Telephone trading: The confidence of dealing with SCHNIGGE
Because off-exchange trading is inherently less transparent for the end investor, the reliability of the parties involved in telephone trading is extremely important. In dealing with SCHNIGGE, banks and the investors which they serve enjoy the safety of trading with a counterparty which is a long-standing stock exchange member and which fulfils the stringent requirements of the exchanges of which it is a member, of the exchange supervisory authorities, and of the German Federal Financial Supervisory Authority (BaFin).
The term “telephone trading” is broadly used to describe the entire spectrum of trading directly between banks, particularly in unlisted or “over-the-counter” (OTC) instruments. In principle, the parties to the trade simply agree on a price for the number of shares or securities to be traded, and the trade is complete. Traditionally, this kind of trading was done over the telephone. Today, although more and more of this interbank trading is being done electronically, i.e. by means of electronic communication networks (ECN), it is still commonly referred to as “telephone trading”.
In this interbank market, specialized market makers such as SCHNIGGE publish bid and offer quotations on the internet or by way of financial information services, such as Bloomberg and Reuters. In contrast, however, to market maker quotations for exchange trading, the market maker is under no obligation to trade or to act as counterparty.
Telephone trading may be broadly divided into the following:
- Pre-opening or after-market trading of exchange-traded securities, i.e. trading outside of the trading hours of the exchange where the security is listed
- Off-exchange, “when issued” trading of forthcoming issues in shares (particularly pre-IPO trading ), bonds or warrants
- Trading in securities which are not listed for trading on an exchange (over-the-counter or “OTC” securities)