Glossary

FBF (Fördergesellschaft für Börsen und Finanzmärkte in Mittel- und Osteuropa mbH) was founded in 1992 as part of a joint initiative between the German Federal Government, the Working Group of the German Securities Exchanges, the banking industry, and the community of German brokers. The organization is financed with funds provided by TRANSFORM, a program run by the German Federal Government, and by Deutsche Börse AG. FBF carries out consultancy and training projects in the field of the securities market in numerous countries in Central and Eastern Europe on behalf of the German Government.

The stock exchange charges fees for various services, such as the admission of participants or securities to exchange trading, or the listing of securities on the exchange. The fee schedule of the stock exchange is issued by the Exchange Council and approved by the Exchange Supervisory Office. Regulations on the fee schedule of an exchange are contained in the German Stock Exchange Act, section 5.

The submission of admission materials (issuing prospectus) and follow-up mandatory reports (e.g., quarterly reports) to an exchange

Fill-or-kill orders are either executed in their entirety or not at all, i.e. the order lapses if complete execution is not possible.

The key feature of this kind of transactions consists therefore, not only in the open positions in the annual financial statement resulting from the future delivery term, but also in the fact that neither the buyer nor the seller has to perform the contract within the agreed date. Financial futures transactions comprise all the transactions settled on the over-the-counter (OTC) market, on the regulated unofficial market as well as in the regulated futures exchanges, where it is possible to trade financial futures contracts. Financial transactions settled on the OTC market are therefore high individually draftable and consequently suitable for an organized exchange trade. Therefore OTC-financial trading includes:

 non-standard financial futures  non-standard options forward rate agreements foreign exchange futures.

If an opening price has not been set, the price is quoted “–“, possibly with an assessed quotation.

Under the fixed-price offering system, the issuing price is calculated on the basis of the company's fundamentals, taking into account the exchange price of comparable companies as well as the general market situation. It is then published in the offering prospectus so that investors can submit requests to purchase shares at this price during the subscription period. Once the issuing volume is completely subscribed, the lead bank can terminate the subscription process before the official subscription period is over. If an issue is oversubscribed, priority is often given to smaller orders, with the result that institutional investors receive fewer shares than requested. Alternatively, the securities can be divided equally among subscribers, or allotted proportionally. In some cases, a lottery system is used. Prior to 1996, issuing prices determined using the fixed-price offering system tended to be excessively high, owing to heightened competition among banks for lucrative IPO contracts. In principle, the banks were interested in setting prices that would reflect the current market situation because they wished to avoid difficulties in placing the securities among investors. However, many issuers wanted to inflate prices so as to maximize the capital generated by the issue, and chose as their syndicate leader the bank that offered the highest issuing price in conjunction with relatively low costs. In many cases, issuing prices determined in this way soon underwent a correction to what was considered a more appropriate level, resulting in disappointment among investors and a loss of confidence in the ability of underwriting syndicates to set fair prices. For this reason, alternative procedures such as book-building have become more popular since 1996.

In the fixing procedure, which takes place around 1.00 p.m. on exchange trading days, the prices of officially quoted bonds and exchange rates between the domestic currency and key foreign currencies are determined.

The float refers to shares that are not owned by major shareholders, and can therefore be acquired and traded by the general public. As a rule, the larger the float, the easier it is for investors to buy and sell the stock. Since June 2002, the stocks in Deutsche Börse's share indices have been weighted according to trading volume and market capitalization based on the number of shares in free float.

Lower limit on the extent to which the owner of a put warrant can participate in the difference between the strike price and the spot price of the underlying.

The primary forms of communication used on the trading floor are speech and gestures; traders match orders by shouting them out and using hand signals (open outcry). According to the customs and usage of the trading floor, the spoken word or agreed-upon hand signals are sufficient to make the transaction legally binding.

Market participants on the trading floor are exchange traders, exchange brokers and independent brokers. Exchange brokers perform their activities on the trading floor in separate enclosed areas, at so-called trader's desks; exchange brokers and independent brokers must approach the trader's desks to execute their transactions.

In Germany, there are currently eight exchanges where securities are traded on the floor (all of which are cash markets):

FWB Frankfurter Wertpapierbörse

Rheinisch-Westfälische Börse in Dusseldorf

Bayrische Börse in Munich

Hanseatische Wertpapierbörse in Hamburg

Baden-Württembergische Wertpapierbörse in Stuttgart

Berliner Wertpapierbörse

Niedersächsische Börse in Hannover

Bremer Wertpapierbörse.  

The counterpart to the traditional floor trading system is the electronic, computer-based trading system, which is gradually phasing out floor trading. For example, at FWB® Frankfurter Wertpapierbörse, cash trading can also take place in the electronic trading system Xetra® , which now accounts for more than 90 percent of turnover in the DAX® shares.

Antonym: computer-based trading system

Foreign bonds are those issued by European issuers abroad or by foreign issuers in Europe. Compared to a European bond with a nominal value stated in euros, foreign bonds are subject to an additional exchange-rate risk.

Synonym: currency bond

Foreign exchange comprises credit balances or checks denominated in foreign currencies. Foreign notes and coins are not termed foreign exchange, but rather currency.

Because forwards are not standardized instruments, the type and price of the goods to be traded, the volume, and the contract maturity must be determined individually. Owing to the number of variables that must be considered when transacting a forward, the fungibility of these derivatives is limited. Forwards differ from futures in that the underlying instrument is nearly always delivered. Margin requirements must be agreed upon individually, because it is the parties to the contract – and not the clearinghouse – who bear the risk.

In Germany, forwards are executed primarily for currencies and interest rates, and rarely for stocks, bonds, derivatives or notional underlying instruments. Typical forward contracts are currency forwards and the forward rate agreement (FRA).

With a futures contract, the trade is finalized, i.e., the delivery of payment for goods, at a predetermined time in the future. In a spot (or cash) transaction, payment and delivery take place close to the time of the contract’s close.

This type of trade is possible with all types of goods, e.g. with securities, interest, currencies, metals and agricultural products such as wheat or orange juice. Commodity futures and financial futures are differentiated on the markets.

Derivative products are backed by a basis value or underlying. The term of the business – from contract close to fulfillment – is called maturity.

Buyer positions are called “long positions”; sellers take “short positions.”

Derivative transactions can take place on an organized derivatives market, such as a futures exchange. Investors trade standardized contracts; in addition, there are transactions between investors and issuers of warrants. There is also an over-the-counter (OTC) market for derivatives. These can be customized and are therefore not suited for organized exchange trading.

The most important characteristic of derivative transactions comes from the fact that the deal is about a “floating transaction”, in balance-sheet terms, until the actual date of the deal, especially because neither buyer nor seller must uphold their end of the deal until the maturity date.

The float refers to shares that are not owned by major shareholders, and can therefore be acquired and traded by the general public. As a rule, the larger the float, the easier it is for investors to buy and sell the stock. Since June 2002, the stocks in Deutsche Börse's share indices have been weighted according to trading volume and market capitalization based on the number of shares in free float.

During the chaining procedure in June 2002, Deutsche Börse has switched over its index calculation to a free-float weighting basis. Simultaneously, the various share categories were separated in all indices, i.e. each category of a company's stock is considered separately since then. Only the higher capitalized or more liquid category respectively can be admitted to a selection index. The following definition applies for determining the free-float for the weighting of the respective share category of a company in the equity indices:

1. All shareholdings of an owner which, on an accumulated basis, account for at least 5 percent of a company’s share capital attributed to a class of shares are considered to be non-free float. Shareholdings of an owner also include shareholdings

• - held by the family of the owner as defined by section §15a of the German SecuritiesTrading Act (WpHG)
• - for which a pooling has been arranged in which the owner has an interest
• - managed or kept in safe custody by a third party for account of the owner
• - held by a company which the owner controls as defined by section 22 (3) of the German Securities Trading Act (WpHG)

2. The definition of “non-free float” – irrespective of the size of a shareholding – covers any shareholding of an owner that is subject to a statutory or contractual qualifying period of at least six months with regard to its disposal by the owner. This does only apply during the qualifying period. Shareholdings as defined by sentence no. 1 above are counted as shareholdings for the calculation according to No. 1. Shares held by the issuing company (treasury shares) are always considered as block holdings and are not part of the free float of the share class.

3. As long as the size of such a shareholding does not exceed 25 percent of a company’s share capital, the definition of free float includes all shareholdings held by

• - asset managers and trust companies
• - investment funds and pension funds
• - capital investment companies or foreign investment companies in their respective special fund assets (Sondervermögen)

with the purpose of pursuing short-term investment strategies.

Such shares, for which the acquirer has at the time of purchase clearly and publicly stated that strategic goals are being pursued and that the intention is to actively influence the company policies and ongoing business of the company, are not considered as such a short-term investment. In addition, shares having been acquired through a public purchase offer will not be considered as short-term investment. This does not apply to shareholdings managed or held in safe custody according to No. 1, or to venture capital companies, or other assets serving similar purposes. The shareholdings as defined by sentence no. 1 above are not counted as shareholdings for the calculation according to No. 1.

4. Shares that are under the control of a shareholder via derivatives will only be considered for the calculation of the Free Float if these positions have to be reported according to legislation in WpHG or
WPÜG and the company is in a takeover situation. The various criteria laid down in Nos. 1 to 4 are also fully applied to classes of shares that are subject to restrictions of ownership. Fur the purpose of the determination of the Free Float as described above each ISIN under which shares are traded is considered a separate share class.

Source: Guide to the Equity Indices of Deutsche Börse

The Admissions Committee for the Unofficial Market can refuse an application for admission to the Unofficial Market if the applicant has not taken sufficient steps to create a market for the security, or if the listing of a security in the Unofficial Market would undermine investor protection or run counter to the interests of the general investing public. Regulations on the work of the Admissions Office for the Unofficial Market are contained in the Guidelines for the Unofficial Market, in the Rules and Regulations of the respective stock exchange, as well as in the Stock Exchange Act, section 78.

Front running occurs when investment planners, analysts or exchange dealers purchase securities before recommending them to their customers, or when bank employees execute customers' orders only after they have bought or sold the relevant security for their own account. Front running is prohibited by the Securities Trading Act.

The German Disclosure Act obligates stock corporations to publish annual financial statements and a management report. In addition, listed companies must report material information without delay. Deutsche Börse requires companies listed in the Prime Standard segment to comply with further rules concerning disclosure. For example, companies must publish quarterly reports in addition to annual financial statements; they must hold at least one analyst event per year and publish ad-hoc messages in English. The bodies of the stock exchange monitor whether a company is acting in compliance with disclosure requirements.

Funds pool the assets of many investors and invest them in stocks, bonds, and other instruments, which enables investors to invest in a wide variety instruments with a small amount of money. Distributing risk among many different instruments reduces the overall risk for investors. Funds are the investment of choice for investors who do not want the burden of constantly monitoring their investments, and who prefer to leave the task of tracking and analyzing the market to professionals.

A fund is managed by an investment company. The fund's assets are kept in custody at a depositary bank. Investors can buy or sell shares through the investment company itself or on the stock exchange. In most cases, the shares carry a load to cover marketing costs. Income in the form of dividends or interest is either paid out to the shareholder or reinvested.

The value of a share is calculated by dividing the fund's total assets by the number of outstanding shares. If the value of the investments held by the fund increases, the fund's total assets increase, and in turn, the value of the shares goes up.

Two categories of funds, retail funds and special funds, are each geared to a different group of investors. A further distinction is made between open-end and closed-end funds; a closed-end fund issues a fixed number of shares.

Investment fund that invests primarily or exclusively in other funds

The goal of fundamental analysis is to determine a fair price for a company's stock by studying how key company data develops over time. The analysis is divided into two parts: diagnosis and prognosis. Data from the income statement and the balance sheet are analyzed and set in relation to the price of the stock. The price-earnings ratio is one of the indicators utilized in fundamental analysis.

The exchange is also defined as a market for fungible goods.

Futures are highly liquid standardized financial instruments that are traded in the derivatives market. There are two types of futures: financial futures and commodity futures. The underlying instruments of financial futures are stock indices, currencies, or interest rates, whereas commodity futures are tied to the movements of real goods such as raw materials or agricultural products. The value of a future depends on the value of the respective underlier. The earliest derivatives transactions were commodity futures. Long ago, farmers wished to protect themselves against fluctuations in the prices of their crops. To do so, they entered into futures contracts to ensure that they would be able to sell their product at a favorable price the following year. There are two sides to a futures transaction. A "long position" represents the buyer's obligation to purchase the underlying instrument or commodity for the predetermined price on the settlement date; a "short position" represents the seller's obligation to deliver the underlying instrument or commodity.