was launched on 1 July 1988 by FWB® Frankfurter Wertpapierbörse (Frankfurt
Stock Exchange), Arbeitsgemeinschaft der Deutschen Wertpapierbörsen
(Association of German Stock Exchanges) and Börsen-Zeitung (a German stock
It comprises the 30 most actively traded stocks (blue chips), and represents
approximately 75 percent of the aggregate capital stock of listed German stock
corporations. Moreover, DAX shares account for approximately 85 percent of
trading volume in German equities.
DAX stocks are admitted to trading in the Regulated Market segment and are
listed in Prime Standard. The criteria for weighting the stocks 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.
DAX is calculated by Deutsche Börse AG as both a price and performance index
on the basis of Xetra® prices, and updated by the second. The calculation
procedure is independently monitored on a regular basis. Deutsche Börse
decides whether changes are to be made to the composition of the index on an
annual basis in September.
Outside the regular review dates, a company can be taken out of the index if
it does no longer belong to the 45 largest companies in terms of market
capitalization and trading volume. Respectively, a company can be included in
the index if it ranks among the 25 largest companies in terms of market
capitalization and trading volume. The changeover takes effect as of the next
scheduled chaining date.
The base date for the index is 30 December 1987 = 1,000. Historical data have
been calculated as far back as 1959.
Both the price and the settlement date are specified in the contract.
There are two sides to a DAX® futures transaction. A long position represents
the buyer's obligation to purchase the DAX portfolio for the agreed price on
the settlement date; a short position refers to the seller's obligation to
deliver the DAX portfolio. Normally, the DAX shares are not actually
delivered; instead, the contract is settled in cash.
Futures on DAX are bought and sold every trading day on the Eurex exchange.
The value of a DAX futures contract is equivalent to 25 times the current
price of the contract in euros. The settlement date is always the third Friday
of the respective contract month (March, June, September and December).
The price of a futures contract depends on supply and demand, with market
participants attempting to anticipate the level of the index on the settlement
date, taking into account the cost of money. The price of the DAX future is
thus quoted higher than DAX. Normally, the further away the settlement date,
the greater this difference will be. On the settlement date, the prices of DAX
and the DAX future are equivalent.
Investors who trade in DAX futures must maintain a separate account at their
bank, called a margin account, in which they deposit collateral to cover their
futures positions. For every point that the DAX future moves, €25 will be
either debited or credited to the margin account. If the margin in the account
is no longer sufficient, the investor must furnish additional funds. Should he
fail to do so, the bank has the right to sell the contract immediately.
In intraday trading, securities are bought and sold within the same trading
day, in some cases even several times during the day. Day traders try to spot
day trends and use price volatilities for their profit. They rarely keep a
position over night.
Dealers are also authorized to trade securities for their own account
The delta ranges between 0 and 1 for call warrants, and between 0 and -1 for put warrants.
If a warrant is deep out of the money, fluctuations in the price of the underlying instrument will have a relatively minor impact on the price of the warrant, and the delta will be around zero. By contrast, a warrant that is deep in the money consists almost exclusively of its intrinsic value, and its performance will more or less match that of the underlying instrument. In this case, the delta will approach 1 or -1.
The most important types of derivatives are options and futures. Derivatives are traded over-the-counter or on a derivatives exchange.
The world's largest derivatives exchange is Eurex® , the Swiss-German
electronic futures and options exchange.
An important aspect of trading in the derivatives market is that the delivery
and settlement of an options or futures contract does not ensue immediately.
In other words, at the time the contract is concluded, the buyer does not have
to deliver the liquid funds, nor the seller the commodity. The world's largest
derivatives market is Eurex® , a subsidiary of Deutsche Börse AG.
In addition to the exchange-based options and futures market, there is also an
OTC (over-the-counter) derivatives market, in which the majority of
participants are banks and other financial institutions.
Designated sponsors operate only in the Xetra® system, where they must be admitted as a participant. When an issuer is admitted to trading, it appoints a sponsor - or, in some cases, several sponsors - to ensure that there is additional liquidity in its stock by posting quotes in the system, either at the sponsor's own initiative, at the request of a market participant (quote request), or during auctions. The quotes can be seen in the order book, giving investors a more reliable reference for setting the price limit on their orders. Companies that are quoted in continuous trading in Xetra are required to appoint at least one designated sponsor if they are deemed to have insufficient liquidity.
During trading, a market participant can send an electronic quote request to all designated sponsors registered for a particular security. The party making the request can, if desired, indicate whether it is interested in buying or selling, and how many shares it wishes to buy or sell. All Xetra participants are automatically notified as soon as a quote request has been made for a particular security.
Deutsche Börse requires designated sponsors to fulfill certain quality criteria when performing their function. For example, they must be available throughout trading hours; the quotes they provide must be for a certain minimum number of shares and are not permitted to exceed a particular bid-ask spread. These criteria are more stringent for some stocks than for others, and are determined on the basis of characteristics such as volatility. Furthermore, each designated sponsor must respond to a quote request within a designated period of time by providing a quote. If a designated sponsor does not meet its obligations, Deutsche Börse can revoke its admission to trading.
Because they continually observe the market, designated sponsors acquire expert knowledge on the stocks whose liquidity they are promoting, and on the sectors to which their stocks belong. Depending on the issuer's needs and the range of services offered by the designated sponsor, this knowledge can be used for research, investor relations, disclosure, sales and market reports.
Dilution of ownership
When a company issues new shares or bonus shares, its capital stock increases, although the overall value of the shares remains the same. As a result, each individual share is worth less than it was prior to the new issue, and the proportion of the company owned by existing shareholders decreases. The company protects existing shareholders from the effects of dilution by granting them subscription rights, which they can use to acquire some of the newly issued shares.
Direct banks provide banking services 24 hours a day and charge low fees. However, because they typically do not offer financial consultancy services, they do not require a large number of qualified bank employees. Payment transactions are handled via ATMs and the branch systems of other banks.
Thanks to modern telecommunications systems, direct banks can operate from any location. They are typically domiciled in areas with low personnel costs and a favorable tax framework.
Direct offerings are typically undertaken by banks and insurance companies – i. e., companies that have already developed business relations with the investing public and established an extensive sales system which they can use to place the securities.
A direct offering is less costly than an issue supported by an underwriting syndicate. However, there are potential difficulties associated with a direct offering, for example, if the securities are to be placed with international investors. Moreover, if the issuing volume is particularly large, it can overload the issuer's sales system. For this reason, issuers are increasingly handling direct offerings via the Internet.
Frequently, a company will opt for a direct offering if it has been able to agree upon the terms of the issue with a large-scale investor (private placement).
Directors’ dealings cover securities transactions by people with management
duties at publicly traded companies. Since 1 July 2002, such transactions are
subject to new notification rules. Per section 15a of the German Securities
Trading Act (WpHG), people at publicly traded companies who have leadership
duties, or people who have close relationships with these managers, must
declare any securities transactions made with their own contingent of company
Disclosure requirement (Ad-hoc disclosure)
Through the Fourth Financial Markets Promotion Act (FiMaFöG), the reporting
requirement for so-called directors’ dealings was expanded to apply to all
companies admitted for trading on the Regulated Market. This requirement used
to apply only to companies on the Frankfurt Stock Exchange’s technology
segment, Neuer Markt.
The goals of the new regulation covering directors’ dealings is to provide
better investor protection, make the financial markets more transparent and to
create more trust. In conjunction with the new rules for ad-hoc announcements,
private investors are now offered a basis for damages claims in the case of
missing or late publication of facts influencing the price development of a
Investors can review directors’ dealings online:
Database of the German
Federal Financial Supervisory Agency (BaFin) BaFin operates an
Internet platform that publishes directors’ dealings.
www.insiderdaten.de A privately run
Web site that presents stock transactions in a very clear manner. The latest
transactions are sorted by company, insider name, date and order volume.
Synonym: insider trading
The regulations pertaining to the disclosure requirement are contained in
section 15 of the German Securities Trading Act, which states that issuers of
securities admitted to the Regulated Market on a German stock exchange are
obliged to report all corporate developments that have a sufficiently strong
impact on the issuer's financial situation or its business activities to
influence the market price of the security. Securities listed in the
Unofficial Regulated Market are exempt from this requirement.
The obligation to release such information without delay is intended to
mitigate the abuse of inside information and enhance market transparency. A
violation of the disclosure requirement is punishable with a fine.
While the Federal Supervisory Office for Securities Trading (BAFin) is
responsible for investigating whether issuers are meeting the disclosure
requirement as stipulated in section 15 of the Securities Trading Act, it is
the task of the Exchange Operating Board to decide whether the information
published requires a temporary suspension of a quotation.
According to section 15, paragraph 1, no. 1 of the Securities Trading Act, the
information must be published in the German language in at least one national
"Börsenpflichtblatt" (the journal for statutory stock market publications), or
via an electronic information dissemination system. Furthermore, companies in
Prime Standard are obliged to publish ad-hoc messages in English.
Prior to publication, the information must be communicated directly to BAFin
and the Exchange Operating Board of the German exchange where the securities
or their derivatives are listed.
Discount brokerages are usually operated by direct banks. Because they do not provide financial advisory services, their fees for orders are normally lower than those of "normal" banks. Customers place orders with discount brokers via modern communications media such as the internet, fax and telephone.
The investor gets the certificate at a price that is below the current price of the underlying security or index. This is called a discount. In return, the potential profit is capped.
At the end of the certificate’s maturity, a cash check occurs: If the price of the underlying when the maturity is up is higher than the maximal payout or identical to it, the issuer pays the maximum amount.
If the price of the underlying is less than the cap, the issuer pays either the current price of the certificate in cash or he gives the investor the underlying, for example a share, at its current price. The issuer can choose. The cash payout is obligatory in the case of discount certificates on indices, currencies or interest.
The maximum profit that an investor can reach with a discount certificate is calculated by taking the difference between the purchase price and the cap on the underlying. Losses, in contrast, are lessened by the discount. The investor suffers a loss only when the price of the underlying at the end of the maturity has fallen so far that the discount is depleted. The discount thus works as a buffer against risk.
Discount certificates are ideal for conservative investors that want to guard against market fluctuations and who expect in the medium term sideways-moving prices. Because the buyer of a discount certificate does not profit from price gains that are higher than the cap, this form of investment is best suited for a medium-term oriented engagement. If the certificate reaches its cap before the maturity, the investor should take the profits.
Details about currently traded investment product types .
At the beginning of 1999, the European Economic and Monetary Union (EMU) came into effect. At that time, the European System of Central Banks (ESCB) and the European Central Bank (ECB) assumed authority for monetary policy in Euroland, and the Bundesbank's discount rate was replaced by the discount rate of the European Central Bank.
Up to the end of 1998, banks could take out a short-term loan from the Bundesbank or the State Central Banks at the discount rate by selling bills of exchange with a maximum maturity of three months.
Through the discount rate, the Bundesbank influenced the interest rate that the banks charged their own borrowers. As a rule, a lower discount rate increased demand for credit, whereas a high discount rate tended to reduce the overall demand for credit. The discount rate therefore influenced general liquidity, price stability, as well as the development of the inflation rate and interest rates.
Companies often distribute a portion of their profits to shareholders. In the case of stock corporations, distributions usually take the form of dividends. Distributed capital is no longer under the control of the company.
Profits can also be distributed as interest payments, bonus payments, scrip certificates, and proceeds from sales that are paid out to shareholders.
comprises the 15 DAX® companies with the highest dividend yields. Its
calculation is based on the DAX index rules; its composition is reviewed in
September of each year.
DivDAX was introduced on 1 March 2005.
The overall risk of a diversified securities portfolio is lower than the weighted average risk of the individual investments. The investment strategies of mutual funds are based on the principle of diversification.
The amount of the dividend is determined every year at the company's annual general meeting, and declared as either a cash amount or a percentage of the company's profit. Once the dividend has been declared, the share price is reduced by the amount of the dividend, and the share is then said to be "ex-dividend".
The dividend is the same for all shares of a given class (e.g. preferred shares).
The dividend is calculated mainly on the basis of the company's unappropriated profit and its business prospects for the coming year. It is then proposed by the Executive Board and the Supervisory Board to the annual general meeting. At most companies, however, the amount of the dividend remains constant. This helps to reassure investors, especially during phases when earnings are low, and sends the message that the company is optimistic with respect to its future performance.
Because of the half-income procedure, dividend payments are only subject to half the shareholder's personal income tax. The dividend is paid out by the banks acting on behalf of the company.
Shareholders who own preferred shares receive a dividend guarantee to compensate for the fact that their shares do not carry voting rights. The stock corporation can postpone the payment of the dividend until it has had a "more profitable" year.
Majority shareholders receive a dividend guarantee if they have entered into an affiliation agreement with the company and are excluded from a profit transfer agreement.
In dividend stripping, a shareholder sells a stock just before the dividend payment is to be made and buys it back at a lower price after the dividend has been deducted. Dividend stripping is advantageous in particular for stockholders whose price gains are either not taxed at all, or taxed at a low rate, such as foreign investors with limited tax liability, or shareholders who realize long-term gains by holding their stock for longer than one year (in Germany, price gains are tax-free if the stock was held longer than twelve months).
Companies become listed on a second exchange in order to reach a broader-based public and attract additional investors. Because the fragmentation of share capital between different exchanges often results in diminished liquidity, companies usually undertake a capital increase in connection with a double listing.
Dual Listing (DL)
With a dual listing, also called a secondary listing, a company’s shares are
placed on an exchange other than its domestic exchange. This can happen at the
behest of the company or a market maker. A second listing is therefore not an
initial public offering: It isn’t the worldwide debut of the company’s shares
or a public offer, and the company is not required to produce a prospectus.