Liquidity through Designated Sponsors

Liquidity through Designated Sponsors

By the support of Designated Sponsors, continuous trading on Xetra is available for less liquid 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 less liquid 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 time: 9:00 a.m.-5:30 p.m.
Tradable instruments: Equities, ETFs and ETPs

 

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 less liquid 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.

Requirement of a Designated Sponsor

In general at least one Designated Sponsor is required for continuous trading in each single Exchange Traded Fund or Exchange Traded Product. Subject to liquidity, an equity quoted in continuous trading may require the appointment of a Designated Sponsor.

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. For this reason, appointing a Designated Sponsor as a guarantor of liquidity can be very worthwhile.

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

High quality standards (minimum requirements) are applied to Designated Sponsors in terms of liquidity provision. These minimum requirements include a minimum quote size (smallest permissible number of stocks on buy and sell side), maximum bid/ask spread of the quotes (largest permissible spread between bid- and ask limit) and minimum percentage of quoting in auctions and continuous trading.

In order to be able to compare the performance of the various Designated Sponsors in shares, Deutsche Börse issues a rating - a kind of seal of quality. The rating takes into account a Designated Sponsor’s average quote duration, average spread and turnover. Furthermore, the Designated Sponsor can receive an additional rating level in form of an "e" if he participates in the Xetra EnLight functionality. It serves as indication that the Designated Sponsor is also available for the execution of block trades.

A rating is only issued if the minimum requirements have been fulfilled.

The rating covers shares from the Regulated Market, all domestic shares from the Open Market as well as shares from Scale and Basic Board.

The Designated Sponsor rating is calculated and published quarterly. In addition, Designated Sponsors receive a monthly rating report for every share mentioned above. The list of all Designated Sponsors and the monthly rating can be viewed via an xls. File.

 

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