25 years of the German Exchange

Sometimes it’s useful to remember how things were so that we can work out how we got to where we are today.  25 years ago Germany had eight separate securities exchanges, of which Dusseldorf was the largest, and it had no derivatives exchanges – in fact, derivatives trading was classed in the same regulatory category as gambling, but with the added disadvantage that a losing trader could ask for his money back if a trade went the wrong way.

The main sources of revenue for the eight exchanges were transaction fees, membership fees and listing fees.  German corporates prefer to borrow from their bank than do an IPO, so new listings were few, but transaction volumes were growing.  Each exchange was owned by its member-firms and had a licence from its home-state (Germany is a federation) to run the state’s security exchange.  Regulation was the responsibility of the ministry of finance of the local state – there was no national regulator for securities markets.

Now let’s do a Big Bang Theory fast-forward.  The Berlin Wall comes down, German reunites, laws get changed and the first German futures exchange opens – Deutsche Terminboerse (DTB).  Frankfurt Stock Exchange de-mutualises and goes public, merges with DTB and the national securities depository AKV/DKV, and Deutsche Boerse AG is alive and Eurex is born!  Clearing services are added when it’s realised that on-exchange trades are not guaranteed, and Clearstream is bought when it’s realised that not all trading in German equities is happening on-exchange.  But Derivatives is the future!

Today Deutsche Boerse Group is one of the largest exchange operators in the world, and big enough to buy almost any exchange in the world.

But besides Deutsche Boerse, five other German securities exchanges are still there, driving strong markets such as Euwax in Stuttgart.  We still can’t say “The” German Exchange.