Continuous Trading with Auctions and Designated Sponsors

Continuous Trading with Auctions and Designated Sponsors

By relying on Designated Sponsors, Xetra makes Continuous Trading with Auctions available for trading illiquid securities:

  • Xetra trading participants pledge, as Designated Sponsors, to post binding prices for securities in Continuous Trading  with Auctions, thus ensuring that the securities can be traded.
  • The high probability of execution makes trading illiquid assets more attractive for investors.
  • Issuers benefit from higher demand for their security.
  • For all securities with insufficient liquidity traded on Xetra, at least one Designated Sponsor ensures additional liquidity.

 

Trading venue: Xetra®

Trading time: 9.00 a.m.–5.30 p.m.

Tradable instruments: Equities, ETFs and ETPs

 

How the service works

The Continuous Trading with Auctions and Designated Sponsors trading service enhances the combination of the Continuous Trading and Auction trading models by ensuring liquidity is furnished by the Designated Sponsor.

Trading begins with an opening auction. This way, liquidity is concentrated and, taking as many orders as possible into account, the opening price is then determined. Continuous Trading begins on conclusion of the opening auction. All executable orders are executed immediately at market prices.

The daytime auction – conducted as a rule around midday – interrupts Continuous Trading. It enables liquidity to be concentrated in the middle of the trading day. On its conclusion, Continuous Trading is resumed.

In the opening and daytime auctions all executable orders are executed so as to prevent a “crossed” order book, i.e. there are no purchase and sale orders that overlap in terms of price, enabling Continuous Trading to continue.

In accordance with their trading restriction, all Market Orders and Limit Orders that were not executed, or only executed in part are taken into in Continuous Trading.

In the final auction, liquidity is concentrated at the end of the trading day and the day’s closing price determined. Closing prices frequently serve as the basis for evaluating portfolios, which is why the closing price is calculated based on the market with the help of liquidity concentrated in an auction.

Overview of Designated Sponsors per index/segment

This file is updated each trading day.

 

The Designated Sponsor’s duties

Designated Sponsors are market participants who post binding buy and sell offers for the trading of illiquid securities. There can be one or several Designated Sponsors per security. The trading participant submits an application to be admitted as a Designated Sponsor on Xetra® to the Frankfurter Wertpapierbörse (FWB®, the Frankfurt Stock Exchange).

With regard to the provision of liquidity, Designated Sponsors are subject to high quality criteria (minimum requirements). By way of example, when quoting Designated Sponsors must observe a maximum spread (between the buy and sell price) and a minimum quote volume (minimum lot size which must be posted on both sides of the order book). Furthermore, they are obliged to adhere to a minimum quotation duration.

Measuring the liquidity of securities – When is a Designated Sponsor required?

Order book turnover and the Xetra Liquidity Measure (XLM) are used to determine liquidity. With the XLM, liquidity is measured in terms of width, depth and immediacy.

An equity is declared to be sufficiently liquid if on a daily average over the previous three months the following criteria are met:

  1. Xetra Liquidity Measure (XLM) <= 100 bp (1 basis point = 0.01%)
  2. Order book turnover >= €2.5 million

If at least one of these two criteria is not met, the equity needs at least one Designated Sponsor to be admitted to Xetra trading.

The issuer can see from “Liquidity Category A” list below whether a security is classified as being sufficiently liquid. The list is updated quarterly.

Designated Sponsor rating

Deutsche Börse has introduced a rating system, a sort of quality seal, to enable a comparison of the performance of the various Designated Sponsors in equities. A Designated Sponsor’s average quote duration, average spread, and spread determine the rating. The rating relates to Regulated Market and Entry Standard equities.

The Designated Sponsor rating is calculated and published quarterly. In addition, Designated Sponsors receive a rating report for each security they sponsor.

Designated Sponsor for equities

For companies seeking to be admitted to the Regulated Market and the associated high level of transparency, trading on Xetra is of enormous importance. Xetra gives them access to a broad-based international circle of investors and thus greater visible presence on the capital market. Moreover, trading the equity in Continuous Trading on Xetra is an important prerequisite for being listed on a Deutsche Börse selection index and subject to sufficient liquidity. For this reason, appointing a Designated Sponsor as a guarantor of liquidity can be very worthwhile.

Designated Sponsors for ETFs and ETPs

In accordance with the conditions of participation in the segment, issuers of Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) must appoint at least one Designated Sponsor for each of their products.

 

Market Status

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