OFF-EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN THE FEDERAL REPUBLIC OF GERMANY

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II.EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN THE FEDERAL REPUBLIC OF GERMANY Today we talk about: OFF-EXCHANGE SEGMENTS OF THE SECONDARY MARKET IN THe FEDERAL REPUBLIC OF GERMANY As already mentioned, there has been a limited, self-imposed obligation to deal through the stock exchange in Germany since1968;the banks have undertaken, in their conditions of business, in principle to pass their customers' orders in respect of listed stocks through the stock exchange. This has meant that in-house crossing of orders in these shares, which was normal before 1968, has almost entirely disappeared, while crossing still continues to occur occasionally in bonds as before. Other off-floor secondary market transactions were not affected by this obligation to deal through the stock exchange. Off-exchange trading can be divided into off-floor dealings in listed securities or in securities included in regulated unofficial dealings on the one hand and dealings in all other securities on the other.

In the category of off-floor trading in stock exchange securities the most significant business is that in bonds. 

It is said to amount to ten times the fixed-interest sales on the exchanges. Some 20 banks have established themselves as market makers in domestic and foreign bonds. Other houses confine themselves to broking and occasional business for their own account.  

Particularly in evidence is business between banks and with institutional investors. Competition on the off-floor bond market is fierce and it is not usually possible to charge immediacy premiums or discounts.

Block business in equities, too - not very large in volume - takes place mainly outside the exchanges.  

Besides crossings and the just mentioned off-floor transactions in bonds and block transactions in shares,before-hours and after-hours trading in the shares of the exchange segments also have a certain importance. The chief participants are banks, but unofficial brokers, official brokers and occasionally

investors themselves also take part. These out-of-hours dealings are carried on over the telephone and in accordance with stock exchange practice.

 The main business is the covering of positions left open when the exchanges closed. In addition, a part is played by purchases and sales of minor stocks and transactions triggered off by the receipt of unexpected information.  

Lastly, out-of-hours dealing to some extent accomodates arbitrage with foreign financial centres.

Trade in securities that are neither listed nor included in regulated unofficial dealing, particularly when it involves German and foreign shares and "when issued" trading, is commonly known as unregulated unofficial dealing ("ungeregelter Freiverkehr") or - even less appropriately - telephone dealing. Some of these non- exchange quoted securities, chiefly units in mutual funds and foreign securities, can be bought and sold every day over the telephone. At times deals in  "telephone issues"are tolerated even on the floor of an exchange.  

Some banks have made a name for themselves as brokers and dealers in inactive German shares; they distribute daily lists showing buying and selling interest in their special securities. Sometimes they include securities of dormant corporations or defaulted issuers in these lists. At a few market centres associations of dealers in "telephone stocks" have been formed; they publish daily lists with quotations in these securities.

In some centres unregulated unofficial trading displays elements of co-operative market organization in that the local unlisted trading committee  (see p. 109) decides what securities may be dealt in. Finally, mention should be made of the segment of the secondary stock market in which usually no banks operate and in which individual investors and promoters of foreign firms solicit the sale of securities through newspaper advertisements and lists of addresses.

 E .THE SEGMENTS OF THE SECONDARY MARKET IN BELGIUM

I.  PARTICIPANTS AND ISSUES TRADED

There are four stock exchanges in Belgium - in Brussels, Antwerp, Liege and Ghent. Each exchange keeps a list of "agents de change" and  "agents de change correspondents" admitted to it. According to these lists, the Brussels Bourse has some 350 members, that in Antwerp 150, and the Liege and Ghent exchanges 40 each. The  "agents de change" may handle securities and foreign exchange business only.

They are primarily investor-commission minded, but are also permitted to do business for their own account. But in order to obviate conflicts of interest they may not cross orders for own account. Only the "agents de change"and their representatives may deal on the exchange. Some "agents" have combined together in partnerships, others operate as sole proprietors. There are about 250 stock exchange firms in Brussels. About 10 of them are relatively large, the biggest firm employs 180 persons - and carry on the full range of securities business. There are 50 medium-sized  firms with about 10 employees each. 

The remaining firms are small and one-man firms are not uncommon.

The  "agents de change" must be distinguished from the "agents de change correspondants". The latter's place of business must be situated outside a radius of 25 kilo-metres from the stock exchange location.

 Their main activity is to obtain orders for the members authorized to deal and they are usually remunerated by being given half of the investor commission. However, it is possible to be admitted to a stock exchange as an "agent de change"and at the same time to be admitted to one or more other exchanges as an "agent de change correspondant".

Besides their monopoly of trading on a stock exchange, the Belgian  "agents de change" also have a monopoly of accepting orders for securities business, although they have to share this monopoly not only with their correspondents but also with the banks. Since stock exchange orders may neither be crossed against other orders by the "agent" nor be crossed for own account, they are all passed through the stock exchange. 

Since the banks are not allowed to deal on the exchange, they must pass their orders on to an "agent de change" for execution and for this service the "agent" receives two thirds of the commission. In addition, the "agents", their correspondents and the banks have a monopoly in off-floor secondary stock market business, except for take-over bids,occasional transactions between investors,and deals in securities for amounts ofBfrs.10 million and over. Each of the four Belgian bourses has a "commission de la bourse". This is in the first place a representative organization for the "agents de change" and "agents de change correspondants". Both types of "agent" are, secondly, admitted and supervised by the "commission". But the "commission de la bourse" is also the stock exchange's governing body; it manages the exchange and the "commission's" members discharge important self-regulatory functions. The four "commissions" are subject to the supervision of a State commissioner appointed by the Finance Minister; the State commissioner may take part in all meetings of the stock exchange committees in an advisory capacity.

 In contrast to the other Belgian exchanges, the Brussels Bourse publishes very detailed statistics on monthly sales in the more active securities. In the case of forward trading it even publishes each day's bargains in the official list. Despite this,it is not easy to get an overall view of the number of issues in the various categories and of their importance in terms of sales and amounts outstanding. At the end of 1973 816 titles had been admitted to dealings on the Brussels Bourse, of which 352 were bonds (32 7domestic and 25 foreign) and 464 were stocks  (324 domestic and 140 foreign).

 At the end of 1975 there were  782 titles,346 of them bonds, 287 Belgian stocks and 149 foreign stocks. 

 Quite a number of the securities quoted on the Antwerp exchange were traded in Brussels except for twenty or thirty local securities. The same applies to the two other exchanges, though on a much smaller scale.

Only the Brussels exchange publishes its sales and it is therefore impossible to say with any accuracy just how insignificant the three other bourses are.

Table E - 1

Volume of sales and amounts outstanding of securities traded on the Brussels Bourse  (inBfrs. thousand millions)

III.OFF-EXCHANGE SEGMENTS OF THE SECONDARY  MARKET IN THE FEDERAL REPUBLIC OF GERMANY