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In Germany, the exchange clearinghouse requires that members provide margin for options and futures contracts. In the case of options, only the seller must provide margin, whereas both buyer and seller are obligated to meet margin requirements for futures transactions. When a derivatives contract is concluded, the investors must provide initial margin of 2 to 7 percent of the contract volume. During the lifetime of the contract, adverse price developments may result in a margin call, in which the investor is required to put up additional margin immediately. Futures traders are affected by daily price movements in the market. If the price of the underlying instrument moves adversely, they must furnish additional margin (variation margin). If the price moves in their favor, their margin account will be credited accordingly.
Investors usually receive margin loans from their banks on very favorable terms and conditions. The amount of the loan is generally determined on the basis of the value of the investor's securities account, which serves as collateral for the loan. There are various lending limits for different securities. A higher percentage can be borrowed against blue chips and funds than against speculative stocks or bonds. If the value of the securities account falls, the maximum lending limit also drops, as does the customer's credit line. In this case, the bank has the right to close individual positions in the customer's account and hold them as collateral.
Open futures positions, for example, are marked to the market on a daily basis to ensure that margin requirements are being fulfilled. The margin owed is offset against the surplus margin in the account.
The market capitalization is calculated by multiplying the current market price of a stock by the number of outstanding shares. Because an increase in a market capitalization often implies a concomitant rise in the volume of shares traded, it serves as a measure for assessing the trading volume and the market liquidity of a company. The market capitalization of a stock exchange is equivalent to the total market capitalization of all listed companies and is often an indicator of its size. The market capitalization can be calculated for individual sectors or for the stock market as a whole.
Market makers guarantee that a security can be traded on an ongoing basis,
thereby ensuring the liquidity and viability of the market. Through their
readiness to step in as a counterparty at any time, market makers compensate
for the inconsistent order flows of investors and stabilize the market when
temporary imbalances occur. They are usually assigned to support trading in
At FWB® Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange), market makers are known as Designated Sponsors.
A security whose performance (i.e., price development) has been more favorable than that of the overall market.
The Exchange Operating Board is responsible for deciding whether a prospective
participant is to be admitted to trading on the exchange.
The most important prerequisites for admission to trading are as follows:
The firm must trade securities or foreign currencies on the exchange, or act as an intermediary for such transactions.
The brokers who represent the participating firm must demonstrate that they possess the necessary aptitude and sense of responsibility for trading on the exchange.
The firm must ensure that exchange transactions executed on its behalf are settled according to regulations.
In cases where the stock exchange regulations and directives provide for it, the firm must provide collateral to guarantee the settlement of transactions executed on its behalf.
More than 400 market participants are admitted to trading on FWB® Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange).
Admission requirements are contained in greater detail in Section 16 of the Stock Exchange Act.
A security whose performance (i.e., price development) has kept pace with that of the overall market.
Market prices are calculated on the basis of available buy and sell orders either by a lead broker on the trading floor or automatically via the electronic trading system.
When admitting shares to trading on FWB® Frankfurter Wertpapierbörse (the
Frankfurt Stock Exchange), companies may choose between three market segments
regulated by law: the Official Market, the Regulated Market and the Open
Market (Regulated Unofficial Market).
The Official and Regulated Markets are EU-regulated markets, i.e. they are markets governed by public law (e.g. by the German Securities Trading Act – WpHG). The admission criteria and transparency requirements are prescribed by the European legislator. Companies in the Official and Regulated Markets fulfill the highest Europe-wide transparency standards and enjoy all advantages of a full exchange listing. The Official Market features particularly strict admission criteria and follow-on obligations. The Regulated Market is characterized by slightly less strict admission criteria and lower admission fees; it serves as a entry segment and pre-stage of the Official Market.
The Open Market (Unofficial Regulated Market) is a segment under private law; it is regulated by Deutsche Börse. This is where companies fulfill lower admission requirements and less follow-on obligations in order to include their shares in trading. Besides German shares, primarily foreign shares as well as bonds of German and foreign issuers, certificates and warrants are traded here.
These three admission segments provide the legal framework – as stipulated by the legislator in the Securities Trading Act – for the transparency levels Prime Standard, General Standard and Entry Standard.
Additional to the legal market segments, there are two smaller trading segments for foreign shares which are listed on stock exchanges abroad. International blue chips from Europe and the US can be traded in a special quality segment, Xetra Stars®. Securities from central and eastern Europe that are included in the Open Market at the Frankfurt Stock Exchange can opt for Newex as a trading segment.
Exchange-traded funds also have their own market segment, Xetra Funds. Both Xetra Funds and Xetra Stars are subject to particular trading and transparency standards.
The function of the market surveillance (Handelsüberwachungsstelle) is to ensure that price determination takes place according to the pertinent rules and regulations. To this end, it gathers and analyzes all data related to exchange trading and settlement and immediately notifies the Exchange Operating Board (Börsengeschäftsführung) of any irregularities.
The market surveillance reports to the Exchange Supervisory Office (Börsenaufsichtsbehörde).
A security whose performance (i.e., price development) has lagged behind that of the overall market.
Depending on the type of security involved, the market value is expressed either as a unit quotation or a percentage quotation:
The market values of stocks and options are published by the stock exchange as unit quotations (i. e., in currency units per share). The market values of bonds and future contracts are expressed as percent quotations (i. e., as a percentage of the nominal value). market value = nominal value x price/100
The market value of a security is used as the basis for tax valuation.
In the Xetra® electronic trading system, orders with the same bid and ask price are continuously offset and executed. Matching occurs according to price-time priority - i.e., if two bid orders have been placed for the same price, the first order received will be the first to be executed.
The expiry date represents the end of the time to expiry; it is the last day on which the warrant may be exercised. After the last trading day, which usually takes place a few days before the expiry date, investors may only conduct the settlement with the issuer. Many issuers determine in their terms and conditions for warrants that the option right is executed automatically at the end of the time to expiry if there is a positive balance. Nevertheless, investors should constantly monitor the expiry and adapt their strategy accordingly especially with the remaining time to expiry coming to an end.
In an MBI, the incoming management has contacts to financial investors who provide liquid funds and accompany the takeover process, thereby guaranteeing that the new management team will be successfully integrated into the company.
MBOs often occur in response to restructuring measures, or when a takeover has been announced, which from the point of view of management is undesirable. The advantage of an MBO is that the company can retain its management know-how.
MDAX ® was launched on 19 January 1996. It comprises the 50 largest
companies from classic sectors in the Prime Standard segment of FWB®
Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange) that rank below the
DAX® shares in terms of market capitalization and trading volume. The base
date for the index is 30 December 1987 = 1,000 points.
The composition of the index is reviewed on a semi-annual basis and adjusted in March and September. The criteria for weighting the shares in the index are: trading volume and market capitalization on the basis of the number of shares in free float, as well as position in the respective sector.
Outside the regular review dates, a company can be taken out of the index if it does no longer belong to the 75 largest companies in terms of market capitalization and trading volume. Respectively, a company can be included in the index if it ranks among the 40 largest companies in terms of market capitalization and trading volume. The changeover takes effect as of the next scheduled chaining date.
Decisions regarding changes to MDAX® are taken by the Executive Board of Deutsche Börse AG, which consults with the Arbeitskreis Aktienindizes (Stock Indices Working Group).
Forms of mezzanine money typically used in Germany: shareholder loans,
preferred shares, naked warrants, silent partnerships
The Midcap Market Index includes 80 equities of medium-sized market capitalization in Prime Standard.
In floor trading at FWB® Frankfurter Wertpapierbörse (the Frankfurt Stock
Exchange), all stock orders are executed at the next possible opportunity. The
minimum trading unit is one share.
Bond orders must have a par value of at least euro 1 million to be eligible for continuous trading.
In the Xetra® electronic trading system, the minimum trading unit for all stocks is one share.
The momentum is calculated as the difference between the current and previous price of a stock, divided by the previous price. It can be computed hourly, daily, weekly, or monthly. An interval of 10 days is typical. In a diagram, the momentum of a stock is usually depicted as a curve that fluctuates around a zero line. If the curve crosses the zero line from below, this is understood as a signal to buy. If the momentum curve crosses the zero line from above, it is considered to be a signal to sell.
Money laundering is prohibited in Germany. Once money obtained through illicit activities has been introduced into the economy (e.g. through a cash deposit to a bank account), its origin can no longer be traced. To prevent money laundering, financial service providers and insurance companies that offer life insurance policies are obligated to confiscate the personal documents of anyone who attempts to make a deposit of more than euro 10,000, and to notify the police of any suspicious transactions. The prohibition on money laundering is specified in the German Penal Code (Strafgesetzbuch), section 261. Regulations on tracking down profits from criminal activity is regulated in the Money Laundering Act (Geldwäschegesetz).
The money market provides banks and large industrial firms with a means of borrowing funds for a period of up to 12 months. This ensures the liquidity of banks and of the economy as a whole. Money-market loans have various maturities, e.g. overnight money (with a maturity of up to 24 hours), day-to-day money, one-month money, three-month money, and others. Money-market participants include the Bundesbank, commercial banks, and large industrial companies.
Investment companies that operate actively managed funds listed in the XTF® segment must publish monthly reports as well as semiannual reports to enhance the transparency of their funds.
Mortgage bonds are similar to bonds in form, and are issued by mortgage banks, ship mortgage banks, and public-sector credit institutions. Because they are collateralized with real estate, they are especially secure. A trustee ensures that mortgage bonds are always backed by mortgages of the same amount that carry at least the same interest rate. As a rule, mortgage bonds have a long maturity, in some cases over 25 years. The holder of a mortgage bond cannot redeem it before the end of the term agreed upon. The borrower must begin repaying the principal at the latest when one-third of the maturity has elapsed. The redemption value of mortgage bonds may not exceed their face value. Mortgage bonds are traded on the exchange in the Official market (Amtlicher Markt) segment. The name 'Pfandbrief' is registered. Important regulations pertaining to mortgage bonds are contained in the (German Mortgage Bank Act (Hypothekenbankgesetz) , section 7, section 9 para. 1 no. 3., and section 41; and in the Mortgage Bond Act (Pfandbriefgesetz), sections 2 and 10.
In most cases, multiple voting rights were granted between 1920 and 1923 - a period of high inflation - to prevent outside capital from gradually taking over the issuing company. Since 1998, they have been banned by the German law regulating supervision and transparency in the corporate sector (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich). Existing multiple voting rights will expire during a five-year transition phase and be compensated in accordance with their value. However, the highest office responsible for the economy in each German Bundesland is authorized to grant multiple voting rights if such an action is considered necessary to protect the interests of the economy as a whole. Regulations on multiple voting rights are contained in the Stock Corporation Act, section 12, para. 2, no. 1.