The first day on the stock exchange

Almost everyone knows these types of photos: a company's CEO rings the bell on the trading floor in Frankfurt. With the first pricing, a month-long issuing process comes to an end and trading on the stock exchange has begun. But how is the first stock exchange price determined? And what role does the stock exchange play in this?

The path to the first trading day

Formally seen, the IPO starts with two administrative procedures for which two different authorities are responsible in Germany. Initially, the Federal Financial Supervisory Authority (BaFin) examines the prospectus prepared by the issuer and the syndicate bank. If the prospectus meets all formal legal requirements, BaFin grants permission to offer the securities to the public. This allows potential investors to subscribe to the shares prior to the start of trading.

The Management Board of the Frankfurt Stock Exchange then checks whether the issuer and its securities meet the legal admission requirements for stock exchange trading. Practically, this task is supervised by the Listing department of Deutsche Börse. Once all formal admission requirements have been met, the Management Board of the Frankfurt Stock Exchange grants admission for trading. The admission is similar to a building permit: the formalities are correct. However, this does not imply a confirmation or even guarantee that the building can also be operated economically.

Throughout the entire process, syndicate banks accompany the issuer. The banks have an important role to play: together with the issuer, they assume the so-called prospectus liability, meaning that they are liable for the information given in the issue prospectus.

The IPO event

The day of the IPO

On the day of the IPO, the pre-trading phase starts at 7:30. Trading participants can now place their orders. At 9:00, Xetra trading starts with the opening auction for the IPO: price indications are now calculated continuously and published via the trading system and the investor portal boerse-frankfurt.de. During this call phase, trading participants can continue to enter, change or delete orders. The opening auction lasts a minimum of 15 minutes, afterwards the trading system determines the first price of the share according to the principle of highest volume transacted. 

However, if there are too strong deviations from the issue price of the share, a volatility interruption occurs before the first price is determined. In this case, the opening auction is extended by about two minutes. This gives market participants time for orientation and prevents the market from running in one direction without reflection.

The bell ringing

As soon as the trading system has determined the first price, the Specialist on the trading floor announces it. The price announcement serves as information for the audience. Following this, a board member of the newcomer rings the bell.

Trading on the Frankfurt Stock Exchange

Now regular trading is starting and trading participants can enter their buy and sell orders continuously. On the Frankfurt Stock Exchange, they can choose between two different trading venues: Xetra and Börse Frankfurt floor trading. 

Very liquid securities are normally offered on both markets. Less liquid securities are only traded on Börse Frankfurt, where specialists ensure continuous tradability. 

The now continuously determined prices reflect the value that investors attribute to the shares - and thus to the company.