share prices have changed with 50% of nominal capital included.
Foreign investment is concentrated on the highly liquid Dax 30. The one disadvantage of these shares is that at the heavyweight end of the market, share prices reach DM3000 (for the largest listed company Allianz Holding AG). These shares make up nearly 10% of the Frankfurt market, making price movement difficult.
The big German banks and the international trading companies dominate the 250-member exchange. The Börse cannot make rankings public but of the 15 largest players, six are foreign owned. A survey of order bases for 1995, showed 38% originating with foreign institutions.
There are no barriers to foreign investors beyond the obvious requirement that they operate in an internationally convertible currency.
The most important buyers of equity are institutional investors, then corporations, then individuals. The latter have only invested 5% of their wealth in equity. The largest shareholders are corporations, a situation that is partly due to complex ownership relationships, with parent companies unable to sell off holdings for tax reasons.
IBIS, the electronic trading system, allows anyone who is a member of the exchange to handle orders. Transactions can be scrutinised by all other members. There are no market makers: IBIS functions as a voluntary market-making system. IBIS has been of most use to institutional investors who require a transparent market for their transactions throughout the day.
A new electronic trading system will fully replace IBIS by the end of the year and will encompass all current trading floor business, with an opening auction, and mid-day and closing options. The system can trade odd-lots and makes provision for market makers.
Deutsche Börse plans to launch a Neuer Market (new market) in March for young innovative companies which will publish quarterly reports adhering to US GAAP standards.
There were 19 IPOs in 1995 and a further 10 in 1996 including Deutsche Telekom.
In the Bond market - Europe’s foremost - the German government is offering new two year and six month debt with no state-issued floating rate notes expected. The market is planning to offer a new future based on two year bonds incorporating ten year bonds, two years from delivery.
The introduction of Jumbo Pfandbrief - large debt issues mainly from mortgage banks which are highly liquid - has greatly increased foreign involvement. The IBIS-R bond index is the most popular bond index for international investors.
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