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Basics

What is an Exchange? Tasks, management and control
Was ist die Börse? Aufgaben, Steuerung und Kontrolle

 

The stock exchange is an organized market, in which supply and demand for securities are brought together. A differentiation is made between the cash and forward markets. Equities and bonds are traded on the cash markets. They offer investors the opportunity to take part in the economic progress of corporations. Risks that arise from price fluctuations in the cash markets are hedged in the options and futures markets through trading in options and futures contracts – so-called derivative financial products.

The stock market fulfills a central function in the economy, bringing together savers and investors (providers of capital) on the one hand with companies and the state (borrowers) on the other. Without this "mediator", the capital providers and borrowers would have to negotiate directly, which would generate heavy search and information costs. Whereas companies and the state often require large sums of long-term capital, most of the savers and investors want to provide small amounts for relatively shorter time periods. The stock market makes possible an optimal and efficient reconcilement of interests between these groups. Savers and investors can buy and sell securities on the exchange at any time, without directly affecting the companies. For this reason, the stock market is also known as a circulating market (secondary market). It is also an issuers' market in which new issues can be placed (primary market).

Central functions and responsibilities of a stock market
 
  • making available cost-effective trading platforms
  • bundling of liquidity by concentrating supply and demand
  • guaranteeing the fungibility, or interchangeability, as well as the identical structuring of a particular category of security
  • ensuring the greatest possible transparency for investors
  • providing information on prices and volume

Management and Control
 

The market surveillance ensures orderly trading. Several institutions are involved. The Trading Surveillance Office (HÜSt) with direct contact to the market, monitors the price determinations. The Securities and Exchange Commission investigate violations against the securities law. The Bundesanstalt für Finanzdienstleistungsaufsicht, short BaFin, ensures the functioning of the German markets for securities and derivatives according to the Securities Trading Act (WpHG).