What determines the stock quote price of a new Frankfurt Listing?
What determines the stock quote price of a new Frankfurt Listing? The initial stock quote for a new issue listed on the Frankfurt Stock Exchange is set by the market maker (otherwise known as the lead broker or specialist) and is determined by the buy and sell orders in the market maker’s order book. If there are no buy or sell orders, then the market maker will look to many factors, including but not limited to analyst valuations or price projections, pricing of prior private offerings, capital of the company vs the number of shares issued, and company assets. It is important to understand that the initial price reallydoesn’t bear much importance. What is much more important is where the share price goes after the initial stock quote is set by the market maker. This is determined almost exclusively by customer buy and sell orders in the market maker’s order book. Without customer buy and sell orders in the system, the market maker’s spread between the bid and offer will typically be very large. Conversely, with buy and sell orders in the system, the market maker can then reflect those orders in the publicly quoted bid and offer price. Thus, if for example there is a customer buy order at €3.00 and a customer sell order at €3.25, then the market maker’s quote will generally be €3.00 bid by €3.25 offer. The price at which initial orders are entered by customers in newly trading shares are usually quite arbitrary, and based on what the customer thinks the stock is worth, usually somewhere between the initial large-spread bid and offer. It is not unusual that, when a new issue begins trading on an exchange, there aren’t many public orders in the system. This is simply because at first, not many people know about the new publicly trading company. In fact, most of the time, the only buy and sell orders in a newly public company are from friends and family of the publicly traded company itself. Hopefully, once the company begins a quality IR/PR campaign and becomes more well known to potential investors, more and more people will buy the stock, resulting in more liquidity.
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