Market Participants: Investors and Companies
How Does the Stock Exchange Work?
Lead brokers and specialists on the Frankfurt trading floor belong to this group. They match demand and supply and fix prices. In Xetra® trading, Designated Sponsors and Market Makers act as brokers and also provide binding bid and ask quotes. In addition, banks employ traders who forward the orders of their customers to lead brokers or enter them into the electronic trading system.
Private investors without a valid trader's license are not
authorized to trade directly on the floor. Access to the floor is
granted to authorized trading participants only. They buy and sell
securities on behalf of their clients.
There are private and institutional investors and within each of these two groups, different types of investors and investment strategies can be found.
Just like investors, issuers are not present on the trading floor. This is merely the place where their shares are traded. However, the first day of admission to the Frankfurt Stock Exchange is an unforgettable experience for many issuers and a milestone in any company's history. The atmosphere during the first price fixing on the trading floor is unique. Xetra IPOs can also be observed live on the Internet.
An IPO provides many opportunities for companies seeking capital. Listed companies do not only grow faster, they also do not react as strongly to economic fluctuations. In principle, an IPO makes sense for companies that aim for a broader equity basis.
In contrast to debt capital, equity is available for an unlimited period of time and increases the flexibility of a company. Equity can be used without restrictions for long-term projects, for example to:
- consistently pursue growth strategies,
- strengthen the position in international competition,
- increase awareness in the market and among investors,
- promote the attractiveness as employer.
With a listing on the Frankfurt Stock Exchange, companies keep all these opportunities open for themselves.
Whether or not an IPO turns out successful does not only depend on the company itself, but also on its market environment. How do stock prices fare at the moment? Which sectors are in the spotlight? No doubt, the stock market knows trends. Just because everyone is into solar engery today, does not mean that nanotech could not be all the rage tomorrow. How liquid are the investors? If all conditions are right, you could say there is a window for an IPO.
Investments require confidence – in business models, products,
markets and, above all, in a company’s management team. That the
smaller instances of irregularities and the larger cases of fraud
in the financial markets in the recent past have served to erode
such confidence, is only one reason for demanding clear behavioral
guidelines for companies. Another is the increasingly international
orientation of both companies and investors. Globalization demands
uniform rules so that it becomes easier to compare companies and
Corporate governance describes the good management practices of companies. It deals, more particularly, with the regulatory framework for executive management and control, issues like the legal and actual allocation of duties between the supervisory board, the management board and the owners and the remuneration and incentive systems for these bodies.