FSE Listings

Securities exchange

In the broader sense of the word, an exchange on which securities or derivatives are traded under the provisions of the Securities Trading Act.

In practice, only securities (i. e. stocks, government bonds, mortgage bonds, public-sector bonds, corporate bonds, etc.) are traded on a securities exchange; derivatives trading takes place on a futures and options exchange.

In Germany, there are currently eight securities exchanges, all of which use the floor trading system. Of these, FWB Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange) is by far the largest.

Initial Public Offering (IPO)

Process by which a company becomes listed on an exchange

A company usually prepares and executes an IPO with the support of an issuing bank, or, in the case of large-scale issues, in conjunction with a syndicate.

Companies go public primarily as a means of raising additional equity capital and as an exit channel for the original capital providers (e.g., venture capital companies). Additional benefits of an IPO include a higher profile for the issuing company and a broader investor base. It is more advantageous for a company to go public during a bull market because this increases the likelihood that all new shares will be purchased, thereby lowering the cost of capital for the issuer.

Admission to the exchange

Prerequisite for a listing on the stock exchange

At FWB® Frankfurter Wertpapierbörse (Frankfurt Stock Exchange) the Admissions Office is responsible for deciding whether to admit securities to the Official Market; the admission of securities to the Regulated Market is determined by the Admissions Committee. Each market segment has its own admissions requirements. However, all issuers must publish an offering prospectus containing the fundamental data required for an evaluation of the security.

Admission to General Standard does not require any further action on the issuers’ part. However, issuers have to apply for admission to Prime Standard; a listing in this segment is subject to the fulfillment of high international transparency requirements.

Issuing price

The initial price of a newly issued security determined off the exchange by the issuing company

In recent years, the bookbuilding method has become a widely used procedure for determining issuing prices.

Second Quotation Board

The First Quotation Board and Second Quotation Board structure the Open Market.

All companies whose shares are already listed or included at another international or domestic trading venue and apply for admission to the Open Market are included in the Second Quotation Board.

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First Quotation Board

The First Quotation Board and Second Quotation Board structure the Open Market.

All companies with an initial listing in Open Market are included in the First Quotation Board. It is directed at domestic and international companies for a cost efficient and fast admission of their shares to trading.

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Filing

The submission of admission materials (issuing prospectus) and follow-up mandatory reports (e.g., quarterly reports) to an exchange

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Fee schedule of the stock exchange

Body of regulations governing fees and the reimbursement of outlays for stock exchange services

The stock exchange charges fees for various services, such as the admission of participants or securities to exchange trading, or the listing of securities on the exchange. The fee schedule of the stock exchange is issued by the Exchange Council and approved by the Exchange Supervisory Office.

Regulations on the fee schedule of an exchange are contained in the German Stock Exchange Act, section 5.

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Holding period

Period of time during which capital gains from securities transactions are taxable (or subjected to the highest tax rate)

The holding period in Germany is twelve months – i.e., capital gains resulting from the purchase or sale of securities held for less than a year are subject to income tax. In Germany, all capital gains realized after the holding period has elapsed are tax-free. Investors can offset capital gains and capital losses recorded during a given year on their tax return. If an investor’s net gains in a given calendar year amount to less than €512, they will be tax-exempt irrespective of how long the securities were held. If this tax exemption limit is exceeded, the entire amount of capital gains is subject to tax.

Going Public

Process in which a company raises external equity capital by offering its shares to public investors

Going Public is usually considered to be a synonym for initial public offering (IPO).

In the original sense, Going Public refers to the change in a company’s legal form when it is converted from private ownership – e.g., from a partnership, limited liability company – to a stock corporation, thereby giving the public the opportunity to invest in it.

In the meantime, however, Going Public has come to be used in a broader sense, in which it is understood to mean the initial listing of a company’s shares on the stock exchange, also called IPO. An IPO is usually planned and carried out in conjunction with an underwriting bank, or in the case of large new issues, a syndicate. The bookbuilding procedure has become the accepted method of determining the issuing price of a stock.

The primary advantages of Going Public are that it enables the company to raise additional equity capital and gives the original venture capitalists the opportunity to exit. Moreover, it is a form of publicity for the company, and serves to distribute the equity capital among a broader shareholder base. The best time for a company to go public is during a bull market, when it is more likely that all new shares will be bought, as this will lower the cost of capital.

Often, companies that are planning an IPO over the medium term will issue warrant-linked bonds and convertible bonds, which entitle the owner to subscribe to shares issued as part of the future IPO. If the IPO does not take place or is postponed, the bond is usually bought back by the issuer at above par.

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Global depositary receipt (GDR)

Security representing a foreign share

Global depository receipts (GDRs), which were developed on the basis of American depositary receipts (ADRs), securitize the ownership in shares. A GDR can relate to one or several shares, or a mere proportion of a share. GDRs are traded instead of the original shares on exchanges worldwide and are denominated in euro.

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German Stock Corporation Act

In law in Germany pertaining to stock corporations (AG) and commercial partnerships limited by shares (KGaA).

The German Stock Corporation Act (Aktiengesetz), enacted on 6 September 1965, regulates in particular the founding of a company, the legal relationships between the company and its partners or shareholders, capital, changes to the capital stock, and the dissolution of the company.