THE SEGMENTS OF THE SECONDARY MARKET IN THE FEDERAL REPUBLIC OF GERMANY I. PARTICIPANTS AND ISSUES TRADED

We talked in a previous article about: OFF-EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN THE NETHERLANDS

Today we talk about: THE SEGMENTS OF THE SECONDARY MARKET

IN THE FEDERAL REPUBLIC OF GERMANY

I. PARTICIPANTS AND ISSUES TRADED 

In Germany there are at present eight stock exchanges.

Frankfurt and Düsseldorf are the most important,followed by Munich and Hamburg, while Berlin, Stuttgart,Bremen and Hanover are of minor importance. This can be seen from Table D - 1, which shows the number of

member firms at the end of 1973.

Table D - 1 does not adequately reflect the overwhelming

importance of the banks as stock exchange members.

Admittedly, and unlike the other firms, a fairly large

THE SEGMENTS OF THE SECONDARY MARKET IN THE FEDERAL REPUBLIC OF GERMANY I. PARTICIPANTS AND ISSUES TRADED 

number of banks which are admitted to several exchangesare recorded several times. However, the banks have on average about five members each whereas the "broker"firms have but one in most cases. The member banks are also especially significant because - with some exceptions - they are the only investor-commission minded members whereas the brokers are member-commission minded. All members may also deal for their own account,but official brokers only if orders cannot otherwise be executed.

Since there is no monopoly in security dealing in Germany apart from the special tasks of the official brokers and a few unofficial brokers in connection with establishing prices any person not a stock exchange member may deal in securities at any time. The primary operators among non-members are the banks, over 6000 of

them, most of which have some importance if only as bringers of orders. About 300 banks are particularly active in securities business and a few operate as market makers outside the stock exchanges. Apart from

the banks a few other undertakings carry on securities business, particularly the sale of foreign issues.

 These sales agents, unlike the banks, are not subject to federal banking supervision, which applies to everyone who trades securities in his own name and to an extent that requires a businesslike operation.

The stock exchanges are subject to supervision at state (Land) level. The finance or economics ministers of the states in which stock exchanges are located have in six cases appointed commissioners to be responsible for exchange supervision. But in most instances the state commissioner has only an advisory and reporting role. Only in Munich has he the right to impose disciplinary sanctions upon official brokers  who are in general appointed and supervised by the relevant minister. But no use has yet been made of this provision.

Since 1972 the stock exchanges have had investigatory committees which are intended, for the benefit of those interested in security dealing, to strengthen self-regulation and to investigate infringements of the recommendations on insider trading. We must point out in this connection that the German concept of insider dealing is wider than that of other countries: a violation of the recommendations on insider trading is deemed to have been committed not only where non-public information about the business situation of an issuer has been exploited but also where the effects of false information on prices are exploited, for example by the publisher of an advisory service letter, or where information about orders is abused by the dealer of a member firm, for example through "fellow travelling". So far there have been very few proceedings before the investigatory committees in which no infringement has been proved.

About 5 million of the 21 million private households own stocks or bonds. They hold some 20% of the bonds and shares of domestic issuers. In the case of bonds the banks, with a good 40% of the bonds outstanding,occupy a special position, while a similar proportion of shares is probably held as a long-term investment by public and private shareholders and cannot therefore be said to be "circulating" (see Table D - 2, last column). The significance of institutional investors has grown in recent years, but they have not acquired a dominating position. The most important participants in the secondary market after the banks are the insurance companies in the case of bonds and the mutual funds (Investmentfonds) in the case of shares; the proportion of share turnover attributable to the investment funds is estimated at 15%.

Table D - 2

Percentage shares of various groups of investors in

securities outstanding at the end of 19 70, 19 72 and 19 74

THE SEGMENTS OF THE SECONDARY MARKET IN THE FEDERAL REPUBLIC OF GERMANY I. PARTICIPANTS AND ISSUES TRADED 

At present a total of about 530 domestic and 130 foreign stocks are traded on the German exchanges. Table D - 3 shows the distribution over the individual stock exchanges at the end of 19 73; it should be borne in mind that there are many cases of multiple listing.Table D - 3 Number of stocks traded on the various market

segments of German stock exchanges at the end of 1973

THE SEGMENTS OF THE SECONDARY MARKET IN THE FEDERAL REPUBLIC OF GERMANY I. PARTICIPANTS AND ISSUES TRADED 

Of the domestic stocks 2 3 are traded continuously on all exchanges and their market value is 4 3% of the market value of all quoted shares (end of 1973:DM 120 000 million). By contrast the 118 securities that are traded in unofficial exchange dealings

exclusively formed less than 10% of total shares outstanding at market prices.

The market value of all domestic and foreign shares in the Federal Republic was DM 24 7 000 million at the end of 1973 and the face value of domestic and foreign

bonds in circulation was the same amount. On the Frankfurt exchange 32 75 domestic and 286 foreign bonds were listed in 19 73; in Diisseldorf the figures were 1965 domestic bonds with a face value of DM 125 000 million and 187 foreign bonds (market value DM 20 000 million). The contribution of stocks and bonds to the volume of sales on the German exchanges is shown Table D - 4 Sales on the German stock exchanges in 197 3 at market value in DM thousand millions (and as percent of total turnover)

THE SEGMENTS OF THE SECONDARY MARKET IN THE FEDERAL REPUBLIC OF GERMANY I. PARTICIPANTS AND ISSUES TRADED