Frankfurt Stock Exchange, more than share trading

December 22, 2008 - 9:27am | Articles | Markets |

| More

Older than NYSE, London and Tokyo exchanges, with a history of 400 years it is the world’s third largest trade place for stocks and the world’s second largest exchange by market capitalization. The Frankfurt Stock Exchange has over 90 percent of turnover in the German market and a big share in the European market. In total, there are more than 250,000 trades processed every day and over 70,000 listed securities. About 47% of the 300 market participants in Frankfurt come from abroad. It has a total turnover of €5.2 trillion per year. Like its main rivals in the New World, Europe and Asia the Frankfurt Stock Exchange experienced both ups and downs. It survived the severest times of the World War II that ruined the country economy and played an important role in “economic miracle” to drive Germany to the leadership in the world.

A börse to handle monetary transaction troubles

The origins of the Frankfurt Stock Exchange are traced back to as early as 9th century, to the time of medieval fairs. The first record of the Frankfurt autumn fair dates to the Assumption holiday in the year 1150. In 1330 Emperor Ludwig the Bavarian or Louis the German issued a free letter to expand this privilege and include a spring fair as well. Since that time Frankfurt has been playing an important role in commercial and monetary life. In the course of further developments that took place in the economy as the manufacture of goods on order gradually turned into merchandise production for an open and nationwide market Frankfurt became a very prosperous city.

With its growing popularity and wide spread persecutions of Protestants in the 16th century, Frankfurt attracted Dutch and French merchants. At the same time the city saw the establishment of the wholesale commerce and the banking sector.

The establishment of the exchange was related to the problems caused by the diversity of monetary systems that were peculiar in various European countries and in each economic region of Germany. This lead to that monetary transactions in Frankfurt were associated with a number of problems. With the immense abundance of payment means and the exchange rates unregulated by a single body merchants and individuals could easily become victims of fraudsters. In light of this confusing environment merchants made a decision to counter the adverse influence of diversified coinage and thus they met in 1585 so as to approve the universal exchange rates. It is this year that is today considered as the year when the Frankfurt Stock Exchange was created.

Thus beginning from that year during the fair a group of merchants had been meeting periodically in order to update the uniform and binding exchange rates for transactions both in paper notes and metal coins. The name Burs or Börse, which is included into the German title of the Frankfurt Stock Exchange that is read as “Frankfurter Wertpapierbörse”, was first documented in writings as a designation for this meeting as early as in 1605.

The German term Börse (and French bourse) comes from the fifteenth century, from the Belgian city of Bruges. The word described a periodic meeting of rich Italian traders at ter buerse plaza – a market place that was named after the patrician family Van der Beurse, who had lived there (Lat. bursa = "bag" or "change purse").

In 1682, the first Exchange Rules and Regulations were enacted, which led to the establishment of an official stock exchange administration. Initially, only trading in bills of exchange was undertaken on the Frankfurt Stock Exchange.

At the end of the 17th century trading in bills and bonds was adopted. From now on non-merchants were able to invest their assets and thus to participate in the market. In 1707 the directors of the Frankfurt Stock Exchange met to form the Deputies of the Merchants (Deputierten der Kaufmannschaft), an official trading representation body for the city. Later in 1808 these Deputies formed the Chamber of Commerce that took the responsibility to control the activity of the stock exchange. Thereby the Frankfurt Stock Exchange that was previously established as a private entity now became a public sector institution.

International influence prospects

In 1779 the first bond denominated in millions was placed by Bankhaus Bethmann for the German Emperor in Vienna. In view of big size of the amount the bank decided to divide the sum and issue the so-called fractional bonds (Partialobligationen) in Frankfurt. The securities were available for purchase to anyone. Thus by buying some part of the total bond investors obtained the right to a share in the regular interest earnings. Following the example of Bankhaus Bethmann other banks in Frankfurt later arranged their large bond issues into smaller bills.

In the middle of the 19th century the stock exchange had to change its place in view of the expansion of its importance as the major international stock markets besides London and Paris. Thus the exchange built its own edifice near the Paulskirche on the Paulsplatz in accordance with the project of the Frankfurt architect Friedrich Peiper and opened its doors in 1843.

Later in 1879 another building was erected for the Frankfurt Stock Exchange. The new ensemble was designed by the well-known Frankfurt architects Heinrich Burnitz and Oskar Sommer. Today apart from the main railway station and the Old Opera the New Stock Exchange is still one of the most important Frankfurt structures dating from the Wilhelmian epoch.

With the "Gründerjahre" boom when a great number of companies in the country started restructuring their business as stock corporations Frankfurt still wanted to achieve an international recognition with US bonds and international government securities to be circulated on its market. Yet the city’s attention was switched to another objectives when Berlin, a capital of the newly established German Empire, became posing a competitive challenge to Frankfurt. To save its position of a prestigious financial center Frankfurt altered its economic policy and strove to attract industry and intensified share trading activities. Now the v could offer companies, primarily located in southern Germany, an alternative to Berlin for the raising of capital. The 29 German stock exchanges were only subject to a uniform organization under the Stock Exchange Act of 1896.

Even though hit by the World War I and World War II the Frankfurt Stock Exchange managed to survive and realize its internationally oriented ambitions. In 1949 after World War II the Frankfurt Stock Exchange finally established as the leading stock exchange in Germany with consequently incoming national and international investments. As it is noted on the Deutsche Börse website, “The stock exchanges played an important role as capital intermediaries for the country's post-war reconstruction. Through their activity, they were also decisively involved in the subsequent "economic miracle" and the Federal Republic of Germany's achievement in becoming a major economic force in the world.”

New era

“In the course of the fundamental developments at the close of the twentieth century, the Group has evolved from a mere market-place organizer for share trading to an international service provider to the securities industry covering the entire process chain of exchange trading.”

Starting from 1969 Deutsche Börse was processing some of its transaction data electronically and later in 1997 the company entered an absolutely different exchange era with the introduction of its Xetra® system. This led to the decline of floor trading importance as long as now with electronic Xetra trading exchange can be wherever there are screens. Xetra became a synonym for electronic and international securities trading.

In 1993 the Frankfurter Wertpapierbörse (Frankfurt Stock Exchange) became Deutsche Börse AG, operating businesses for the exchange.

In 2001, Deutsche Börse tried to merge with the London Stock Exchange, followed in 2006 by a takeover bid, both rejected by LSE. After CEO Werner Seifert was forced to resign by the main shareholders in 2005, Deutsche Börse changed plans and entered into advanced negotiations for a merger with Euronext which would have brought two of the biggest stock exchanges in Europe into one holding. The New York Stock Exchange beat out Deutsche Börse's final bid for Euronext in 2006.

In accordance with the Fourth Capital Market Promotion Act Deutsche Börse reformed the German stock market. Starting from January 2003 issuers at FWB® Frankfurter Wertpapierbörse (the Frankfurt Stock Exchange) have been able to choose between a listing in either Prime Standard or General Standard.

In October 2005 Entry Standard, a new segment for small and medium-sized companies, was introduced. It allowed their shares to circulate in the exchange trading while meeting less stringent formal requirements. 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.

On December 7, 2008, Deutsche Boerse rebuffed rumors that it might join with NYSE Euronext to create the world's leading stock exchange. While the company claims that it pursued the matter, on December 8, 2008 it reported that talks with which began on November 25, 2008 were closed without any result due to differences in valuation of the company.

Part ll: http://ecommerce-journal.com/node/12079