The Exchange Council of the Frankfurt Stock Exchange resolved new criteria for the allocation of order books on Wednesday. The new procedure focuses solely on the performance of the lead brokers. The new regulations will come into force on 1 February 2007, and the order books will be reallocated on first of May 2007 and will be valid for 30 month. The new criteria will continue to guarantee the high quality of price determination during floor trading for investors and commerce in the future.
The new procedure is a two-tier process. First, the performance of the lead brokers is determined using a performance measurement procedure based on seven criteria. The minimum performance threshold decisive for the allocation of order books is set at 99.75 percent of the maximum performance possible. It is based on the evaluation of previous data and will further ensure the quality of price determination. Lead brokers that score below the threshold do not receive any order books. Those lead brokers that meet the performance criteria then receive order books in accordance with their relative performance, weighted by the number of price determinations and the order book volume. Order books can be withdrawn from lead brokers if they score below the minimum performance threshold within a three month period.
Order book groups are allocated to new lead brokers if they are expected to meet the performance criteria in the future. Order book groups can be allocated to a maximum of three new lead brokers.
A working group commissioned by the Exchange Council had assessed the order book allocation criteria against the backdrop of possible changes to the German Exchange Act (Börsengesetz) as a result of the implementation of the new European Markets in Financial Instruments Directive (MIFID). The decision made by the Exchange Council was based on intensive consultations and also took into account rulings by the administrative courts last year. The current regulations governing the allocation of order books on the basis of order book volume and the performance of the lead brokers were passed by the Exchange Council in mid-2005.
