Glossary

A price addendum is a code that is added to the price in floor trading. It states in what way the respective order situation is to be taken into account as the price is fixed. This information is part of the tick data.

b stands for "bezahlt" (German for paid) and means that all orders were executed.

This is an irrational phenomenon applicable to the price calculation of commodities, for the custody- and interest-related costs would lead to commodities being more expensive on the derivatives market than on the cash market.

Antonym: Contango

Balance-sheet analysis can be subdivided into internal and external analysis. Internal balance-sheet analysis generates information on the company for the management staff, and is part of corporate controlling operations. In external balance-sheet analysis, outside persons or institutions examine key ratios, as well as the published financial statements and accounts prepared for tax purposes, in order to ascertain the company's earning power, creditworthiness, and profitability. However, the findings of external balance-sheet analysis cannot be regarded as completely valid, because information on unused credit lines, outstanding contracts or undisclosed reserves can be concealed in the balance sheet by calculating higher depreciation expenses.

Balance-sheet analysis is the most important component of fundamental analysis.

One basis point relates to 0.01 percentage points. Thus, if the interest rate or yield of a bond rises by 0.63 percentage points, this corresponds to an increase by 63 basis points.

Trade in the difference between the spot and the futures price of an instrument

The issuer determines the basket’s compilation before quoting the certificate. Fundamentally, all securities with regular, at least daily, price determinations are suited for the portfolio. The selection criteria for the shares or securities in the basket are known and remain unchanged during the life of the certificate.

Nevertheless, the composition of the share basket can change over time. If the issuer follows a specific strategy with the certificate, the basket has to be adjusted at specific end-of-period dates, provided the market leaders change. In such a case, the basket is called an active basket. If, in contrast, the composition of a share basket remains clearly defined, as is the case for an index certificate, it is called a passive basket.

The success of a basket certificate is measured on whether it can outperform a comparison index or fund, a so-called benchmark. Basket certificates can be roughly divided into three categories based on the criteria for selecting securities: Sector certificates; country or region certificates; and strategy and thematic certificates.

Basket certificates make sense if an investor is convinced of the potential in a particular sector or region, but shies from the risk of investing in individual securities. Because the certificate is expected to achieve higher profits than the benchmark index, the share basket usually contains fewer titles than the benchmark index. That increases the potential for profits; but the risk of loss increases compared to the index. Unlike shares, basket certificates are not eligible for dividend payouts. The limited maturity should also be taken into account.

A price addendum is a code that is added to the price in floor trading. It states in what way the respective order situation is to be taken into account as the price is fixed. This information is part of the tick data.

"bB” stands for "bezahlt Brief" and means that it was not possible to fully execute the sell orders limited to the fixed price. There was a surplus supply.

Investors in a bear market tend to have a pessimistic outlook. Their strategy is to acquire so-called short positions, for example, by selling securities in the hope that they will be able to buy them back at a much lower price, or by selling short (see also short sale).

As a consequence, prices and indices continue to fall over the long term.

Antonym: bull market

Bearer shares differ from registered shares in that the holder of a bearer share is not designated by name on the share certificate, and is usually not required to furnish proof of rightful ownership.

Bearer shares are transferred informally and by delivery, without any changes having to be made to the certificate. As a consequence, they are highly fungible (interchangeable) and can be traded easily.

In keeping with the German Stock Corporation Act, stock corporations issue bearer shares unless their charter provides for the issue of another class of share.

General term: bearer instrument

Antonym: registered share

The beta factor describes the extent to which the price of a stock follows the development of an index – i.e., whether it performs better or worse than the market. A stock with a beta factor larger than 1 is more volatile than the market; a beta factor smaller than 1 indicates that the stock is less volatile than the market. If the beta factor is 1.2, an increase (or decrease) of 10 percent in the index would lead to an increase (or a decrease) of 12 percent in the stock; if the beta is 0.8, the increase (or decrease) in the stock would be 8 percent. When there is a clear market trend, stocks can be valued on the basis of their beta factor. In a bull market, shares with a beta larger than 1 offer above-average earnings potential; in a bear market, investors are less likely to incur losses on shares with a beta smaller than 1. It is assumed that the beta factor of the previous period will apply in the future as well.

The validity of the beta factor as a performance indicator is linked to the correlation coefficient. Price movements forecast on the basis of the beta factor are more reliable as the correlation coefficient increases. While the correlation coefficient is a measure of the type of correlation between a stock and an index (positive or negative) and the likelihood of that the price of the stock will develop parallel to the index, the beta factor indicates the extent of deviation between the two.

A price addendum is a code that is added to the price in floor trading. It states in what way the respective order situation is to be taken into account as the price is fixed. This information is part of the tick data.

"bG” stands for "bezahlt Geld" and means that it was not possible to fully execute the buy orders limited to the fixed price. There was a surplus demand.

A market participant sets the bid price with an entry in the order book on an electronic trading system; in rare cases this is done orally on the trading floor.

Market participants announce bid prices either by open outcry on the trading floor, or by entering them in the open order book of an electronic trading system. Antonym: ask price

The bid/ask spread shows the extent to which available bid and ask offers vary: the lower the spread, the greater the consensus between participants with respect to the value of the share in question. The bid/ask spread is a widely used measure of the efficiency of the currency and capital markets, since narrow spreads represent a high degree of market liquidity and low transaction costs.

On the trading floor of the Frankfurt Stock Exchange, the bid/ask spreads used to be issued by the lead brokers. However, that is rarely the case today. Instead, non-binding estimates are published via the trading system Xontro, the price boards on the floor and data vendors.

In so-called "zero-spread trading" for private investors, i.e. in trading without the difference between bid and ask prices, the lead brokers execute orders at the midpoint of the estimates given. This price is guaranteed by the lead brokers for orders in DAX® shares up to €10,000 (in MDAX® shares up to €5,000 and in TecDAX® and SDAX® shares up to €3,000) per price calculation. These no-spread prices are published in real-time as so-called indicative prices on the website of Deutsche Börse.

Named after the American economists Black and Scholes, this formula takes into account the five most important determinants for the price of an option: the price of the underlying stock, the exercise price, the time remaining to expiration, interest rate levels and volatility.

Shares with large market capitalization, typically included in prominent indices, such as DAX

The Bobl Future (Bobl = Bundesobligation, the German word for federal government bond) is traded on the Eurex® exchange. The underlying instrument is a notional bond that represents a basket of deliverable bonds with an interest rate of 6 percent and a remaining maturity of between 4.5 and 5.5 years. The value of a Bobl Future contract is €100,000.

 

As stipulated in the 1994 amendment to the German Stock Exchange Act, the bodies of the stock exchange comprise the Exchange Council, the Exchange Operating Board, Market Surveillance, the Sanctions Committee and the Arbitration Panel of the stock exchange. The Stock Exchange Act and the Stock Exchange Rules and Regulations require that the admission of securities to trading be handled by two separate exchange bodies: the Admissions Office the Official Market and the Admissions Committee for securities not listed in the Official Market. The relevant provisions can be found in sections 1, 3, 9, 28, 30, 37, 72 of the Stock Exchange Act.

Bonds are issued by the government or other public authorities, credit institutions, and companies, and are sold through banks. They enable the issuer to finance long-term investments with external funds. The total volume of a bond issue is divided into smaller amounts of at least €50. The most important features of a bond are its maturity date, the coupon (interest rate), and whether the interest rate is fixed or floating. The rights vested in a bond are stipulated by law, but are typically supplemented with additional terms and conditions. Bonds can fall into one of the three following categories:

 fixed-rate bonds (interest rate remains constant throughout the life of the bond)  floating-rate bonds (variable interest rate that is tied to a benchmark such as a money market index)  zero-coupon bonds (bond that does not bear interest as such, but is sold at a substantial discount from its face value; the bondholder receives the full face value at maturity).

Bond indices are calculated, updated and published by exchanges, banks and other financial experts.

A bond index can be calculated either as a price or a performance index. Owing to the wide range of bond maturities, bond indices are calculated on the basis of a portfolio of notional bonds so that the structure of the index remains constant over time.

Examples of bond indices in Germany are REX ® , the iBoxx indices ( iBoxx EUR and iBoxx GBP ), the eb.rexX index famlily and the PEX® .

A company will distribute a bonus in addition to the dividend if it has been especially prosperous during the financial year, or generates extraordinary profits. For companies that pursue a dividend policy in which the amount of the dividend remains constant over a long period of time, a bonus payment will enable shareholders to benefit from positive fluctuations in earnings.

A bonus certificate represents an alternative to a direct investment in a share or an index. Investors primarily use them if they believe that despite rising prices setbacks are still likely to occur.

A bonus certificate is furnished with a bonus amount and an upper and lower price level. If the certificate expires with the price of the underlying ranging between these two levels, owners are paid out their bonuses. If the underlying was at or below the risk level during the certificate's lifetime, its price is that of the current value of the certificate at expiry. If the underlying is above the upper level at expiry, the investor fully participates in the price gains. Some bonus certificates have a profit cap. This is where the certificate stops participating in the price gains of the underlying. 

A bonus certificate is issued at the current price of the underlying. The upper level is derived from adding the bonus to the issue price. The lower level is determined at issuance and usually expressed in percent.

A capital increase out of retained earnings is effected by converting general reserves into share capital. Bonus shares are distributed so that existing shareholders can own a percentage of the new share capital that is equivalent to their original stake in the company, which protects them from the effects of dilution. Bonus shares are admitted to exchange trading without having to undergo the admission process. The price of existing shares decreases following the issue of the new shares in proportion to the capital increase (see the example given under "subscription right"). However, the total value of the shares owned by existing shareholders does not change. Shareholders will profit from the issue of new shares if the bonus shares are entitled to a dividend payment in the same amount as the dividend paid on the original shares.

Unlike the fixed price system, book-building enables institutional and other large-scale investors to participate in the pricing procedure, which involves five steps. The time required to complete each of these steps depends on the issuing volume and the sector in which the company is active.

1. Selection of the lead manager:

The banks in the underwriting syndicate present their IPO strategies in so-called beauty contests. The issuer then selects a lead manger on the basis of criteria such as the consultancy services offered, the strategy for bringing the security to market, the bank's standing and expertise in the field, and the closeness of the business ties between bank and issuer. (Larger issues such as the privatization of Deutsche Telekom may be handled by several lead managers.)

2. Pre-marketing:

In this phase, the syndicate members contact potential large-scale investors to ascertain their degree of interest in the security. The syndicate members present their own research material as well as the issuer's offering prospectus, which the syndicate designs in conjunction with the issuer. The offering prospectus contains important information on the company's history, business activities, management, strategic alignment, as well as the relevant markets and its position vis-à-vis competitors. This information enables potential investors to assess more accurately the opportunities and risks of the issue. On the basis of discussions with institutional investors, the syndicate and the issuer agree on a price range for the offering price. The difference between the upper and lower values of the price range may be as much as 10 to 15 percent.

3. Marketing:

The marketing phase begins when the price range is announced at a press conference. The issuer's executive board then presents the company at "road shows", i. e. public events, analysts' conferences, and meetings with both domestic and foreign institutional investors. Private investors are informed of the pending issue by their personal financial consultants.

4. Order-taking:

This phase begins shortly after the inception of marketing activities. When syndicate members receive subscription requests, they fill out order forms which they then forward to the lead manager (also called "book runner"). The forms contain information on the subscriber's identity (name and nationality), what kind of investor the subscriber is (e.g. insurance company, pension fund, investment fund, private investor) the volume of shares desired, the price offered, and the investment strategy (short-term, medium-term, long-term). The identity of institutional investors is disclosed only with the subscriber's explicit consent, and the names of private investors are generally not disclosed at all.

The book runner enters all subscription orders received into an electronic order book. The orders are then evaluated so that preference can be given to long-term investors when the securities are distributed. By carefully choosing future investors, the lead manager can contribute to price stability and inspire confidence that the security will be valued fairly.

5. Price determination and allocation of shares:

Order-taking is followed by a subscription period which normally lasts from eight to ten days. Afterwards, the book runner analyzes the price elasticity of demand on the basis of the information provided in the subscription requests, usually assisted by a computer-driven scoring procedure that takes into account criteria such as investment horizon. On the basis of this analysis, the book runner determines a single offering price in agreement with the issuer (in some cases, different prices will be set for private investors and institutional investors). In allocating the securities, the book runner achieves the desired mix of investors by instructing the syndicate banks to set aside a certain number of shares to institutional investors (directed allocation). The book runner also makes available a certain quantity of shares to be distributed equally among for private subscribers (free retention).

The so-called green shoe has an important function in the allocation of shares. This is an agreement between the issuer and the syndicate banks which states that the issuer will provide a certain number of additional shares (a type of reserve) to be distributed by the syndicate at the original price should the demand for the security be considerably higher than expected. The green shoe helps stabilize the price of the share after exchange trading in the shares has begun.

Antonym: Fixed-price offering system

The Stock Exchange Rules and Regulations (Börsenordnung) are issued by the Exchange Council in agreement with the operating body of the stock exchange. It ensures that the respective exchange can perform the tasks expected of it, and guarantees the interests of the public and trading. More specifically, the Stock Exchange Rules and Regulations regulate the organization of the stock exchange and the publication of all information regarding prices and volumes. In the case of securities exchanges, the Rules and Regulations also govern the composition of the Admissions Office and the appointment of its members.

The Exchange Council (Börsenrat) comprises a maximum of 24 honorary members. These include bank representatives, market participants, issuers and investors. The Exchange Council is responsible for the following tasks: 1. Drafting and issuing the Stock Exchange Rules and Regulations as well as the fee schedule of the exchange 2. Specifying the terms and conditions for exchange transactions 3. designing the examinations to test the professional aptitude of exchange dealers 4. Issuing internal regulations for the Exchange Operating Board 5. Appointing and dismissing members of the Exchange Operating Board in agreement with the Exchange Supervisory Office 6. Monitoring the Exchange Operating Board 7. Appointing, re-appointing and dismissing the head and deputy of Market Surveillance as suggested by the Exchange Operating Board and in agreement with the Exchange Supervisory Office 8. Appointing members to the Admissions Office and the Admissions Committee. Decisions taken by the Exchange Operating Board regarding the introduction of technical systems that support trading or the settlement of exchange transactions also require the approval of the Exchange Council; the same applies to the use of exchange facilities pursuant to section 1 paragraph 2 of the Stock Exchange Act. Moreover, the Exchange Operating Board is required to submit decisions on fundamental issues to the Exchange Council for approval, a procedure that is regulated in greater detail in the internal regulations for the Exchange Operating Board.

A call warrant reaches the break-even point when the market price of the underlying instrument is equivalent to the exercise price plus the price of the warrant. A put warrant reaches the break-even point when the market price of the underlying instrument corresponds to the exercise price minus the price of the warrant.

The break-even point is one of the variables used in determining the value of a warrant.

A breakout gap usually signals the beginning of a new trend.

Investment banks and underwriting houses will help a company go public by providing bridge capital, which serves to "bridge" the period until the equity capital generated by the IPO flows into the company.

They also provide assistance in making investment decisions and execute their clients’ buy and sell orders. Their role thus corresponds to that of a "Freimakler" in the German system. Synonym: exchange trader

When a security is bought or sold on the floor, the investor is required to pay a brokerage commission that is determined on the basis of the order size. In the case of shares, it is calculated as a percentage of the price of the stock; in the case of bonds, it is specified as a percentage of the par value of the bond. The fee is charged by the institution responsible for executing and settling the order.

Brokerage fees are standardized and stipulated in the fee schedule of the stock exchange. In the Official Market, the brokerage fee for exchange brokers comes to 0.08 percent of the price of a stock, warrant or subscription right, but in all cases at least 0.75 euro. For stocks in the DAX index, the brokerage fee is 0.04 percent. For bonds, the fees are between 0.0015 and 0.075 percent, depending on the transaction.

The Bund Future is traded on the Eurex® exchange. The underlying instrument is a notional bond that represents a basket of deliverable bonds with an interest rate of 6 percent and a time-to-maturity of between 8.5 and 10.5 years. The value of a Bund Future contract is €100.000.

The Federal Financial Services Authority (BAFin) was established on 1 May 2002. The tasks of the former federal supervisory offices for banking (BAKred), insurance (BAV) and securities trading (BAWe) have been amalgamated under the umbrella of the new authority. Thus there is now only one state supervisory authority in Germany for banks, financial services institutes and insurance companies which covers the entire financial market. The establishment of BAFin has merged the central tasks of customer protection and solvency supervision. BAFin is a federal, legally responsible public institution in the business area of the Federal Ministry for Finance. It has registered offices in Bonn and Frankfurt am Main. BAFin supervises about 2,700 banks, 800 financial services institutes and more than 700 insurance companies.

Business angels are typically former entrepreneurs. They support new companies in their early stages by providing risk capital. In addition, they advise the management team or assume management tasks themselves. In return for their support, they acquire stock in the company.

Deutsche Börse AG and KfW Bankengruppe have joined forces with BAND (Business Angels Netzwerk Deutschland) to create a forum for establishing contacts between business angels and innovative companies.

In its business plan, a company outlines its business model and its medium-term goals. The main reason for writing up a business plan is to give providers of outside capital – and in particular venture capital companies – a means of evaluating the company's approach and development potential. Important components of a business plan are thus the investment plan, financing plan, liquidity plan and profitability forecast. The planning period usually spans three to five years.

Exit scenario which sees the original partners of a start-up company buy back the shares held by the participating venture capital company