The Frankfurt Stock Exchange History

The Frankfurt stock exchange history is one of the oldest in the world.

Frankfurt was important for medieval fairs which enabled trading. An autumn fair is believed to have begun in the 11th century and in the 13th century a spring fair was added. This laid the foundations for Frankfurt to become a city which was important for commercial activity.

As the reputation of Frankfurt grew, traders from France and the Netherlands came to the city. Over time, a banking centre established itself.

It is believed that 1585 is the year of the Frankfurt stock exchange's birth. Merchants came together to establish exchange rates between very regional currencies for ease. The merchants held their meetings in fields on the outskirts of the city.

The first rules were laid down in 1682 and it is now that trading in the way we know a market was begun. The Frankfurt stock exchange history was long even before a start that we would recognise in the modern world had begun.

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It is believed that by volume it now serves over 90% of the German market. In total, there are more than 250,000 trades processed every day and over 70,000 listed securities.

The Xetra electronic trading system enables 15 countries to trade on a single platform. This has enabled very high levels of foreign investment into the Frankfurt stock exchange and it is believed that almost half of all market participants are based outside Germany.

Companies can list on the exchange in one of three different ways. They are called Prime Standard, General Standard or Entry Standard. EU rules govern the companies using either Prime or General Standard procedures. Those firms choosing Entry Standard face a lighter entry procedure and will be regulated directly by the exchange.

Since the financial crisis of 2008, the European Union has spent many hours developing new rules for banks, financial institutions, markets and traders as an extension to the previous MiFID rules. Europe has been working closely with the United States in an attempt to draft identical rules ensuring that there is a 'level playing field' across as many jurisdictions as possible.

The German government and a number of high profile German financial houses have been at the forefront of these developments. This shows just how influential the German markets have become in modern finance - from trading in fields to one of the leading global players.

The name's Bond

On 1st January 1999, the exchange rate between the Deutschmark and the Euro was fixed at 1.95583. The total amount of domestic government debt was 796.425 billion euros. Since Germany is the largest economy in both the EU and the euro, the price of German bonds (mainly 10 year) is of vital importance to the rest of the continent.

German government bonds are known as Bunds and all maturing after 20th January 1999 were changed to be denominated in euros. Figures were rounded to the nearest cent and no cash compensation was made.

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Bunds are normally issued with a maturity of up to 10 years, but maturites of up to 30 years do exist, via an auction. Trades are conducted in either an OTC (Over The Counter) or on a German exchange. Frankfurt stock exchange bond trades are the largest in volume.

Bunds are bearer bonds and are quoted in 1/100s of 1 euro. Settlement is T+3. A gross annual coupon is paid.

Settlement is carried out either through an agency called Kassenvereine or via the two eurobond clearing agencies: Euroclear and Clearstream.

The terrible problems caused by the eurozone crisis that started in 2010 with the bailout of Greece showed just how powerful the German bond markets really are in Europe, the eurozone and to the world financial system. The eurozone repeatedly looked to Germany's top politicians for leadership on the matter, and bluntly, any potential solution that Mrs Merkel did not like had little chance of moving forward.

In addition to this, the debts of individual EU member states were being viewed against German ones. That is to say that the price to buy and sell debt, Portugese for example, was assessed partly by how far it's prices were from Germany's. This economic strength and competitiveness of Germany when compared to other euro and EU members has been made very clear as time has passed.

In fact, this story on the BBC website in January 2012 clearly demonstrates this strength. As reported, it was the first auction with a negative yield - meaning that investors were so worried about the risk being taken in other (safe) locations, that they were willing to pay a small amount of interest to buy the bonds. Note, that investors were paying interest - not earning it! - to lend money to the German government. Now that is both respect and trust!

Other related pages which may be of interest to you include:

The Frankfurt Stock Exchange