Banks or other financial service providers who furnish binding quotes in electronic trading for the purchase or sale of stocks, thereby offsetting temporary imbalances between supply and demand for less liquid stocks
Designated sponsors operate only in the Xetra® system, where they must be admitted as a participant. When an issuer is admitted to trading, it appoints a sponsor - or, in some cases, several sponsors - to ensure that there is additional liquidity in its stock by posting quotes in the system, either at the sponsor's own initiative, at the request of a market participant (quote request), or during auctions. The quotes can be seen in the order book, giving investors a more reliable reference for setting the price limit on their orders. Companies that are quoted in continuous trading in Xetra are required to appoint at least one designated sponsor if they are deemed to have insufficient liquidity.
During trading, a market participant can send an electronic quote request to all designated sponsors registered for a particular security. The party making the request can, if desired, indicate whether it is interested in buying or selling, and how many shares it wishes to buy or sell. All Xetra participants are automatically notified as soon as a quote request has been made for a particular security.
Deutsche Börse requires designated sponsors to fulfill certain quality criteria when performing their function. For example, they must be available throughout trading hours; the quotes they provide must be for a certain minimum number of shares and are not permitted to exceed a particular bid-ask spread. These criteria are more stringent for some stocks than for others, and are determined on the basis of characteristics such as volatility. Furthermore, each designated sponsor must respond to a quote request within a designated period of time by providing a quote. If a designated sponsor does not meet its obligations, Deutsche Börse can revoke its admission to trading.
Because they continually observe the market, designated sponsors acquire expert knowledge on the stocks whose liquidity they are promoting, and on the sectors to which their stocks belong. Depending on the issuer's needs and the range of services offered by the designated sponsor, this knowledge can be used for research, investor relations, disclosure, sales and market reports.
