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The first day on the stock exchange

The first day on the stock exchange

Most people recognise the image of the CEO of a company ceremonially ringing the stock exchange bell on the trading floor of the Frankfurt Stock Exchange. With the first pricing official trading starts for the company on the stock exchange. But how is this first listing price determined? And what role does the stock exchange play in the process?

Klaus Schäfer (CEO, Uniper SE) rang the opening bell at the IPO event. Mr. Schäfer is pictured with Hauke Stars (Member of the Executive Board, Deutsche Börse AG).

The shares in a company are traded on the stock exchange for the first time on the day of the company's IPO, and from that point on can be bought and sold by investors as part of regulated and monitored trading. By then, the company has long finished raising capital; it has sold its shares to investors in advance, in the primary market, also known as the new issues market, thereby raising capital.

Trading of the company shares in the secondary market begins on the first day on the stock exchange. This day also marks the end of the issue process of several months. Many players have been involved by the time exchange trading commences on IPO day.

Who is involved in an IPO?

  • The issuer, i.e. the company whose securities are to be traded on the stock exchange, issues securities and offers them for sale to interested investors before the IPO with the help of a banking syndicate. This is known as subscription
  • Underwriting banks support the issuer in selling its shares and organising its IPO,  jointly assuming prospectus liability with the company
  • If the issuer is supported by several underwriting banks (banking syndicate or consortium bank), the lead manager coordinates responsibilities between the other underwriting banks and the issuer
  • The trading participants connected to the electronic trading system on the Frankfurt Stock Exchange submit their buy and sell offers electronically in the form of orders, which are compiled in the stock exchange's electronic order book and form the basis for determination of the listing price
  • The specialist is a trading participant appointed by the stock exchange to submit buy and sell orders for certain securities on a continuous basis, thereby ensuring sufficient supply and demand in exchange trading (liquidity)
  • Designated sponsors are also trading participants appointed by the stock exchange to ensure, along with the specialists, sufficient supply and demand in exchange trading, and to keep the securities in their care tradable
  • Deutsche Börse AG's Listing section supervises the formal admission to trading process
  • Deutsche Börse's Market Supervision section supports IPOs and handles communication with trading participants until the initial listing price is set. Market Supervision is available to answer any of the lead manager's questions about the IPO auction
  • The Frankfurt Stock Exchange's Trading Surveillance Office (HÜSt) monitors not only how the initial price is generated on the first trading day, but also all trading that follows and all subsequent pricing
  • The Management Board of the Frankfurt Stock Exchange approves the admission of the issuer's securities to trading on the stock exchange

The run-up to the first day of trading

Podcast [German only]

"Myths about IPOs"

Podcast (2:52) with Cord Gebhardt, Management Board of the Frankfurt Stock Exchange

The process leading up to the actual IPO starts with two administrative procedures performed by two different authorities. First, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin) examines the prospectus prepared by the issuer and the consortium bank. If it meets all statutory requirements, BaFin will permit public offering of the shares. This means, that the sale of securities to interested investors can begin before exchange trading.

The Frankfurt Stock Exchange then checks that the issuer and its securities meet the statutory requirements for stock exchange trading. Deutsche Börse AG's Listing section is in charge of this process. If all formal requirements for admission are met, the Management Board of the Frankfurt Stock Exchange admits the shares to exchange trading. In other words, admission to trading is like a planning permission: the formalities may be correct, but this does not confirm or guarantee that the company operates economically. Stock exchange trading is permitted to begin following admission to trading.

Throughout the process, the issuer is supported by the banking syndicate. The underwriting banks play an important role in that they and the issuer share prospectus liability, i.e. they are liable for the information provided in the issuing prospectus.

The IPO event


Trading on the Frankfurt Stock Exchange

There are two different trading venues on the Frankfurt Stock Exchange. Highly liquid securities for which there is always sufficient supply and demand in exchange trading are traded via the fully electronic venue Xetra. The Designated Sponsors help where needed by submitting additional buy and sell orders.

Less liquid securities are traded on the Börse Frankfurt trading venue, where so-called Specialists continuously ensure supply and demand.

IPO day

The pre-trade period begins at 7 a.m. on the day of the IPO. The trading participants can now enter their orders.

The call IPO phase begins at 9.00 a.m.: The first indicative prices are determined according to the highest volume transacted principle and made available only to the lead manager, which uses them to determine the price range in which the potential auction price must move. The price range is published on the Xetra Newsboard and on The call IPO phase lasts at least 15 minutes but can be extended depending on order book status.

Market Supervision remains in close contact with the lead manager during the entire call IPO phase, informing it of changes in the order book status, maintaining and publishing the price range and running the IPO auction. Trading participants can place, change and delete orders at any time during the call IPO phase.

During this time, the Börse Frankfurt specialist also enters the first indicative buy and sell orders (quotes) in the trading system. These indicative quotes are also published online and on the trading floor display board and are within the price range published on Xetra.

Xetra IPO auction process

The Xetra order book is closed when the lead manager deems that pricing has been concluded. Buy and sell orders may then no longer be entered, changed or deleted. Closing the order book in this manner is referred to as the freeze phase. Under certain circumstances, the lead manager can have the order book freeze lifted and return to the call IPO phase. Buy and sell orders may be placed again at this time. In such case or if there is a change in the IPO matching range, the order book must remain open for at least ten more minutes so that other trading participants can react. Once this ten-minute period is over, the order book is frozen again and the initial price determined.

The initial price

Once the trading system has determined the initial price, the specialist announces it on the trading floor. This announcement is actually no longer relevant, because traditional floor trading with buy and sell offers being physically shouted out loud no longer takes place at the Frankfurt Stock Exchange.  This is then followed by a member of the Executive Board of the newly listed company ringing the stock exchange bell.

Regular exchange trading begins when initial pricing has been concluded – trading participants can then continuously place their buy and sell orders. In Xetra trading, there is a second auction of about five minutes that immediately follows the IPO auction. This involves matching all buy and sell orders in the system and determining the next price based on the highest volume transacted principle. Continuous trading commences following this step. Trading at Börse Frankfurt begins via a continuous auction.

The price now determined every day for exchange trading is the figure investors attribute to the security and thus also the issuer.