The Frankfurt Stock Exchange

Summary: The Frankfurt stock exchange is home to a very important group of companies and represents the might of the German economy. Needless to say, Germany is one of the world's economic superpowers and a real force within the European Union and the Euro currency. What happens in Germany and in this market matters!

The importance of the German economy to the Euro zone, European Economic Area and European Union more generally, is of key significance. One website that covers EU affairs particularly well is EUObserver.

In many instances, how Germany is faring has a wide impact. This is because interest rates for the Euro are set - in part - on the impact any change will have on member economies. Responsibility for setting these interest rates lies with the European Central Bank.

Since Germany has the largest economy with the Euro currency, any interest rate changes must be able to assist - or at least not harm - the German economy.

The ultimate impact of this is that smaller Euro zone economies - perhaps in the Baltic countries or Ireland, for example - have interest rates set for them with very little significance paid to the impacts on their smaller nation. This was very evident through the early years of this century when Ireland was growing at an incredible pace, and almost certainly needed higher interest rates to slow the economy and ensure that growth was sustainable.

Within the corporate world, the daily movements of the Frankfurt stock market are reported worldwide. Such important news channels as CNN will provide daily and mid-session updates - which demonstrates the importance of the exchange.

Frankfurt is the most important of Germany's eight regional stock exchanges. Trading is via a traditional floor based auction system.

Trading in German equities also happens via a order driven and matching system which is known as Xetra. It is this for which the exchange is best known - Xetra Dax 100 is the name of the most important Frankfurt Stock Exchange Index.

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The name is not taken from a sponsor as is the case in several other major exchanges. Instead, the Xetra comes from the electronic trading system and DAX from names of predecessor indices. These were the Deutsche Aktien Xchange 30 and before it the Deutscher Aktien-Index 30.

It will be no real surprise to the reader that at the time of writing, the main companies include several car manufacturers (such as BMW) and a number of former state monopolies which have been floated by the German government. These include companies such as Deutsche Bank, Deutsche Telekom and Deutsche Borse.

Just as with many of the other major indices around the world, Germany has it's own speciality, taking after the home economy. Germany is well regarded as an industrious and productive nation - a country where things are designed and made. This shows through in the index where manufacturing and 'diversified industrials' play a strong role.

This is, of course, in stark contrast to other locations where different sectors are much more represented (for example, in London and Hong Kong there are lots of large listed financial companies and in Australia and Canada there are lots of minerals and natural resource companies).

The DAX has a base value of 1,000 as at 31st December 1987 and since 18th June 1999, only XETRA prices are used to calculate all DAX indices.

As with most other major exchanges, clearing and custodial services are a major part of the infrastructure. Clearstream conducts the clearing house responsibilities for both the cash market on the exchange and the OTC market (over the counter) for derivative contracts.

To give the size and scale of the index some sort of description, there are approximately 10 million transactions concluded in a calendar month (including both securities and derivatives) and the amount of assets under custody is upwards of 10 trillion euro.

As might be expected from a leading index, much of the action in other European bourses follows a lead made by Germany. As Europe's powerhouse economy, what happens in Germany often impacts a wide number of other countries. Needless to say, this is also the case in European economic policy, as has been shown repeatedly during the problems faced by the euro in 2010 and 2011. For this reason, German politicians, industrialists, economists and financiers often provide 'leadership' for the rest of Europe and the European Union.

The L-DAX index (Late DAX 30) is operated between 17.30 and 20.00 CET.

On the trading floors, specialists trade the larger stocks. The Xetra system is available for every listed company.

Orders are input by brokers in a pre-trading phase which is then followed by a call phase. This is known as the price discovery period. After this time, continuous trading occurs and is then completed with a closing call phase.

The official settlement period is T+2, though many overseas investors will settle at T+3. Clearstream acts as a clearing house for all German trades in equities. Since the creation of the euro currency, all German listings are quoted in euros.

Other pages on this site related to the market in Germany include:

Frankfurt Stock Exchange History