EXHIBIT B MEMBERSHIP CRITERIA 

1

Exhibit B(1): A description of the categories of membership and participation in the foreign board 

of trade and the access and trading privileges provided by the foreign board of trade. The

description should include any restrictions applicable to members and other participants to which 

the foreign board of trade intends to grant direct access to its trading system.

There are two main categories under which membership may be acquired at EEX. Membership may 

be solicited as 1) an Exchange Participant (companies to participate in Exchange trading) and 2) an 

Auctioneer. There are two subcategories that fall under the umbrella of an Exchange Participant in 

the sense that they are contingent upon the admittance of an applicant as an Exchange Participant. 

These are Exchange Traders (persons who shall trade on EEX on behalf of Exchange Participants) and 

Market Makers (participants who assume the obligation to simultaneously enter limited bid and ask 

orders (quotes) to ensure continuously liquidity within the markets). Further available participation 

categories are the participation as a 3) Non Trading Broker or as 4) Trading Agent but these two 

categories do not directly lead to a membership as Exchange Participant and are solely listed for the 

sake of completeness. 

Membership as an Exchange Participant/Exchange Trader: The Exchange Participant is a company 

which seeks admission to EEX in order to take part in exchange trading. An Exchange Participant must 

appoint at least one admitted Exchange Trader. Solely Exchange Traders appointed by the Trading 

Participant are entitled to execute the Trading Participants’ transactions on the Exchange. Exchange 

Traders may only be appointed by one Exchange Participant. Persons entitled to trade on the EEX 

Spot and/or Derivatives Market (Exchange Trader) shall be admitted by EEX if they are reliable and 

have the necessary professional qualifications in accordance with the detailed provision in the 

Admission Rules (explained in B(2)). EEX admits traders who have proven their professional 

qualifications by passing the obligatory exchange trader exam. The Exchange Trader places bids or 

offers on the EEX markets on behalf of the Exchange Participant. Section 15 of the EEX Exchange 

Rules and the EEX Admission Rules (see Exhibit A-6), which are based on the German Exchange Act 

and binding both for itself and for all Trading Participants, detail the application for admission as an 

Exchange Participant/Exchange Trader:

 for spot trading only,

 for derivatives trading only, 

 for one or more sub-markets or products,

 for spot and derivatives trading altogether 

An application for admission as Exchange Participant can be filed for one or several affiliates of an 

Exchange Participant. Each application for admission must be directed to EEX, using the required 

forms. An overview of the process may be found below.

Admission process

1. Contact EEX & Submission of required documents

2. EEX exchange trader training

3. Technical connection

4. Admission by ECC

5. Admission by EEX
EXHIBIT B MEMBERSHIP CRITERIA 

2

Generally all Exchange Participants are treated equally independent from their location. The only 

restrictions regarding the admission of members or other participants are those laid down in the 

German Exchange Act and the EEX Exchange Rules. Due to legal requirements the following

additional requirements are to be met by foreign participants:

a. Proof by the foreign participant that EEX is permitted to admit these companies based on the law 

of the respective country. 

b. Exchange of information between the local exchange supervisory authority and the national 

supervisory authority in order to supervise the Exchange Participants.

c. The foreign Exchange Participant needs to name a so-called Authorized Recipient entitled to 

receive letters from the Exchange. This Authorized Recipient could be any person or entity based 

in Germany, a branch or any kind of presence in Germany of the foreign Exchange Participant 

itself is not necessary. 

For further details please refer to Exhibit B-2 (ii) and to page 46 to 49 of the EEX Markets & Products 

Brochure.

Participation as a Market Maker: 

An Exchange Participant may also apply for admission as a Market Maker for one or several products 

if the Management Board of the Exchange has decided to conduct market making with respect to the 

trading of such product or products. Each product, for which an applicant seeks admission as a 

Market Maker, must be specified in the application for admission. The Market Maker’s admission is 

dependent on the admission as an Exchange Participant. 

Upon being granted admission and pursuant to the Exchange Rules, the Market Maker assumes the 

obligation to simultaneously enter limited bid and ask orders (quotes) into the EEX trading system at 

any time during trading hours and to do business on the basis of such quotes. 

The Management Board of the Exchange will grant a Market Maker admission provided the Exchange 

Traders named in the application for such form of trading have the requisite trading knowledge to 

act as Market Makers. The applicant must furnish evidence of the requisite technical knowledge.

Membership as an Auctioneer

Legal bodies organized under private or under public law may be recognized as Auctioneers by the 

Exchange without being admitted as an Exchange Participant according to Section 32 of the Exchange 

Rules.

An auctioneer in this context is a private law or public law institution mandated by one or several EU 

member states or by the European Commission solely with the primary allocation of greenhouse gas 

emission allowances (EU-Emission Rights) in the sense of Directive 2003/87/EG and any following 

acts (public mandate) and who acts only as seller of EU-Emission Rights using an auction (single-sided 

auction). Under the acceptance as Auctioneer any other participation of the Auctioneer in trading at 

EEX is prohibited.

An Auctioneer may be accepted upon request as Auctioneer if: 

a. the Auctioneer is entitled by public mandate in the sense of subsection 2 to sell EU Emission 

Rights, 

b. the orderly settlement of the auctions is secured and 

c. the orderly settlement of transactions is secured.

An Auctioneer is only entitled to enter sell orders into the system by him/herself if this entry is 

performed by a person fulfilling the requirements for admission as an Exchange Trader. In other 

cases the Auctioneer is only provided with reading access to the systems and the entry of orders will 
EXHIBIT B MEMBERSHIP CRITERIA 

3

be performed by the Exchange in the name and on behalf of the Auctioneer, Section 13(1) of EEX 

Trading Conditions (trading on behalf) applies mutatis mutandis. A clearing bank is not required for 

transferring the auction proceeds. These can be paid directly to a bank account belonging to the 

Auctioneer.

Recognition as Non Trading Broker

Applicants may also be recognised by the Management Board of the Exchange exclusively for using

the Trade Registration Functionality by entering trades on behalf and in the name (authorised 

declaring agent or declaring intermediary) of Exchange Participants in accordance with the Trade 

Registration Rules. Non-Trading Brokers are not Exchange Participants themselves within the 

meaning of Section 16 paragraph 1 of the EEX Exchange Rules and they neither open nor hold 

positions upon the registration of the trades at EEX for their clients nor can they open own positions.

Recognition as Trading Agent

Upon a written application companies can be recognised as Trading Agent solely for Spot Market 

trading by the Management Board of the Exchange. Approved Trading Agents are entitled to effect 

the conclusion of transactions on EEX on behalf and for the account of other Exchange Participants 

admitted at EEX. They act via admitted Exchange Traders.

Exhibit B(2): A description of all requirements for each category of membership and participation 

on the trading system and the manner in which members and other participants are required to 

demonstrate their compliance with these requirements.

The requirements for being admitted as an Exchange Participant are set out in Article 19 of the 

German Exchange Act (see Exhibit A-5) and Section 17 ff. of the Exchange Rules (see Exhibit A-6). In 

order to be admitted, a company must file a written application with EEX. The company must name 

authorized representatives who are responsible for business management and provide information 

concerning their personal reliability and professional qualification. The company must ensure that 

transactions are carried out in an orderly manner and the settlement of the transactions is secured.

ECC and EEX have also established a sophisticated common “know-your-customer” (KYC) process, 

which is based on a scoring model, for screening new Exchange Participants during the admission 

process. Applicants are required to fill out a questionnaire and to specify their identity, motivation, 

financial background and professional capacity. Background checks based on the answers and on 

external information sources (company register, annual reports, etc.) are performed. Based on the 

information received in the KYC questionnaire and the results of the background checks, each section 

of the candidate’s application will be scored towards different, objective criteria with individual 

weights (depending on the relevance). This scoring process was designed with the help of the longterm experience of exchanges as well as with support and advice from the German tax enforcement 

authorities. Each application will receive two separate scores, one initial and one review score. The 

final score is calculated based upon the two scores. Depending on the resulting score the applicant 

may be classified into one of three existing risk categories (white, grey and black). The application of 

a “white” prospect will be accepted without delay. The applications of “grey” and “black” prospects 

are subject to the decision of an internal Decision Committee that consists of employees of different 

departments of EEX and ECC. If the Decision Committee does not come to a mutual decision 

regarding the admission of a participant the decision will be referred to the Management Board.

EEX closely cooperates with the Exchange Supervisory Authority and with law enforcement 

authorities in case of suspected fraud or other criminal activities.

(i) Professional Qualification. A description of the specific professional requirements, 

qualifications, and/or competencies required of members or other participants and/or their staff 
EXHIBIT B MEMBERSHIP CRITERIA 

4

and a description of the process by which the foreign board of trade confirms compliance with 

such requirements.

Exchange Participant/Exchange Trader:

All Exchange Participant applicants must provide a “Declaration of Personal Reliability” (Form E01, 

Exhibit A-3) individually signed by all of their board members and confirm their professional 

qualification (included in Form A01, Exhibit A-3) for at least one of their board members by legally 

binding signature. The applicant must also provide copies of identification cards (e.g. passport) of the 

above mentioned board member and all other persons authorized to act on behalf of that Exchange 

Participant.

The personal qualification requirements for Exchange Traders of the Exchange Participant are 

outlined in the Admission Rules Section 4 (see Exhibit A-6).

Professional qualification shall be assumed if the required specialized knowledge and experience 

necessary for trading on the EEX Spot Market and/or the Derivatives Markets is satisfactorily shown. 

Evidence of the required specialized knowledge is supplied by passing an examination leading to the 

qualification of an Exchange Trader on the EEX. The Exchange Trader must have passed the EEX or 

Eurex exchange trader exam within a period of three years before the initiation of trading activities 

at EEX. The Exchange Trader will be required to re-take the test if more than three years have passed 

since the date of his/her last exam or he may provide a confirmation of his trading experience (Form 

E03a, Exhibit A-3). More details about the examination procedure and contents are stipulated in the 

EEX Admission Rules. 

The Management Board of the Exchange may in its own discretion refrain from the proof of passing 

the exams mentioned above and may generally accept specific trainings and exams of other 

exchanges and institutions (foreign certificates) as a proof of professional qualification, this 

acceptance of foreign certificates has to be published.

(ii) Authorization, Licensure and Registration. A description of any regulatory and self-regulatory 

authorization, licensure or registration requirements that the foreign board of trade imposes upon, 

or enforces against, its members and other participants including, but not limited to any 

authorization, licensure or registration requirements imposed by the regulatory regime/authority 

in the home country jurisdiction(s) of the foreign board of trade. Please also include a description 

of the process by which the foreign board of trade confirms compliance with such requirements.

Decisions of admissions are made by the Management Board of the Exchange upon written 

application pursuant to Section 19 Exchange Act. The decision is made by the Management Board of 

the Exchange in written form. It is permitted to refuse an incomplete application. The existing 

Exchange Participants may be informed of the admission of a new Exchange Participant conveniently.

In addition, the Federal Financial Supervisory Authority (BaFin) and the Exchange Supervisory 

Authority (SMWA) are informed of decisions of the Managing Board to admit a new Exchange 

Participant. 

Evidence of fulfillment of the conditions for admission of Exchange Participants and traders must be 

furnished by the respective applicant. The applicant must obtain all state approvals, permissions, 

licenses and admissions or similar agreements that are required for trading at EEX and the analogous 

handling of the concluded business. The Management Board of the Exchange may request additional 

documents or information from the applicant at any time and within a certain time frame. In this 

respect it may, after a due assessment of the circumstances, either itself or through an agent, 

conduct an examination of the applicant at the applicant’s expense and require the applicant to 

submit such statements and documents as it may deem appropriate. In addition, it may request 

information from third parties - the applicant must be given prior notice of such request.

Before admission as an Exchange Participant on one of the markets of the EEX, a foreign company 

shall appoint an Authorized Recipient with a registered office or mailing address within the Federal 

Republic of Germany (Form E07, Exhibit A-3). Such Authorized Recipient is a person that has been 
EXHIBIT B MEMBERSHIP CRITERIA 

5

named by the applicant in order to enable EEX to enforce public notifications towards the respective 

applicant. An effective revocation of such authorization can only be undertaken if – at the same time

– another Authorized Recipient with registered offices or mailing address in the Federal Republic of 

Germany is appointed.

Foreign participants can only be admitted to trade at EEX if the Exchange is permitted to admit these 

companies based on the law of the respective country. Applications for the admission of foreign 

companies are suspended as long as no evidence of the lawfulness of the admission and the 

exchange participation, in accordance with the law of the respective country, is furnished by the 

applicant or until EEX gains knowledge by other means to the effect that the admission of the foreign 

Exchange Participant and its trade participation is permissible.

After being granted admission to trading, the Exchange Participant is required to notify the 

Management Board of the Exchange without delay of any changes of a factual or legal nature which 

could lead to the conditions for admission no longer being met; in particular, the admitted 

participant shall be required to inform the Management Board of the Exchange without delay if it 

becomes aware that criminal proceedings are being launched against it on suspicion of property or 

tax violations. Moreover, it shall be obliged to inform the Management Board of the Exchange if it 

becomes aware that such proceedings have been instituted – or are pending – against a person 

acting on its behalf who, according to statute, the Articles of Association or a Shareholders’ 

Agreement is entrusted with the management of the business of the Exchange Participant. In order 

to ensure this, the Management Board of the Exchange can demand additional information and 

documents.

(iii) Financial Integrity. A description of the following:

(a) The financial resource requirements, standards, guidelines or thresholds required of 

members and other participants. 

In regards to the financial resource requirements, both EEX and ECC have outlined a number of 

factors that must be met by every member. However, ECC acts as a central counterparty and thus 

assumes the entirety of the risk in all transactions. By virtue of this correlation, in addition to the 

financial requirements imposed by EEX, ECC possesses rigorous admission criteria with respect to its 

Clearing Members to ensure they fulfill the appropriate resource requirements to take part in the 

clearing and settlement of exchange transactions. In addition, ECC also carries out a KYC revision of 

each company applying for membership as an Exchange Participant and evaluates them by means of 

a scoring procedure.

Exchange Participant/Exchange Trader: In order to assure the orderly settlement of transactions, EEX 

has outlined the financial requirements that must be met by every Exchange Participant as follows: 

The applicant provides evidence of liable equity amounting to at least € 50,000 as required in Section 

19 para 4 sentence 3 of the German Exchange Act and Section 17 para 3 of the Exchange Rules, 

unless it is a financial institution, a financial services institution or an Exchange Participant which is a 

branch of an undertaking domiciled abroad (within the meaning of Section 53 para 1 sentence 1 of 

the Banking Act) or an undertaking domiciled in other states of the European Economic Area (as 

described in Section 53b para 1 sentence 1 of the Banking Act) and is authorized to engage in 

financial commission business within the meaning of Section 1 para 1 sentence 2 No. 4, or to provide 

a financial service within the meaning of Section 1 par. 1a sentence 2 Nos. 1 – 4 of the German 

Banking Act. The paid-in capital and reserves after deduction of any withdrawals by the proprietor or 

the personally liable shareholder and any loans extended to such persons and of any excess of 

indebtedness with respect to the free assets of the proprietor shall be considered as liable equity. 

With respect to applicants that are obliged to provide evidence of liable equity, there shall be no 

facts justifying the assumption that the applicant, taking into account the liable equity capital, does 

not have the necessary economic capacity to participate in exchange trading in an orderly manner.
EXHIBIT B MEMBERSHIP CRITERIA 

6

If a proof for the liable equity cannot be rendered, the proof can substituted by means of a bank 

guarantee or by a deposit in monetary form, Section 17 para 3 Exchange Rules. The bank guarantee 

has to be issued by a domestic credit institute according to Section 1 Abs. 1 of the German Banking 

Act or a comparable foreign institute in favor of EEX. The guarantee has to contain the unconditional 

and irrevocable obligation to transfer the guaranteed amount to an EEX bank account upon first 

request of EEX. The content, form and type of the bank guarantee shall be determined by the EEX.

(b) The manner in which the foreign board of trade evaluates the financial 

resources/holdings of its members or participants.

To evaluate the financial resources/holdings of its Exchange Participants and to examine if the liable 

equity of at least € 50,000 has been fully paid-in and reserves equal at least € 50,000 the applicant 

must provide the latest financial statement or excerpt from the company’s register. During the 

admission process, all applicants must also submit the annual report of the company. In case a proof 

for the liable equity cannot be rendered, the proof can be substituted by means of a bank guarantee 

or by a deposit in monetary form.

(c) The process by which applicants demonstrate compliance with financial requirements 

for membership or participation including, as applicable:

(i) Working capital and collateral requirements, and

Matters concerning working capital and collateral requirements fall under the responsibility of EEX’s 

clearing house (ECC) and its Clearing Members. The admission department does not require any 

other financial holdings or standards during the admission process except the minimum equity of 

€ 50,000 that is required pursuant to the German Exchange Law. Before a participant can be

admitted, it must choose a Clearing Member (This Clearing Member must be a so-called System 

Clearing Member as oppose to a Direct Clearing Participant Clearing Member, the latter not being 

relevant for EEX markets). This Clearing Member is then responsible for meeting the requirements 

that ECC imposes. ECC does not at the moment impose any working capital requirements. As for 

collateral requirements, the Clearing Member must ensure that its Trading Participants meet the 

requested standards. The Clearing Members must request that the Trading Participants provide at 

least the collateral that is required by ECC. The provision of collateral between the Clearing Members 

of ECC and their Non-Clearing Members is subject to bilateral agreements between these parties 

except in cases where clients opt for individual segregation (further described in Supplement 1). 

(ii) Risk management mechanisms for members allowing customers to place orders.

All institutions applying for a clearing license with ECC are required to be located in Germany, 

another member state of the European Union (EU), Norway or Switzerland. This measure is taken to 

ensure that these institutions uphold EU banking standards and are also subject to EU regulations 

and EU laws. Clearing Members must hold and demonstrate proof of a full banking license in 

Switzerland, Norway or one of the EU member states. Clearing Members must also prove that they 

have the appropriate technical equipment (e.g. back-office facilities), have paid their contribution to 

the clearing fund, have at least one sufficiently qualified staff member in the back-office who is in 

charge of the orderly fulfillment of clearing obligations, and have established specific accounts for 

clearing. 

Requiring the Clearing Member to be based in the EU, Switzerland or Norway ensures that its 

relevant financial supervisory authority will enforce the appropriate risk management mechanisms

under EU law. In this sense, ECC is not directly implementing risk management mechanisms, but is 

indirectly ensuring that these mechanisms are in place.

(iii) Fit and Proper Standards. A description of how the foreign board of trade ensures that 

potential members/other participants meet fit and proper standards.

There are various mechanisms, procedures and authorities to ensure that fit and proper standards 

are always observed:
EXHIBIT B MEMBERSHIP CRITERIA 

7

KYC procedures are re-applied for existing members on a random basis and in case of suspected 

misconduct. Investigations can be carried out based on routine procedures, upon own initiative, or 

upon instruction by the Market Surveillance Department or any other supervisory bodies in charge.

According to the German Exchange Act and the Exchange Rules, the Exchange Supervisory Authority,

together with the Market Surveillance Department, monitor the compliance of the Exchange 

Participants with the German Exchange Act and the Exchange Rules. Although the Market 

Surveillance Department does not have sanctioning powers, it would refer any cases of violations to 

the Exchange Supervisory Authority and the Sanctions Committee. In addition the respective national 

financial services authorities or energy regulators have supervisory powers against the Exchange 

Participant trading at the exchange. For Germany, BaFin is in charge for the commodity derivatives 

markets whereas the energy regulator is in charge for the EEX Spot Market. 

The Market Surveillance Department is entitled and obliged by law to report any incidents to the 

respective authority that is in charge for the respective Exchange Participant. Some reports are sent 

to the respective authority directly, others via the Exchange Supervisory Authority or BaFin. 

The punishment of a given behavior by the Sanctions Committee does not preclude its further 

prosecution under criminal, regulatory or civil law. The Sanctions Committee exclusively discharges 

the tasks assigned to it in the public interest.

The Management Board of the Exchange is also entitled to withdraw the admission of an Exchange 

Participant or Exchange Trader in full, or partially according to Section 22 para 2 of the Exchange 

Rules should one of the admission requirements not exist upon the granting of the admission. The 

Board may revoke the admission according to Section 22 para 3 of the Exchange Rules, if, after it has 

been granted: (i) one or more of the prerequisites is no longer being met; (ii) the respective company 

fails to provide the margins required; (iii) the company fails to make daily clearing payments; or (iv) 

fails to make other deliveries or payments or settle other charges in due time according to the 

Clearing Conditions. In addition, based upon the founded suspicion that one or more of the 

requirements for admission is not complied with or is not met, the Management Board of the 

Exchange may order the suspension of admission pursuant to Article 24 of the Exchange Rules. The 

resignation from the admission of an Exchange Participant results in the termination of the admission 

of the Exchange Trader who is acting on behalf of this Exchange Participant.
EXHIBIT C – BOARD AND/OR COMMITTEE MEMBERSHIP

1

Exhibit C-1: A description of the requirements applicable to membership in the governing board 

and significant committees of the foreign board of trade.

EEX’s boards and committees and their respective tasks and responsibilities are explained in detail in 

A(1). The membership requirements for each board or committee member vary and depend on its 

respective function. The membership criteria for the boards and committees of the exchange (EEX)

regulated under public law are therefore different from the ones for the EEX AG as the operator of 

the Exchange. 

Boards & Committees of the Exchange under public law:

Exchange Council –The election, eligibility, and functions of the Exchange Council are all laid forth in 

the German Exchange Act and are further detailed in the Saxon Exchange Act Execution Ordinance.

According to the Ordinance, elections are to be held every three years and must follow public law. All 

the preparations for the elections as well as the election itself are carried out by an Election 

Committee following strict formal procedures. The Election Committee is appointed by the former 

exchange council. The election is effected by means of an anonymous ballot. The Exchange Council

consists of at maximum twenty-four members. Energy companies and financial service providers and 

banks are represented in the Exchange Council further divided into five election sub-groups:

1. Energy companies licensed to trade on the exchange with the following sub-groups

 Multi-utilities and trading companies,

 Public utilities and regional suppliers, and

 Commercial consumers

2. Financial service providers and banks licensed to trade on the exchange with the following subgroups

 Members of the clearing house (ECC) of EEX Group and

 Other financial service providers and banks

Members of group 3 are not elected but are instead appointed by associations or elected by the 

exchange council itself after the election process.

3. Other groups concerned with the sub-groups:

 Associations and

 Representative of energy research.

Associations are represented by one representative each of the German Association of Energy and 

Water Industries, registered association (BDEW), the German Association of the Energy and Power 

Supply Industry, registered association (VIK), the Federation of German Industries, registered

association (BDI) and of the European Federation of Energy Traders (EFET). A representative from the 

field of energy research can be elected as an additional member by the other members of the 

Exchange Council. 
EXHIBIT C – BOARD AND/OR COMMITTEE MEMBERSHIP

2

Section 2 par. 7 of the Saxon Exchange Act Execution Ordinance details the eligibility to stand for 

election, and reads as follows:

(1) In the case of companies operated under the legal structure of a sole trader, the proprietors are 

eligible; in the case of other companies those persons who are entrusted with the management of 

the company’s business according to law, the statutes or the articles of association and who are 

authorized to represent such company are eligible to stand for election. Moreover, senior executive 

and expert employees of companies are also eligible to stand for election.

(2) The person to be elected as the representative of a company must be reliable and command the 

required professional qualification for commodities transactions on exchanges according to 

Section 19 par. 4 sentence 1 figure 1 of the German Exchange Act. 

EEX also posts information regarding the election of the Exchange Council on the website along with 

the curriculum vitae of current Exchange Council members as is required by the Saxon Exchange Act 

Execution Ordinance.

Board of Management of the Exchange – Section 15 pars. 1 and 2 of the German Exchange Act detail 

the requirements for getting appointed as a member of the Board of Management of the Exchange. 

These are as follows:

(1) The Management of the Exchange is incumbent upon the management in its own responsibility. It 

may consist of one or several persons. The managing directors must be reliable and have the 

professional aptitude required for the Management of the Exchange. They are appointed for no 

more than five years; a repeated appointment is permitted. The appointment of a managing director 

must be reported to the Exchange Supervisory Authority without undue delay. 

(2) The Exchange Supervisory Authority must deny its consent to the appointment of the managing 

directors, if doubts exist based on objective and documentable reasons concerning the reliability or 

professional aptitude of the managing directors, or if the proper management of the exchange 

appears to be endangered.

Sanctions Committee – Art. 23 pars. 2 and 3 of the Saxon Exchange Act Execution Ordinance

stipulate the membership criteria for the Sanctions Committee. The chairing members and a member 

appointed as a deputy shall command the qualification for holding judicial office. Proof of this 

qualification can be shown in the form of the second judicial state exam certificate. They must not be 

members of other bodies of the Exchange or employees of the Exchange Supervisory Authority. They 

are appointed by the Exchange Council in consultation with the Exchange Supervisory Authority upon 

a proposal to that end by the Management Board of the Exchange. Appointment can be effected for 

a limited period of time. The Exchange Council can revoke such appointment for an important cause 

in accordance with the Exchange Supervisory Authority.

Persons from within the circle of the Trading Participants shall be appointed as panel members of the 

Sanctions Committee by the Exchange Council for a period of three years upon a proposal by the 

Trading Participants in accordance with the Exchange Supervisory Authority. Re-appointment is

possible. The exchange council can revoke such appointment for an important cause in accordance 

with the exchange supervisory authority.
EXHIBIT C – BOARD AND/OR COMMITTEE MEMBERSHIP

3

Boards & Committees of the EEX AG as the operator of the Exchange:

Executive Board – The members of the Executive Board are nominated by the Supervisory Board

pursuant to Section 12 par. 1 of the Articles of Association of EEX AG and Section 84 of the German 

Stock Corporation Act. Section 4 par. 7 in conjunction with par. 2 no. 2 of the Exchange Act stipulates 

that a member of the Executive Board must be reliable and have the professional qualification

required for the management of an exchange. Proof of the fulfillment of these requirements must be 

submitted to the Exchange Supervisory Authority, which has the right to object against the 

appointment if such person is deemed not to be qualified. 

Supervisory Board – the composition and selection of members of the Supervisory Board can be 

found in Articles 9, 10 and 11 of EEX’s Articles of Association (please refer to Exhibit A(2)). By these

rules, four members of the Supervisory Board will be appointed by Eurex Zürich AG, one member by 

the Free State of Saxony and one member by the City of Leipzig. The remaining members will be 

elected during the shareholders’ meeting with at least 80% of the votes. The shareholders agree by 

the Shareholders’ Agreement to exercise their voting rights in the shareholders’ meetings to the 

effect that seven members of the Supervisory Board are elected according to nominations made by 

the shareholders pooled under the Pool Agreement and the remaining members of the Supervisory

Board are elected according to nominations made by Eurex Zürich AG. As the Supervisory Board 

belongs to the private operator of the Exchange, the rules of the German Stock Corporation Act

regarding the composition or eligibility for membership in the Supervisory Board apply accordingly. 

As the Supervisory Board is endowed with great responsibilities and is appointed with the consent of 

the shareholders, its members possess the highest personal and professional qualifications for the 

position.

The personal eligibility criteria for members of the Supervisory Board in a stock corporation are 

generally described in Section 100 German Stock Corporation Act. According to its par. 1, all 

members of the Supervisory Board shall be natural persons with unlimited contractual capability, 

which means that the member shall be of legal age and free of any durable disorder of the mental 

condition. At commencement of the function every member shall have available a minimum of 

expertise, enabling the member to understand and evaluate the daily business of the company 

without the support of external experts. 

Corporate bodies are excluded from the membership in the Supervisory Board due to the principle of 

personal responsibility and instruction freedom of the members of the Supervisory Board acc. to 

Sections 100 and 116 German Stock Corporation Act. To ensure the fundamentally important 

requirement of an effective supervision by the Supervisory Board according to sections 100 par. 2 

and 105 German Stock Corporation Act, a person is not eligible to hold the function of a member if

such person is

 holding the function as a member of the Supervisory Board in more than 10 companies,

 holding the function as a legal representative of a dependent company,

 holding the function as a legal representative of a company, if a member of the Supervisory 

Board of that company is a member of the Executive Board of the company at the same 

time,

 holding the function as a member of the Executive Board, procurator or any proxy-officer of 

the company
EXHIBIT C – BOARD AND/OR COMMITTEE MEMBERSHIP

4

The German Stock Corporation Act also binds members of the Supervisory Board to the due diligence 

and responsibility of a member of the Executive Board:

In order to safeguard the orderly functioning of the Supervisory Board the composition of the 

Supervisory board is open for judicial review which may be initiated by any member of the Executive 

Board, of the Supervisory Board and other persons, such as e.g. the shareholders.

Exhibit C-2: A description of the process by which the foreign board of trade ensures that potential 

governing board and committee members/other participants meet these standards.

Boards & Committees of the Exchange under public exchange law:

Exchange Council: the personal reliability and professional qualification of each potential Exchange 

Council member is secured by a number of manners throughout the Exchange Council election 

process. 

According to Section 19 par. 4 sentence 1 figure 1 of the German Exchange Act, the person to be 

elected as the representative of a company must be reliable and command the required professional 

qualification for commodities transactions on exchanges. In addition to this, the Saxon Exchange Act 

Execution Ordinance states, that in the case of companies operated under the legal structure of a 

sole trader, the proprietors are also eligible; in the case of other companies those persons who are 

entrusted with the management of the company’s business according to law, the statutes or the 

articles of association and who are authorized to represent such company are eligible to stand for

election. Moreover, senior executive and expert employees of companies are also eligible to stand 

for election.

The Election Committee conducts a thorough analysis of the candidate’s experience, reputation, and 

reliability. Oftentimes, the candidate has dealt with the European Energy Exchange at the 

professional level in the past. Anybody entitled to take part in the election process has an objection 

right against the election result, including but not limited to objections regarding the eligibility of a 

candidate. 

Management of the Exchange: As mentioned in part (1) above, the members of the Management 

Board of the Exchange must meet the standards set forth by Section 15 of the German Exchange Act. 

When an exchange seeks to appoint a new member to the Management Board of the Exchange, it 

must notify the Exchange Supervisory Authority of its intentions and of its candidate. The Exchange 

Supervisory Authority has the power to object to the nomination if the nominee does not meet the 

adequate standards and monitors the compliance with these requirements throughout the 

member’s term in office.

Sanctions Committee: Aside from the right of the Management Board of the Exchange to propose

chairing and deputy candidates, all matters dealing with membership requirements, approval and 

revocation of membership and oversight of compliance with these requirements fall under the 

responsibility of the Exchange Council and the Exchange Supervisory Authority. The Exchange Council 

and the Exchange Supervisory Authority may request proof of successful completion of the second 

judicial state exam to ensure that the candidates meet the required standards.
EXHIBIT C – BOARD AND/OR COMMITTEE MEMBERSHIP

5

Boards & Committees of the EEX AG as the operator of the Exchange:

Executive Board: During the nomination process, the Personnel Committee of the Supervisory Board 

– a sub-committee of the Supervisory Board consisting of four members responsible for the 

preparation of decisions on the appointment of Executive Board members – reviews the professional 

qualification of each potential candidate, assesses his/her qualifications through several interviews,

and presents a proposal to the Supervisory Board, which then forms a final opinion on the proposed 

candidate. According to Section 4 par. 7 in conjunction with par. 2 no. 2 of the German Exchange Act 

a member of the executive board must be reliable and have the professional aptitude required for 

the management of an exchange. Proof of the fulfillment of these requirements must be submitted 

to the Exchange Supervisory Authority.

Supervisory Board: Members of the Supervisory Board of EEX are appointed by the General 

Assembly through an election process that is based on tight regulations according to the German 

Stock Corporation Act as described above and as found in the Shareholders’ Agreement and the 

Articles of Association. This process is described in Exhibit A-1 and under C-1.

Exhibit C-3: A description of the provisions to minimize and resolve conflicts of interest with 

respect to membership in the governing board and significant committees of the foreign board of 

trade.

Boards & Committees of the Exchange under public exchange law:

According to Section 5 par. 4 sub-section 1 of the German Exchange Act the company operating the 

exchange is obliged to take precautions, in order to detect and prevent conflicts between the selfinterests of the exchange operator or of its owners and the public interest in duly operations of the 

exchange to the extent they are capable of having adverse effects on the exchange operations or the 

Exchange Participants, in particular insofar as the surveillance functions conveyed to the exchange by 

law are concerned.

In order to ensure compliance with this provision of the German Exchange Act, EEX has adopted a 

Guideline on the Avoidance of Conflicts of Interest, which is binding for the bodies of the company

operating the Exchange and the bodies of the Exchange (i.e. the Management Board of the Exchange 

and the Market Surveillance Department (see Attachment 1 to Exhibit C). One of the core statements 

of the Guideline is that the bodies of the Exchange operate solely in the public interest and are not 

bound by instructions of the operating company of the Exchange and fulfil their tasks in compliance 

with provisions under exchange law and under consideration of the economic well-being of the 

exchange and of the integrity of the market, the regularity of trading as well as of other principles of 

exchange trading.

Additionally – in order to establish conflict of interest rules regarding the entire EEX Group – a bundle 

of guidelines has been implemented which can be found in the Attachments to this Exhibit C (no. 2 to

4). These guidelines apply to everybody working with or for a company within the EEX Group. 

Consultants, freelance workers and external temporary workers are bound by contract to comply 

with the provisions applicable to them. Since EEX is part of the Deutsche Boerse Group it has taken 

over the respective guidelines from Deutsche Boerse. The purpose of these Guidelines is to identify 
EXHIBIT C – BOARD AND/OR COMMITTEE MEMBERSHIP

6

and settle conflict of interests and to avoid potential conflicts of interest which could arise among 

employees in their relationship with EEX and its customers. The Guidelines define potential conflict 

of interests, shows potential sources of conflicts of interest and provide for rules on conduct in case 

of conflict of interest. At this stage assistance is provided by the Group Compliance Department at 

Deutsche Boerse. The Guidelines also state that any violation of provisions of the Guidelines will 

constitute a violation of the employment contract.

Furthermore, in order to prevent potential conflicts of interest that may arise with respect to 

employee transactions, EEX has added a specific EEX related part to the Deutsche Boerse Guideline 

regarding the Prevention of Insider Dealings which prohibits transactions related to EEX products for 

staff members (please refer to the Attachment 5 to Exhibit C).

Boards & Committees of the EEX AG as the operator of the Exchange:

Executive Board: If conflicts of interest occur on the Executive Board level, section 1.4 of its Rules of 

Procedure (see Exhibit A-2) requests the respective board member to disclose this conflict of interest 

towards the Supervisory Board without delay and to inform the other members of the Executive 

Board. Additionally, the Legal & Compliance Department will be consulted by the Boards & 

Committees Department if potential conflict of interest issues are on the agenda of the Management 

Board of the Exchange.

Supervisory Board: For the Supervisory Board, the Rules of Procedure (see Exhibit A-2) stipulate in 

§ 7 par. 3 that the members of the Supervisory Board must avoid conflict of interest during the 

course of their work and reads as follows:

“To be able to independently advice and monitor the management board, supervisory board

members shall not act as board members or advisors of main competitors. Each member of 

the supervisory board shall disclose to the supervisory board any conflicts of interests, in

particular such conflicts that might arise from acting as an advisor or board member of

customers, suppliers, borrowers or other business partners. If a material conflict of interest

other than a merely temporary conflict exists in the person of a member of the supervisory

board, such member shall resign from his office in accordance with the provisions of the

articles of association.”

Exhibit C-4: A description of the rules with respect to the disclosure of material non-public 

information obtained as a result of a member’s or other participant’s performance on the 

governing board or significant committee.

Section 10 of the German Exchange Act, labeled “Obligation to Confidentiality,” details the provisions 

regarding the protection, security, and secrecy afforded to material non-public information. 

Addressees of the confidentiality obligation are – besides the staff of the Exchange Supervisory 

Authority – the members of the Exchange bodies (Management Board of the Exchange, Exchange 

Council, Sanctions Committee and the Market Surveillance Department) and any employee of the 

European Energy Exchange including the Management Board. Section 10 of the Exchange Act 

prohibits the collection and use of facts that have become known to these people during their 

activity, the secrecy of which is in the interest of the Exchange Participants or of a third party, 

particularly business and trade secrets as well as personal data. This also applies if these persons are 
EXHIBIT C – BOARD AND/OR COMMITTEE MEMBERSHIP

7

no longer employed by the operator of the Exchange or if their activity has ceased. In case of a 

breach of the confidentiality obligation set out in Section 10 of the Exchange Act, the respective 

person is liable for damages towards the person who suffered harm as a result. Additionally, the 

breach can have consequences under employment law for staff of the Exchange. In case of 

intentional breach of the confidentiality obligation, criminal proceedings are also possible.

By a similar token, members of the Supervisory Board of EEX are bound to uphold obligations of 

confidentiality pursuant to Section 7 par. 1 of its Rules of Procedure, which reads as follows:

“The members of the supervisory board shall have the obligation to observe secrecy in respect 

of any confidential information and data of the Company, namely business and trade secrets, 

of which they have learned through their office as members of EEX’s supervisory board, and 

such obligation shall continue after resignation from office as a supervisory board member. 

When resigning from the supervisory board, the resigning member shall destroy all 

confidential documents or return them to the chairman of the supervisory board, or in the 

chairman’s absence to the applicable deputy.”

Additionally, the German Stock Corporation Act stipulates in Section 116 for members of the 

Supervisory Board and in Section 93 for members of the Executive Board that these are bound to 

confidentiality about anything which could harm the company’s interest. Any member who violates 

these rules is personally liable, according to Section 93 par. 2 of the German Stock Corporation Act. 

Section 93 is directly applicable for members of the Management Board and, in connection with 

Section 116, for the members of the Supervisory Board. 
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

Exhibit E-1: A description of the terms and conditions of futures, option or swap contracts intended 

to be made available for direct access. With respect to each contract, indicate whether the 

contract is regulated or otherwise treated as a futures, option or swap contract in the regulatory 

regime(s) of the foreign board of trade’s home country.

A legally binding description of the terms and conditions of all futures and option contracts (swap 

contracts are not tradable at EEX) is contained in the EEX Contract Specifications (found in Exhibit A4), which may be accessed by all Exchange Participants via the EEX website. 

EEX intends to make all contracts listed at the Exchange available for direct access in the United 

States. 

All futures and option contracts that can be traded on the regulated market of EEX are regulated 

contracts. The reason for that is that rather than any specific contract EEX as an Exchange under the 

German Exchange Act is regulated. Consequently that means that any contract offered at EEX is 

regulated and supervised by the Exchange Supervisory Authority. All contracts must be admitted for 

trading by the Management Board of the Exchange and approved by the Exchange Council before 

they are tradable. 
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

Exhibit E-2: Demonstrate that the contracts are not prohibited from being traded by United States 

persons, i.e., the contracts are not prohibited security futures or single stock contracts or narrowbased index contracts. For non-narrow based stock index futures contracts, demonstrate that the 

contracts have received Commission certification pursuant to the procedures set forth in § 30.13 

and Appendix D to part 30 of this chapter.

EEX is a commodities exchange where a broad range of energy, energy related products and other 

commodities such as power, coal, environmental products (emission rights and guarantees of origin) 

and agricultural products (potatoes, dairy products, livestock and meat) can be traded. Emission 

rights are traded both on a short-term basis on the Spot Market and on a long-term basis on the 

Derivatives Market. Power, coal, guarantees of origin and agricultural products are traded as futures 

with financial settlement (for details of all contracts please see Exhibit E-1). Fertilisers, freight (dry 

bulk freight, container), fuel oil and metals (iron ore, steel) are only available for Trade Registration. 

The contracts that are to be offered through direct access to US persons do not include:

 Prohibited security futures

 Single stock contracts

 Narrow / non-Narrow based index contracts 

We would also like to refer to the No-Action Relief Letter dated 2004, where a list of contracts 

tradable at EEX was submitted. Since then, we have reported any introduction of new contracts to 

CFTC accordingly. Since all of these contracts were previously accepted by the CFTC, this would imply 

that they are not prohibited from being traded by US persons.
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

Exhibit E-3: Demonstrate that the contracts are required to be cleared.

EEX requires that all concluded contracts have to be cleared, as demonstrated below.

According to Section 19 par. 4 no. 2 of the German Exchange Act, companies shall be admitted as

participants to the Exchange, if – among other requirements that need to be fulfilled– the orderly 

settlement of exchange transactions is assured. In Section 18 of its Exchange Rules, EEX has clarified 

that the orderly settlement of exchange transactions is deemed to be assured, when the Exchange 

Participant takes part in clearing by the European Commodity Clearing AG (ECC AG), in accordance 

with the respective valid Clearing Conditions of the ECC AG. The participation in the Clearing by the 

ECC AG is deemed to be secured when the ECC AG confirms to the EEX in a binding form that the 

Exchange Participant:

- has concluded a Clearing Agreement with ECC AG, or provided that the Exchange Participant 

intends to become a Non-Clearing Member for transactions, the participant has concluded a 

respective trilateral agreement with a Clearing Member and the ECC AG (NCM Agreement); 

and

- is recognized by the ECC AG as a Trading Participant for each product to be traded. The 

admission as a Trading Participant requires, in particular, the necessary declarations and/or 

verifications for the completion of trades in a product, such as balancing agreements with 

the respective Transmission System Operators.

Clearing structure

The clearing structure of ECC AG is described in detail in Supplement-1.
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

Exhibit E-4: Identify any contracts that are linked to a contract listed for trading on a United Statesregistered entity, as defined in section 1a(40) of the Commodity Exchange Act. A linked contract is 

a contract that settles against any price (including the daily or final settlement price) of one or 

more contracts listed for trading on such a registered entity.

Linked contracts, defined by the Federal Register in Vol. 76, No. 2471as contracts that settle against 

any price (including the daily or final settlement price) of one or more contracts listed for trading on 

a United States-registered entity2, are not made available for trading at the European Energy 

Exchange. 

 

1

The definition of linked contracts provided by the Federal Register Vol. 76, No. 247 is based on Section 4(i)(B) 

of the Commodity Exchange Act (7 U.S.C. 6A(a)(4)(A)). 

2

According to Section 1(a)(40) of the Commodity Exchange Act, “registered entity” is hereby defined as: (A) a 

board of trade designated as a contract market under section 7 of this title; (B) a derivatives clearing 

organization registered under section 7a–1 of this title; (C) a board of trade designated as a contract market 

under section 7b–1 of this title; (D) a swap execution facility registered under section 7b–3 of this title; (E) a 

swap data repository registered under section 24a of this title; and (F) with respect to a contract that the 

Commission determines is a significant price discovery contract, any electronic trading facility on which the 

contract is executed or traded.
EXHIBIT E TERMS AND CONDITIONS OF CONTRACTS

Exhibit E-5: Identify any contracts that have any other relationship with a contract listed for trading 

on a registered entity, i.e., both the foreign board of trade’s and the registered entity’s contract 

settle to the price of the same third party-constructed index.

In addition to not offering linked contracts, the European Energy Exchange does not have any

contracts that possess any other relationship with a contract listed for trading on a registered entity,1

i.e. including but not limited to the scenario in which EEX and the registered entity settle to the price 

of the same third party-constructed index. 

 

1

As in Exhibit E-4, the definition of a „registered entity“ is consistent with that provided in Section 1(a)(40) of 

the Commodity Exchange Act.
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

As Exhibit E-6, demonstrate that the contracts are not readily susceptible to manipulation. In 

addition, for each contract to be listed, describe each investigation, action, proceeding or case 

involving manipulation and involving such contract in the three years preceding the application 

date, whether initiated by the foreign board of trade, a regulatory or self-regulatory authority or 

agency or other government or prosecutorial agency. For each such action, proceeding or case, 

describe the alleged manipulative activity and the current status or resolution thereof.

Due to the strict supervision by the Market Surveillance Department, the Exchange Supervisory 

Authority, the Saxon State Ministry for Economic Affairs and Labour and Transport (SMWA), and the 

Federal Network Agency in accordance with the German Exchange Act, the German Securities 

Trading Act, the Regulation (EU) No 596/2014 on market abuse (Market Abuse Regulation) and the 

Regulation (EU) No. 1227/2011 (REMIT) and due to the additional supervision of all futures trading in 

Germany by the Federal Financial Supervisory Authority (BaFin) the contracts tradable at EEX are not 

readily susceptible to manipulation. In detail:

1. General organization and structure of the supervision 

a) The Market Surveillance Department

The Market Surveillance Department is responsible for surveying all markets which are operated by 

EEX. It performs this task on the basis of the German Exchange Act, the Securities Trading Act, the 

Market Abuse Regulation and the rules and regulations of the Exchange (i.e. the Exchange Rules, 

Trading Conditions, Contract Specifications, Admission Rules and Code of Conduct).Its key role is to 

detect and investigate any kind of misconduct on EEX’s markets, including, but not limited to, insider 

dealing, market manipulation and attempted insider dealing and market manipulation in the 

auctions. 

Pursuant to the Exchange Act the Market Surveillance Department is only subject to instructions by 

the Exchange Supervisory Authority; it is independent from instructions of the Exchange or the 

company operating the Exchange. The protection of the personal and material independence of the 

Market Surveillance Department ensures that the objectiveness and neutrality of Market Surveillance 

Department are not impaired by the interests of other bodies of the Exchange and by EEX AG. 

In order to monitor the activities on the Exchange, the Market Surveillance Department 

systematically and thoroughly records and evaluates data regarding exchange trading and the 

settlement of transactions and also conducts any necessary investigations (section 7 par. 1 sentence 

2 German Exchange Act).

As an authority within the meaning of German Administrative Law the Market Surveillance 

Department holds official powers and is equipped with an extensive set of rights of information, 

inspection and review by virtue of the applicable law (section 7 par. 3 Exchange Act). Its competences 

are essentially equal to the rights of the Exchange Supervisory Authority itself.

The surveillance of the provisions of the Securities Trading Act, the MAR, the Exchange Act and the 

Code of Conduct is done fully automatically via an electronic data processing system which records 

the trading data in a special database. These data are then analyzed by Market Surveillance 

Department and the required investigations are also carried out by Market Surveillance Department 

(Section 7 par. 1 sentence 2 Exchange Act).

In the event of a suspected violation of the statutory rules or exchange rules, or in the event of 

suspected other grievances which might impair the proper execution of trading on the exchange or 
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

the settlement of exchange transactions, the Market Surveillance Department must immediately 

notify the competent authorities – i.e. the Management Board of the Exchange, the Exchange 

Supervisory Authority (SMWA) and/or the Federal Financial Supervisory Authority (if the suspected 

violation of the rules concerns the Securities Trading Act). It may also refer cases to the competent 

public prosecution departments and fiscal authorities. The competent authorities can then take 

remedial actions. In addition to these remedial measures further extrajudicial sanctions proceedings 

could be imposed by the Management Board of the Exchange or the Exchange Supervisory Authority 

(Article 29 Paragraph 1 Saxon Ordinance on Sanctions Committees). The Sanctions Committee of the 

Exchange then executes those proceedings (Article 13 Paragraph 2 Exchange Rules in conjunction 

with the Saxon Ordinance on Sanctions Committees). 

b) The Sanctions Committee

The Sanctions Committee has the task of punishing violations of statutory and exchange rules, in 

particular the provisions of the Code of Conduct, by Exchange Participants. EEX Market Surveillance 

can also be included in sanctions proceedings as a party to the proceedings and heard by the 

Sanctions Committee. Moreover, it can also submit comments on the matter regarding the factual 

and legal situation. Moreover, any person may raise objections or concerns towards the competent 

authorities, e.g. SMWA or BaFin. Should the request be deemed as justified, the authorities are 

legally required to investigate based on the principle of ex officio investigation.

c) The Exchange Supervisory Authority

The Exchange Supervisory Authority, the Saxon State Ministry for Economic Affairs, Labour and 

Transport (SMWA), is in charge of the legal supervision of the Exchange and its bodies as well as of 

the market supervision of the Exchange Participants according to the Exchange Act: EEX is a licensed 

exchange under the Exchange Act and a regulated market within the context of MiFID. The Exchange 

as such is an institution under public law (public law institution with limited legal capacity, 

“teilrechtsfähige Anstalt des öffentlichen Rechts”) which is subject to the Exchange Act.

The tasks of the Exchange Supervisory Authority include the following:

 Supervision of the Exchange, in particular through the Exchange Council, the Management 

Board of the Exchange, the Sanctions Committee and the EEX Market Surveillance 

department (bodies of the Exchange) as well as EEX AG

 Supervision of the companies licensed to trade on the exchange in co-operation with the EEX 

Market Surveillance department of the exchange; 

 Ensuring compliance with the provisions and instructions under exchange law, the proper 

execution of trading on the exchange as well as proper settlement of the exchange 

transactions

 Investigation of any violations of provisions and orders under exchange law

 Participation in legislation procedures and in the field of exchange policy.

Contact details:

Saxon State Ministry of Economic Affairs, Labour and Transport 

Exchange Supervisory Authority

Postal address:

Referat 44-Marktordnung

Wilhelm-Buck-Straße 2

01097 Dresden

Germany

E-mail: boersenaufsicht@smwa.sachsen.de

Additional information is available on the website of the SMWA: 

http://registers.esma.europa.eu/publication/searchRegister?core=esma_registers_mifid_rma
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

d) The Federal Financial Supervisory Authority

Supervision according to the provisions of the German Securities Trading Act and the Market Abuse 

Regulation is exercised by the Federal Financial Supervisory Authority (BaFin). 

Contact details:

Federal Financial Supervisory Authority

Securities Supervision

Postal address:

PO box 50 01 54

60391 Frankfurt

E-mail: poststelle-ffm@bafin.de

e) The Federal Network Agency

Supervision according to the Regulation No. 1227/2011 (REMIT) is exercised by the Federal Network 

Agency (Bundesnetzagentur - BNetzA).

Contact details: 

Bundesnetzagentur 

Markttransparenzstelle für den Großhandel mit Strom und Gas

Tulpenfeld 4

53113 Bonn 

E-Mail: remit@bnetza.de

f) Agency for the Cooperation of Energy Regulators (ACER)

Market participants or persons listed in Article 4 point (b) to (f) REMIT are obliged to provide the 

Agency for the Cooperation of Energy Regulators (ACER) with a record of wholesale energy market 

transactions, including orders to trade. 

Contact details:

ACER - Agency for the Cooperation of Energy Regulators 

Trg republike 3, 

1000 Ljubljana,

Slovenia

2. The German Securities Trading Act and the Market Abuse Regulation

The German Securities Trading Act (Wertpapierhandelsgesetz) and the Market Abuse Regulation

(MAR) provide for extensive provisions on insider trading and market manipulation and establish 

broad reporting obligations for the trading of financial instruments in order to avoid manipulation of 

contracts traded on and off Exchange. 

a) Market Abuse Regulation

Section 14 of the Market Abuse Regulation (MAR) strictly prohibits insider dealing when (i) trading in 

financial instruments (as defined in Article 3 par. 1 (1) MAR, Article 4 par. 1 No. 15, Annex I Section C 

MiFID II, thus including derivatives contracts and – as soon as MiFID II enters into force – emission 

allowances) or (ii) auctioning emission allowances or other auctioned products based thereon 

(including when auctioned products are no financial instruments) on an auction platform authorized

as a regulated market pursuant to regulation (EU) No 1031/2010 (primary auction). 

Article 15 MAR prohibits market manipulation. 
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

Article 17 par. 1 MAR obliges issuers of financial instruments (as defined in Article 3 par. 1 (1) MAR, 

Article 4 par. 1 No. 15, Annex I Section C MiFID II), to inform the public as soon as possible of inside 

information, which directly concerns the respective issuer (disclosure requirement). 

Article 17 par. 2 MAR obliges emission allowance market participants – i.e. persons who enter into 

transactions, including the placing of orders to trade, in emission allowances, auctioned products 

based thereon or derivatives thereof (Article 3 par. 1 No. 20 MAR) – to disclose inside information 

concerning emission allowances which they hold in respect of their business, provided the emissions 

from the installations or aviation activities the emission allowance participant owns, controls or is 

responsible for, exceed a minimum threshold (disclosure requirement). 

b) Securities Trading Act

The chapters of the Securities Trading Act which are relevant for EEX are briefly described below:

Chapter 1 stipulates the scope and gives definitions of the terms used within the Securities Trading 

Act. According to this, the Securities Trading Act applies to trading in financial instruments on and 

outside of exchanges and the conclusion of financial futures or forward transactions. This implies 

that all future and option contracts tradable at EEX or available for trade registration are covered by 

the provisions of the Securities Trading Act. 

Chapter 2 provides for tasks and powers of the Federal Financial Supervisory Authority (BaFin). 

Moreover, it contains reporting requirements for all transactions in financial instruments (Section 9) 

and the obligation to report suspicious transactions to BaFin (Section 10). The BaFin is competent 

supervisory authority under the Financial Securities Trading Act and must counteract undesirable 

developments which impair the orderly functioning of trading in financial instruments or which might 

cause significant damage to the financial market (Section 4 par. 1 Securities Trading Act). The BaFin 

may issue orders that are appropriate and necessary to resolve or prevent those undesirable 

developments. The BaFin supervises compliance with the prohibitions and requirements of the 

Securities Trading Act and may issue orders that are appropriate and necessary to enforce them. To 

supervise compliance with the provisions of the Securities Trading Act and the MAR, the BaFin may 

also request anyone to provide information, present documents and surrender copies as well as 

summon and question persons. According to Section 7 of the Securities Trading Act BaFin is also the 

authority which has been given the power to cooperate with competent bodies outside of Germany. 

Chapter 3 contains additional provisions to the prohibition of market manipulation laid down in the 

MAR (see above). In particular, section 12 expands the scope of the prohibition of market 

manipulation (Section 15 with Section 12 par. 1 to 4 MAR, see above) to commodities as defined in 

Section 2 par. 2c of the Securities Trading Act (thus to any assets of a fungible nature that are 

capable of being delivered, including metals and their ores and alloys, agricultural products and 

energy), emission rights and foreign currency. Section 15 contains additional provisions for the 

report, publishing and transmission of insider information. Section 16a obliges the BaFin to establish 

appropriate internal control mechanisms to counteract infringement of the prohibition of insider 

trading in Article 14 MAR by employees of BaFin. 

Chapter 5b prohibits certain transactions which are particularly susceptible to manipulation such as 

e.g. naked short selling transactions in shares and certain debt instruments (Section 30h Securities 

Trading Act).

Chapter 12 contains provisions on criminal and administrative fines for the infringement of provisions 

of the Securities Trading Act and of orders of BaFin. For example for insider trading (violating Article 

14 of the MAR) or market manipulation (violating Section 12 Securities Trading Act with Article 15 

MAR) a prison term of up to five years or a monetary penalty may be imposed (Section 28 par. 1 and 

par. 3 Securities Trading Act). 

The Securities Trading Act applies to all contracts traded at the derivatives market of EEX. It does, 
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS

however, not apply to spot market transactions. In order to fill that gap EEX has established a socalled Code of Conduct which stipulates the same principles as the Securities Trading Act in order to 

avoid market manipulation and insider trading in products which are not futures or options, i.e. 

financial instruments in the meaning of the Securities Trading Act. 

The Code of Conduct has been in force since June 2008. It provides for general provisions for the 

conduct of Exchange Participants in relation to the public and its customers and in particular provides 

for provisions regarding the ban of any kind of manipulation of exchange trading and exchange prices 

and of any kind of unlawful use of the exchange and its infrastructure. Its scope of application has 

been limited down since the respective provisions of the Market Abuse Regulation came into force. A 

detailed description of the provisions of the Code of Conduct can be found in Exhibit G(2).

3. REMIT

Article 3 REMIT prohibits insider trading in relation to wholesale energy products.

Article 4 par. 1 REMIT obliges market participants to disclose (in an effective and timely manner) 

inside information which they possess in respect of business or facilities which the market participant 

concerned, or its parent undertaking or related undertaking, owns or controls or for whose 

operational matters that market participant or undertaking is responsible, either in whole or in part. 

Such disclosure shall include information relevant to the capacity and use of facilities for production, 

storage, consumption or transmission of electricity or natural gas or related to the capacity and use 

of LNG facilities, including planned or unplanned unavailability of these facilities. Though the 

aforementioned list of inside information to be published under Section 4 par. 1 REMIT may not be 

conclusive, the information at least has to relate to a factual, physically locatable event. Inside 

information is defined in Section 2 no. 1 REMIT as information of a precise nature which has not been 

made public, which relates, directly or indirectly, to one or more wholesale energy products and 

which, if it were made public, would be likely to significantly affect the prices of those wholesale 

energy products. 

4. Actions/proceedings within the last three years

Within the last three years the following investigations against Exchange Participants have been 

initiated regarding any contract listed at EEX. 

Additionally, routine investigations of all EEX contracts are performed on a daily basis as well as on a 

long term basis by the EEX Market Surveillance Department on behalf of the Exchange Supervisory 

Authority. The results of these investigations have been reported to the concerned authorities.
EXHIBIT E TERMS AND CONDICITIONS OF CONTRACTS
EXHIBIT F REGULATORY REGIME

1

Exhibit F-1: A description of the regulatory regime’s/authority’s structure, resources, staff, and

scope of authority; the regulatory regime’s/authority’s authorizing statutes, including the source of

its authority to supervise the foreign board of trade; the rules and policy statements issued by the

regulator with respect to the authorization and continuing oversight of markets, electronic trading

systems, and clearing organizations; and the financial protections afforded customer funds.

Regulatory authority’s structure, resources, staff, and scope of authority:

In Germany, the Exchange Supervisory Authorities are organizationally attached to the state

ministries of commerce or finance in the respective federal state. In the Free State of Saxony (where

EEX is located), the Exchange supervision is executed by the State Ministry for Economic Affairs,

Labor and Transport (SMWA) located in Dresden, the capital city of the Free State of Saxony. The

division within the SMWA responsible for supervision of the Exchange is known as the Börsenaufsicht

(Exchange Supervisory Authority). The scope of authority is defined in the German Exchange Act and

comprises the full bundle of supervision rights. The Exchange Supervisory Authority consists of five

full-time staff members who are responsible for the supervision of EEX as the only exchange in the

Free State of Saxony. The cooperation with foreign supervisory authorities is carried out solely by the

Federal Financial Supervisory Authority (BaFin).

Regulatory authority’s authorizing statutes:

Each exchange under German law is supervised by its respective exchange supervisory authority

according to the German Exchange Act. Consequently, the duties and competences of the Exchange

Supervisory Authority are fully governed by the German Exchange Act. Additionally, the Government

of the Free State of Saxony has transferred powers to enact statutory instruments to the Exchange

Supervisory Authority according to the Ordinance on the Transfer of Competences under Exchange

Law (see Exhibit A-5). Rules and policy statements with respect to the authorization and continuing oversight of markets,

electronic trading systems, and clearing organizations; and the financial protections afforded

customer funds:

The Exchange Supervisory Authority ensures that the exchange bodies exercise their competences

within the boundaries of the provisions of the Exchange Act, implement their self-issued statutes,

and ensure that the Exchange Participants abide by exchange law regulation. Furthermore, the

Exchange Supervisory Authority supervises the lawfulness of the processes of the exchange business.

Under Section 4 of the Exchange Act, the Exchange Supervisory Authority of the respective federal

state is responsible for approving the establishment of supervision of an exchange. According to

Section 3 of the Exchange Act, the Exchange Supervisory Authority monitors EEX’s compliance with

the Exchange Act, as well as with other relevant laws and regulations governing the proper execution

of trading on the Exchange and the settlement of Exchange transactions.
EXHIBIT F REGULATORY REGIME

2

Since EEX is the only exchange supervised by the SMWA, rules and policy statements are not issued;

instead, administrative decisions are directly addressed to EEX. The administrative decisions with

regard to the extension of the authorization of EEX to operate new markets or products are found in

this application under Exhibit A-7 in the form of the various licenses and permits that have been

granted to EEX. With regard to the supervision of the clearing organization and the financial protection afforded

customer funds we refer to the detailed descriptions of the supervisory regime of the European

Commodity Clearing AG as the clearing organization of EEX. The financial protection afforded

customer funds are described in Supplement-1 since EEX as the Exchange does not receive customer

funds itself.

Tasks of the Supervisory Authority

The Exchange Supervisory Authority ensures that the company operating the Exchange meets its

obligations to operate the Exchange and to appropriately contribute to its economic development. In

certain circumstances, especially if the continuance of the Exchange appears to be at risk, the

Exchange Supervisory Authority may interdict the acquisition of a significant shareholding in the

corporation operating the exchange (10% of the share voting rights) or interdict the exercise of these

share voting rights.

The central tasks of the Exchange Supervisory Authority include the following:  Approval, extension, and withdrawal of exchange permits,  Supervision of the Exchange, in particular through supervision of the Exchange Council, the

Management Board of the Exchange, the Sanctions Committee and the Market Surveillance

Department (bodies of the Exchange) as well as EEX AG as the company operating the

exchange. The bodies of the Exchange are required to support the Exchange Supervisory

Authority in carrying out its duties.  Supervision of the companies admitted to trade on the Exchange in co-operation with the

Market Surveillance Department of the Exchange and the investigation of violations of

provisions and orders under exchange law,  Supervision of compliance with the provisions and guidelines under exchange law, the proper

execution of trading on the exchange as well as proper settlement of the exchange

transactions,  Participation in legislation procedures and in the field of exchange policy. Competences and Scope of Authority

The Exchange Supervisory Authority approves the Exchange’s statutes and may issue ordinances for

the Exchange or the Exchange Participants in order to ensure correct exchange trading. The Exchange

Supervisory Authority possesses the power to issue orders to EEX or the Exchange Participants that

are designed to prevent the violation of regulations or orders, or to eliminate or prevent abusive

practices that could impair the orderly conduct of exchange trading or the settlement of exchange

transactions. The members of the Management Board of the Exchange, the head of the Market

Surveillance Department, and the chairman of the Sanctions Committee may only be appointed in

consultation with the Exchange Supervisory Authority.
EXHIBIT F REGULATORY REGIME

3

At any point in time, the Exchange Supervisory Authority may demand information or documents

from the Exchange and its participants and it may enter the business premises of the Exchange

Participants during normal business hours (Section 3 par. 4 of the German Exchange Act). Furthermore, the Exchange Supervisory Authority may demand information from the Exchange

Participants about the persons entitled or obligated due to the business transactions (including the

customers of the Exchange Participants).

If Exchange Participants infringe exchange law regulations, the Exchange Supervisory Authority or the

Management Board of the Exchange refers the case for disciplinary proceedings to the Sanctions

Committee which then establishes the facts and circumstances of the respective case ex officio.

Beyond that, the Exchange Supervisory Authority may in certain cases impose fines itself.

Pursuant to Section 7 German Exchange Act, EEX is under the obligation to operate a Market

Surveillance Department for continuous and comprehensive monitoring of trading on the Exchange

and the settlement of exchange transactions in accordance with the requirements of the Exchange

Act and the derived rules and regulations of the Exchange. The Market Surveillance Department

systematically and thoroughly records and evaluates data regarding exchange trading and the

settlement of transactions and also conducts any necessary investigations. The Market Surveillance

Department is independent from both the Exchange and the operating company. Only the Exchange

Supervisory Authority may issue instructions to the Market Surveillance Department and take over

such investigations. The Management Board of the Exchange may ask the Market Surveillance

Department to conduct investigations as well, but all results will be reported to the Exchange

Supervisory Authority. The head of the Market Surveillance Department reports regularly to the

Exchange Supervisory Authority and several other authorities in Germany and abroad, inter alia the

Commodity Futures Trading Commission (CFTC).

Cooperation

The Exchange Supervisory Authority cooperates closely with the Federal Financial Supervisory

Authority (BaFin) to ensure correct exchange trading. The Market Surveillance Department of the

Exchange falls within this line of reporting and therefore closely cooperates with the Exchange

Supervisory Authority.
EXHIBIT F REGULATORY REGIME

Exhibit F-2: A description of and, where applicable, copies of the laws, rules, regulations and policies 

applicable to:

(i) The authorization, licensure or registration of the foreign board of trade.

Please refer to Exhibit A-5 for information regarding EEX’s registration and licensure. 

(ii) The regulatory regime’s/authority’s program for the ongoing supervision and oversight of the 

foreign board of trade and the enforcement of its trading rules.

The regulatory regime’s/authority’s program for the ongoing supervision and oversight of EEX and 

the enforcement of its trading rules is stipulated in the German Exchange Act and lies within the 

responsibility of the Exchange Supervisory Authority of the respective Federal State. The Exchange 

Supervisory Authority for the European Energy Exchange is housed within the Saxon State Ministry 

for Economic Affairs, Labor and Transport (Sächsisches Staatsministerium für Wirtschaft, Arbeit und 

Verkehr – SMWA). The main focus of the Exchange Supervisory Authority is on the pricing process 

and the examination of misconduct and violations of exchange regulations in collaboration with the 

Market Surveillance Department within the exchange. 

The Exchange Supervisory Authority has a structured program in place for the execution of these 

powers which involves consistent communication, consultation, and information sharing. In order to 

enable the Exchange Supervisory Authority to execute their powers the Market Surveillance 

Department of EEX provides reports to the Exchange Supervisory Authority on a bi-weekly basis with 

regard to the trading activities of all its members. Additionally, the Exchange Supervisory Authority 

and the Market Surveillance Department have physical meetings on a monthly basis in order to 

discuss current issues. Once every six months the Market Surveillance Department issues detailed

analyses regarding each asset traded at EEX. Additionally, investigations might be triggered by 

susceptive behaviour of an Exchange Participant.

Apart from the Sanctions Committee and the Management Board of the Exchange, the Exchange 

Supervisory Authority may impose sanctions on market participants.

As part of the ongoing supervision EEX must gain approval of the Exchange Supervisory Authority for 

each change to the Exchange Rules. Changes to the other rules and regulations of EEX are 

communicated to the Exchange Supervisory Authority before they are given to the Exchange Council 

for decision. Additionally, EEX has to request permission of the Exchange Supervisory Authority for all 

major changes to the operation of the Exchange. 

On an international level exchange regulatory functions are being performed by the Federal Financial 

Supervisory Authority (BaFin).

(iii) The financial resource requirements applicable to the authorization, licensure or registration of 

the foreign board of trade and the continued operation thereof.

Section 5 par. 5 of the German Exchange Act relating to the financial resource requirements of 

exchanges reads as follows:

“The exchange operator must have sufficient financial funds for the adequate execution of the 

exchange operations, whereby the nature, scope, and risk structure of the transactions effected on 

the exchange must be taken into account.”
EXHIBIT F REGULATORY REGIME

This provision is an implementation of the Markets in Financial Instruments Directive (2004/39/EG) 

of the European Union but was already contained in the previous provisions of the German Exchange 

Act with a similar scope as well. The Exchange Supervisory Authority constantly monitors if an

exchange complies with this requirement and adapts its financial resources in case of an extension of 

the nature, scope or risk structure of the business.

When applying for the permission to operate an exchange Section 4 par. 2 figure 1 of the German 

Exchange Act requires the applicant to submit suitable written evidence of the funds required for 

operating an exchange according to Section 5 par. 5 of the German Exchange Act. This requirement is 

detailed in Art. 1 par. 1 figure 1 of the Saxon Exchange Act Execution Ordinance which requires the 

applicant to submit a balance sheet and a profit and loss account regarding the full business year 

preceding the application in order to furnish evidence of the availability of the funds required to 

operate an exchange according to Section 4 par. 2 sentence 2 figure 1 of the German Exchange Act.

(iv) The extent to which the IOSCO Principles are used or applied by the regulatory 

regime/authority in its supervision and oversight of the foreign board of trade or are incorporated 

into its rules and regulations and the extent to which the regulatory regime/authority reviews the 

applicable trading systems for compliance therewith.

The IOSCO Principles are not directly applied or used by the Exchange Supervisory Authority but are 

covered by the provisions of the German Exchange Act. Additionally, the IOSCO Principles are 

reflected within the EU Market in the Financial Instruments Directive 2004/39 (MiFID), which has 

been implemented into German law with an impact on the German Exchange Act and the German 

Securities Trading Act. The compliance of the supervisory regime of German exchanges has been 

approved by the detailed assessment of the observance of the IOSCO objectives and principles of 

securities regulations, undertaken in 2011 by the International Monetary Fund (see Attachment to 

this Exhibit F).

(v) The extent to which the regulatory regime/authority reviews and/or approves the trading rules 

of the foreign board of trade prior to their implementation.

The main trading rules of EEX are contained in the Exchange Rules, the Trading Conditions and the 

Contract Specifications. According to Section 16 German Exchange Act each exchange is obliged to 

establish exchange rules in order to ensure that the exchange is able to fulfill the tasks incumbent 

upon it and meets the interest of the public and of the trade in doing so. It must contain provisions 

about 

1. the branch of business of the exchange; 

2. the organization of the exchange; 

3. the types of trading; 

4. the publication of the prices and rates as well as their underlying trading volumes; 

5. a fee schedule for the activity of the lead brokers.

As stipulated in Section 16 par. 3 of the German Exchange Act the Exchange Rules require approval of 

the Exchange Supervisory Authority. It may demand that specific provisions are included in the 

Exchange Rules, if and to the extent that they are necessary to fulfill the legal tasks incumbent upon 

the exchange or the Exchange Supervisory Authority.
EXHIBIT F REGULATORY REGIME

This requirement also extends to changes of the Exchange Rules which need to be approved by the 

Exchange Supervisory Authority prior to their implementation. 

All the trading rules of the Exchange are established by the Exchange Council as stipulated in Section 

12 par. 2 no. 1 Exchange Act. According to Section 3 par. 1 Exchange Act the supervision of the 

Exchange extends to the Exchange Council and all other trading rules are subject to an indirect 

supervision by the Exchange Supervisory Authority. EEX therefore informs the Exchange Supervisory 

Authority of any upcoming change in the trading rules prior to the decision of the Exchange Council. 

(vi) The extent to which the regulatory regime/authority reviews and/or approves futures, option 

or swap contracts prior to their being listed for trading. 

Before the listing of any futures, option or swap contract such contract must be admitted for trading 

by the Management of the Exchange pursuant to Section 23 Exchange Act. Also, Trading Conditions 

of the Exchange must be amended accordingly by the Exchange Council. Additionally, the Contract 

Specifications of the respective futures contract must be established by the Management of the 

Exchange prior to the admission for trading. These have to be structured in a way that proper 

exchange trading and effective exchange transaction settlement are possible.

Therefore, the Management of the Exchange must examine the following before a futures contract is 

listed on the Exchange according to “Commission Regulation (EC) No. 1287/2006 implementing 

Directive 2004/39/EC of the European Parliament and of the Council as regards recordkeeping 

obligations for investment firms, transaction reporting, market transparency, admission of financial 

instruments to trading, and defined terms for the purposes of that Directive”

1

:

(a) if the terms of the contract establishing the financial instrument are clear and unambiguous, and 

enable a correlation between the price of the financial instrument and the price or other value 

measure of the underlying;

(b) if the price or other value measure of the underlying is reliable and publicly available;

(c) if sufficient information needed to value the future is publicly available;

(d) if the arrangements for determining the settlement price of the contract are such that the price 

properly reflects the price or other value measure of the underlying;

(e) where the settlement of the future requires or provides for the possibility of the delivery of an 

underlying security or asset rather than cash settlement, if there are adequate arrangements to 

enable market participants to obtain relevant information about that underlying as well as 

adequate settlement and delivery procedures for the underlying

The proper examination of these requirements by the Management Board of the Exchange will be 

reviewed by the Exchange Supervisory Authority within its supervision powers.

(vii) Regulatory authority’s approach to the detection and deterrence of abusive trading practices, 

market manipulation, and other unfair trading practices or disruptions of the market.

As described under (ii) one of the core tasks of the Exchange Supervisory Authority is on the pricing 

process and the examination of misconduct and violations of exchange rules and regulations in 

collaboration with the Market Surveillance Department of the Exchange. The Market Surveillance 

Department as the entity vested with the administrative powers of the Exchange Supervisory 

 

1

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:241:0001:0025:EN:PDF.
EXHIBIT F REGULATORY REGIME

Authority acts as an “extended arm” within the organization of the Exchange. In order to detect and 

deter abusive trading practices and market manipulation the Market Surveillance Department of EEX 

constantly monitors trading behavior on all EEX markets and provides regular reports (described 

under (ii)) to the Exchange Supervisory Authority. With regard to market manipulation and insider 

trading the Market Surveillance Department also reports to Bafin in case it detects any suspicious 

behavior of Exchange Participants. The administrative powers of the Exchange Supervisory Authority 

with regard to the detection and deterrence of abusive trading practices, market manipulation, and 

other unfair trading practices or disruptions of the market are described under Exhibit F-4.
EXHIBIT F REGULATORY REGIME

1

Exhibit F-3: A description of the laws, rules, regulations and policies that govern the authorization

and ongoing supervision and oversight of market intermediaries who may deal with members and

other participants located in the United States

German exchange law only covers direct membership. However, rules for supervising intermediaries

can be found in the German Banking Act, the German Securities Trading Act and the respective

national laws of the member’s country of origin. Hence, if one of EEX’s members acts as an

intermediary for clients located in the United States with regard to the trading of futures and

options, they will need a banking license under the German Banking Act and will be supervised by the

Federal Financial Supervisory Authority (Bafin), if they are located in Germany, or a banking license of

their respective country of origin. Due to the European Passport for financial institutions they may

operate under this license in any country within the European Union and be supervised by their

home countries’ authorities.

(i) Recordkeeping requirements.

The EEX Market Surveillance Department systematically and comprehensively collects data

concerning exchange trading and settlement according to section 7 par. 1 of the German Exchange

Act. For EEX – as an energy exchange – an even further reaching provision in Section 7 par. 1 of the

German Exchange Act stipulates that the collection of data is extended to data concerning the

settlement of transactions, which are not concluded via the exchange but which are carried out via a

settlement system of the exchange or an external settlement system, which is connected to the

exchange's systems for exchange trading or exchange transaction settlement, and the subject matter

of which is trading in energy or forward transactions in respect to energy. Such data which has been

collected by the Market Surveillance Department will be kept for an indefinite period of time.

Other business related documents must be kept for at least six years according to Section 257 of the

German Commercial Code. The same obligation must be kept by EEX’s German Exchange

Participants. In Europe two regulations regarding commodity derivatives apply whereby all trading

data must be reported to trade repositories according to the European Market Infrastructure

Regulation (EMIR)1 and to the European Energy Regulator (ACER) according to the Regulation for

Energy Market Integrity and Transparency (REMIT)2if these transactions are related to power or

gas. (ii) The protection of customer funds.

Protection of customer funds is an issue that is being dealt with by European Commodity Clearing AG

(ECC AG), the clearing organization of EEX, since EEX does not hold any customer funds. However,

the license of Clearing Members of ECC AG, which must be financial institutions, must cover the

acceptance of funds from others. Under German banking law the license to accept customer funds

will automatically lead to the membership in a guarantee scheme according to section 23a of the

German Banking Act.

1 Regulation 648/2012. 2 Regulation 1227/2011.
EXHIBIT F REGULATORY REGIME

2

All licensed investment service undertakings that do not at the same time have a license for deposit

business under the German Banking Act have to separate without undue delay client monies that

they receive in connection with an investment service or ancillary investment service from monies of

the undertaking or other client monies by depositing them on fiduciary accounts maintained by

financial institutions holding a respective license under the Banking Act.

Such licensed investment service undertakings are automatically members of the compensatory fund

of securities trading companies which covers claims of investors out of securities transactions. It

covers 90% of the outstanding claim up to a maximum amount of € 20.000. Since these provisions go

back to European Banking Regulation similar rules will apply in the other EU member states.

(iii) Procedures for dealing with the failure of a market intermediary in order to minimize damage

and loss to investors and to contain systemic risk.

Procedures for dealing with the failure of a market intermediary in order to minimize damage and

loss to investors and to contain systemic risk are also being handled by ECC as long as these are

members of ECC.
EXHIBIT F REGULATORY REGIME

Exhibit F-4: A description of the regulatory regime’s/authority’s inspection, investigation and

surveillance powers; and the program pursuant to which the regulatory regime/authority uses

those powers to inspect, investigate, and enforce rules applicable to the foreign board of trade.

The Exchange Supervisory Authority derives its powers from the German Exchange Act which

provides for the legal supervision of the Exchange and the bodies of the Exchange as well as the

supervision of the Exchange Participants. It performs such functions and powers as are attributed to

it pursuant to this act in the public interest only.

The body in charge of communicating all exchange information to the Exchange Supervisory

Authority is the Market Surveillance Department, which is located within the European Energy

Exchange, but conducts its functions and reporting independent from the Exchange and its operating

company, as further described in Exhibit G.

The Exchange Supervisory Authority has far-reaching inspection, investigation, and surveillance

powers (Section 3 of the German Exchange Act).

In particular, it may, at any given moment and in the absence of any specific reason, request

information from the Exchange and the exchange operator, from the companies admitted to

participate in exchange trading, and from the Exchange Traders. It may also carry out audits.

If there are indications that justify the assumption that exchange law provisions or orders are

violated or another form of misconduct exists that can negatively affect the proper trading on the

Exchange or the settlement of Exchange transactions, the Exchange Supervisory Authority may

demand information, the presentation of documents and provision of copies from anyone and may

summon and question persons to the extent necessary to fulfill its functions. In these cases, it may

particularly  demand that Exchange Participants disclose the identity of their principals and of the persons

entitled or obliged under the transactions made as well as all changes in Exchange

Participants’ holdings of financial instruments traded on the exchange;  demand from the principals and persons entitled or obliged under the transactions,

information on the transactions concluded including the statement of the identity of the

persons participating in these transactions;  demand information from banks operating collective security deposits and systems for

ensuring the fulfillment of exchange transactions about the changes of Exchange

Participants’ holdings of financial instruments traded on the exchange, and

 demand from the Exchange, the Exchange Participants, and companies affiliated with them

the presentation of already-existing records of telephone conversations and data

transmissions.

The employees of the Exchange Supervisory Authority may also perform on-site visits on the

premises and offices of the Exchange and of the Exchange Participants during usual business hours.

Entry outside business hours, or entry in private residences where officers are located, is permitted

even without the consent of the concerned party if deemed necessary to prevent an imminent threat

to public security and order.
EXHIBIT F REGULATORY REGIME

The Exchange Supervisory Authority may also issue orders to the Exchange and its participants that

serve to eliminate or prevent violations of exchange law and other market abuses. For this purpose, the Exchange Supervisory Authority may in particular

1. order the suspension or discontinuation of exchange trading with individual or several

financial instruments, rights or commodities,

2. prohibit the Exchange from using a central counterparty, a clearing agent, or an exchange

settlement system, if the proper conduct of trade on the Exchange or the settlement of

exchange transactions is affected thereby, or

3. prohibit the use of an external settlement system.

If the Exchange or one of its bodies repeatedly or permanently fails to comply with the orders of the

exchange supervision, the Exchange Supervisory Authority may appoint agents who ensure the

proper carrying on of trading on the Exchange. The agents commissioned to carry out the tasks of the

Exchange or its bodies operate at the expense of the exchange operator. As a last measure, the

Exchange Supervisory Authority has the right to withdraw the permission to operate an exchange.

The Exchange Supervisory Authority has a structured program in place for the execution of these

powers which involves consistent communication, consultation, and information sharing. In addition

to the monthly meetings with the Exchange Supervisory Authority that take place at EEX

headquarters, the Market Surveillance Department submits standard bi-weekly reports and will

submit additional reports or requests for further investigation should such action be necessary. The

Management of the Exchange and the Exchange Supervisory Authority also hold quarterly meetings

where recent developments are discussed. Furthermore, the European Energy Exchange is legally

responsible for notifying the Exchange Supervisory Authority in matters affecting the Exchange or

trading on the Exchange, including the intention to nominate new board members, the admittance of

a new Exchange Participant, or the intention to acquire a new license. The Exchange Supervisory

Authority does possess sanctioning powers as well as the ability to suspend an Exchange Participant;

however, it will generally refer a case requiring sanction or legal proceedings to the Sanctions

Committee or the Administrative Courts. As mentioned in Exhibit F-1, the Exchange Supervisory

Authority cooperates with the Federal Financial Supervisory Authority (Bafin) in the form of

information sharing and notification in cases of interruptions or suspensions of trade or permissions.



 © 2011 International Monetary Fund September 2011 

 IMF Country Report No. 11/274 

 August 18, 2001 January 29, 2001 January 29, 2001 

 January 29, 2001 January 29, 2001 

Germany: Financial Sector Assessment Program—Detailed Assessment of Observance 

of IOSCO Objectives and Principles of Securities Regulations 

 

This Report on the Detailed Assessment of Observance on IOSCO Objectives and Principles of 

Securities Regulations for Germany was prepared by a staff team of the International Monetary Fund 

as background documentation for the periodic consultation with the member country. It is based on 

the information available at the time it was completed in July, 2011. The views expressed in this 

document are those of the staff team and do not necessarily reflect the views of the government of 

Germany or the Executive Board of the IMF. 

The policy of publication of staff reports and other documents by the IMF allows for the deletion of 

market-sensitive information. 

 

Copies of this report are available to the public from 

International Monetary Fund  Publication Services 

700 19th Street, N.W.  Washington, D.C. 20431 

Telephone: (202) 623-7430  Telefax: (202) 623-7201 

E-mail: publications@imf.org Internet: http://www.imf.org 

International Monetary Fund 

Washington, D.C. 
FINANCIAL SECTOR ASSESSMENT PROGRAM UPDATE

GERMANY

 

IOSCO OBJECTIVES AND PRINCIPLES OF SECURITIES 

REGULATION

DETAILED ASSESSMENT OF 

OBSERVANCE

JULY 2011

INTERNATIONAL MONETARY FUND

MONETARY AND CAPITAL MARKETS DEPARTMENT
 Contents Page 

Glossary .....................................................................................................................................3

I. Summary, Key Findings, and Recommendations ..................................................................5

A. Introduction ...............................................................................................................6

B. Information and Methodology Used for Assessment ................................................6

C. Institutional Structure—Overview ............................................................................8

D. Market Structure and Activity ...................................................................................9

E. Exchange and Other Regulated Markets (MTFs) ....................................................10

F. Recent Developments ..............................................................................................10

G. Preconditions for Effective Securities Regulation ..................................................11

H. Main Findings .........................................................................................................11

I. Recommended Action Plan and Authorities’ Response ...........................................22

II. Detailed Assessment ...........................................................................................................23

Tables 

1. Summary Implementation of the IOSCO Principles—ROSCs ...........................................14

2. Recommended Action Plan to Improve Compliance with the IOSCO Objectives and 

Principles for Securities Regulation .................................................................................22

3. Detailed Assessment of Implementation of the IOSCO Principles .....................................23

Appendixes 

1. New IOSCO Principles ....................................................................................................89

 
 3 

GLOSSARY

AktG Stock Corporation Act (Aktiengesetz)

AOC Auditor Oversight Commission 

(Abschlussprüferaufsichtskommission—APAK) 

BaFin German Federal Financial Supervisory Authority 

(Bundesanstalt für Finanzdienstleistungsaufsicht) 

BörsG Exchange Act (Börsengesetz) 

BMF Federal Ministry of Finance (Bundesministerium der Finanzen)

BörsG Exchange Act (Börsengesetz) 

BörsO Exchange Rules (Börsenordnung) 

Bundesbank Deutsche Bundesbank 

CRA Credit Rating Agency 

DepotG Custody Act (Depotgesetz) 

DerivateV Ordinance on Derivatives (Verordnung über Risikomanagement und 

 Risikomessung beim Einsatz von Derivaten in Sondervermögen nach 

 dem Investmentgesetz—Derivateverordnung) 

DPR Financial Reporting Enforcement Panel (FREP) 

(Deutsche Prüfstelle für Rechnungslegung) 

DRSC German Accounting Standards Committee (GASC) 

(DeutschesRechnungslegungs Standards Committee) 

DSR German Accounting Standards Board (GASB) 

(Deutscher Standardisierungsrat) 

EAEG Deposit Guarantee and Investor Compensation Act 

 (Einlagensicherungs- und Anlegerentschadigungsgesetz) 

EdW Compensation Fund of Securities Trading Companies 

(Entschädigungseinrichtung der Wertpapierhandelsunternehmen) 

ESA Exchange Supervisory Authority (Börsenaufsichtsbehörde) 

ESMA European Securities Markets Authority 

FinDAG Finanzdienstleistungsaufsichtsgesetz 

FSAP Financial Stability Assessment Program 

GwG Anti Money Laundering Act (Geldwaschegesetz) 

HGB Commercial Code (Handelsgesetzbuch) 

IDW Institute of German Certified Public Accountants 

(Institut derivative Wirtschaftsprüfer in Deutschland e.V.) 

IFRS International Financial Reporting Standards 

InhKontrollV Inhaberkontroll verordnung 

IOSCO International Organization of Securities Commissions 

ISA International Standards on Auditing 

KAGG Investment Companies Act (Gesetz über Kapitalanlagegesellschaften) 

KWG German Banking Act (Kreditwesengesetz)

MaComp Minimum Requirements for Compliance (Mindestanforderungen an die 
 4 

Compliance-Funktion und die weiteren Verhaltens-,Organisations- und 

Transparenzpflichten nach §§ 31 ff. WpHG für 

Wertpapierdienstleistungsunternehmen 

MaRisk Minimum Requirements for Risk Management 

(Mindestandforderungen an das Risikomanagement)

MTF Multilateral Trading Facility 

SolvV Solvency Ordinance (Solvabilitätsverordnung)

TSO Trading Surveillance Office ( Handelsüberwachungsstelle – HÜSt) 

UCITS Undertakings for Collective Investment in Transferable Securities 

VerkProspG Act on the Prospectus for Securities Offered for Sale 

(Verkaufsprospektgesetz) 

VermVerkProspV Investment Prospectus Ordinance 

(Vermögensanlagen-Verkaufsprospektverordnung) 

WpHG Securities Trading Act (Wertpapierhandelsgesetz) 

WPK Chamber of Auditors (Wirtschaftsprüferkammer) 

WPO Public Auditors' Act (Gesetz über eine Berufsordnung der Wirtschaftsprüfer— 

Wirtschaftsprüferordnung) 

WpPG Securities Prospectus Act (Wertpapierprospektgesetz) 

WpÜG Securities Acquisition and Takeover Act 

(Wertpapiererwerbs- und Übernahmegesetz) 
5 

I. SUMMARY, KEY FINDINGS, AND RECOMMENDATIONS

1. Germany has a comprehensive legislative and institutional framework for the 

effective supervision of the securities markets. The German Federal Financial Supervisory 

Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BaFin) and the State-based 

Exchange Supervisory Authorities (ESAs) appear operationally independent (though in the 

case of ESAs not in formal terms), and have sufficient resources to fulfill their regulatory 

functions. 

2. The overall level of compliance with the International Organization of Securities 

Commissions (IOSCO) Principles is high, with many principles being fully 

implemented. Two main factors influence the ability of the system to meet the highest 

standards required by the IOSCO Principles. First, the continued existence of “grey market” 

activity outside the fully regulated market means that functionally similar financial market 

products and activities are not subject to the same standard of regulation (this issue is of 

concern mainly regarding certain closed-end funds and retail-oriented products with 

embedded options, where regulations on potential mis-selling and services to retail investors 

are relatively light). The authorities are working on proposals to deal with this issue, and that 

initiative is to be encouraged. Second, in its supervision activities, BaFin relies heavily on the 

analysis of incoming reports and other data, including annual compliance reports on 

regulated entities prepared by external auditors. It makes comparatively little use of on-site 

compliance inspections, whether on a routine basis or as part of a program that identifies 

potential emerging compliance risks resulting from changes in market conditions or behavior. 

This affects compliance with a number of the IOSCO Principles. In addition, post trade 

transparency for trading on equities markets—while fully compliant with standards required 

under the European regime—applies only at the level of the individual market and does not 

result in an overall level of transparency because of the absence of standards for 

consolidating and disseminating post trade data. The authorities should work toward 

achieving a more complete “whole of market” transparency regime in the context of the 

current European-wide review of aspects of the Markets in Financial Instruments Directive 

(MiFID) regime. 

3. There are significant industry concerns about the implementation costs resulting 

from a rapidly changing legislative framework, both in Europe as a whole and in 

Germany. In particular, concerns focus on differences in the timing of implementation 

between Germany and other States in Europe, and on material differences between the 

standards set in some German legislation and those required by European directives. This has 

potential impacts on compliance costs and competitiveness, for German-based firms active in 

the broader European market. 
6 

A. Introduction 

4. This assessment was carried out as part of the Financial Sector Assessment 

Program (FSAP) Update mission to Germany that took place between January 19 and 

February 4, 2011.1

B. Information and Methodology Used for Assessment 

5. The assessor relied on a number of sources in carrying out this assessment, 

including: a review of the relevant legislation, the self-assessment prepared by the staff of 

BaFin, other material published by BaFin, detailed discussions with the staff of BaFin and 

other regulatory authorities and ministries, and discussions with a range of market 

participants and representative bodies. The assessor extends his thanks to the staff of the 

authorities for their cooperative participation in the process and for their comprehensive selfassessment. 

6. The assessor extends his thanks to the staff of the authorities for their 

participation in the process and for their comprehensive self assessment. Staff of BaFin 

was particularly generous in making themselves available for discussions that were helpful 

and frank, and in providing requested information and copies of the relevant legislative or 

regulatory texts. Staffs of Federal ministries were similarly helpful. The assessor also values 

the assistance and information provided by other regulators and market participants. 

7. The assessment was conducted based on the IOSCO Objectives and Principles of 

Securities Regulation and the associated methodology adopted in 2003, as updated in 

2008.2 An assessment of the securities settlement systems under the Committee on Payment 

and Settlement Systems (CPSS)/IOSCO Recommendations was conducted separately, so 

Principle 30 is not considered in this assessment. 

8. During the assessment, the new principles adopted by IOSCO and published in 

June 2010 were also discussed. These new principles are not yet the subject of a formal 

methodology and discussions about them were informal and not part of the assessment. 

Nonetheless, this report reflects those discussions in Appendix 1. 

9. The assessment of the country’s observance of each individual principle is made 

by assigning to it one of the following assessment categories: fully implemented, broadly 

implemented, partly implemented, not implemented, and not applicable. The IOSCO 

assessment methodology provides a set of detailed criteria to be met in respect of each 

 

1

 The assessment was undertaken by Malcolm Rodgers, former Executive Director and Acting Commissioner of 

the Australian Securities and Investments Commission. 

2

 The IOSCO methodology was amended in 2008 to update footnotes to reflect recent IOSCO publications. 

Currently IOSCO is expanding the methodology to cover the new principles adopted in mid 2010. 
7 

principle to achieve the designated benchmarks. The methodology recognizes that the means 

of implementation may vary depending on the domestic context, structure, and stage of 

development of the country’s capital market and acknowledges that regulatory authorities 

may implement the principles in many different ways. 

 A principle is considered fully implemented when all assessment criteria specified 

for that principle are generally met without any significant deficiencies. 

 A principle is considered broadly implemented when the exceptions to meeting the 

assessment criteria specified for that principle are limited to those specified under the 

broadly implemented benchmark for that principle and do not substantially affect the 

overall adequacy of the regulation that the principle is intended to address. 

 A principle is considered partly implemented when the assessment criteria specified 

under the partly implemented benchmark for that principle are generally met without 

any significant deficiencies. 

 A principle is considered not implemented when major shortcomings (as specified in 

the not implemented benchmark for that principle) are found in adhering to the 

assessment criteria specified for that principle. 

 A principle is considered not applicable when it does not apply because of the nature 

of the country’s securities market and relevant structural, legal and institutional 

considerations. 

10. This is the second assessment of the German system against IOSCO Principles, 

with the first being conducted 2003. That assessment against IOSCO Objectives and 

Principles concluded that securities regulation in Germany is based on a well developed and 

comprehensive system of regulation and supervision, and has been implemented with 

appropriate institutional capacity. All but three principles were rated fully implemented, with 

one rated broadly implemented (Principle 1) and one (Principle 2) rated partly implemented; 

one principle (Principle 30) was not assessed. It should be noted that the first assessment was 

undertaken before IOSCO had finalized a detailed methodology for assessment. Since 2003, 

there have been continuous developments in the legislative framework both at the European 

level and the German national level since the original assessment in 2003.3

 

 

3

 For example, the Transparency and the Markets in Financial Instruments Directive (MiFID) directives—

among others—have come into effect since 2003. At the national level there have been numerous 

developments, including legislation—for example—legislation restricting and imposing a transparency regime 

for short selling. 
8 

11. The conclusions set out below are based on information and findings as of 

January 2011. The assessment takes place against a background of continuing change in the 

legislative framework and the regulatory environment for securities regulation. 

C. Institutional Structure—Overview 

12. Since Germany is a Federal Republic, lawmaking takes place at both the federal 

and States (Länder) levels. In addition, regulatory and governmental institutions exist at 

both levels too. Most laws governing the regulation of the financial market and services 

activity are federal, the exceptions mainly being subordinate legislation (Ordinances) made 

by the States relating to exchange markets. The States play a role in the regulation of 

exchange markets, and the State-based ESAs have responsibility for the authorization and 

direct supervision of exchange markets. 

13. At the Federal level, BaFin is responsible for administering and enforcing the 

large body of different laws that govern capital and financial services market activity.

Other Federal legislation not administered by BaFin—such as company legislation, 

legislation on public auditors, and competition legislation—has an impact on market activity 

and participants, and the overall regulatory environment for securities market activity. 

14. Within BaFin, the Securities Directorate is responsible for most securities 

regulation activity including regulation of:

 capital market activity such as public securities issues, takeovers and issuers’ 

disclosure and reporting obligations; 

 collective investments; 

 regulated markets other than exchange markets; 

 compliance with prohibitions on insider trading and market manipulation; and 

 investment services provided by market intermediaries. 

15. Prudential supervision of banks that provide investment services is carried out 

by the BaFin’s Banking Directorate, rather than its Securities Directorate. 

16. Other authorities such as the Bundesbank and prosecutorial authorities—in 

cases such as criminal prosecution of market and other financial services offences—

work more directly with BaFin on a regular basis. 

17. BaFin’s overall structure and activities are governed by the legislation that 

created it, duties and powers created by the legislation it administers, and by legislation 

generally applying to government authorities generally, such as the Administrative 

Procedures Act and other public administration legislation.
9 

18. BaFin does not play an active role in regulatory rulemaking, in the sense of 

creating rules, which it can then enforce administratively against regulated entities.

This is in line with the approach in Germany—based on fundamental constitutional 

principles—that limits the ability of regulatory authorities to make binding rules unless 

specific legislation expressly envisages this. In practice, BaFin’s rule-making function is 

largely confined to making detailed, technical rules pursuant to primary or secondary 

legislation. 

19. As elsewhere in the European Union (EU), the European regulatory framework4

plays a very significant role in the German national regulatory framework. Some parts 

of the European regulatory framework are translated into national law, and some parts apply 

directly of their own force. The reform agenda at the European level is significant, and 

includes reviews of some fundamental aspects of the regulation of market activity, such as 

MiFID. There is also a separate German domestic reform agenda, for example the recent 

legislation on short selling and proposals to deal with mis-selling in currently unregulated or 

lightly regulated markets. 

20. In addition, the new European body for securities markets, the European 

Securities Market Authority (ESMA), commenced operations on January 1, 2011. It 

will have policy making functions, oversight responsibilities over national authorities, and 

supervisory responsibility over credit rating agencies (CRAs). 

21. These developments pose considerable challenges to regulators and market 

participants alike. There are significant industry concerns about the implementation costs 

resulting from a rapidly changing legislative framework, both in Europe as a whole and in 

Germany. In particular, concerns focus on differences in the timing of implementation 

between Germany and other States in Europe; and on material differences between the 

standards set in some German legislation and those required by European directives. This has 

potential impacts on compliance costs, and competitiveness, for German-based firms active 

in the broader European market. 

D. Market Structure and Activity 

22. The German financial sector is dominated by banking institutions. Banks are the 

major players, including in asset management and securities and derivatives market activity. 

 

4

 This framework includes directives covering prospectuses, transparency of information provided by issuers, 

markets in financial instruments, capital requirements, market abuse, takeovers, and collective investment 

schemes. 
10 

E. Exchange and Other Regulated Markets (MTFs) 

23. There are currently seven securities exchanges (Frankfurt, München, Berlin, 

Hamburg, Hannover, Düsseldorf, Stuttgart), one derivatives exchange (Eurex 

Deutschland in Frankfurt), and one energy exchange (EEX in Leipzig) approved by the 

regulatory authority in the relevant German States. There are two approved multilateral 

trading facilities (MTFs), although their activities predated the requirement for regulatory 

approval and no totally new MTF markets have commenced. The Frankfurt exchange 

dominates trading in equities, with well in excess of 90 percent of trading taking place on 

that exchange. The Stuttgart Stock Exchange has created a strong market in retail level 

trading of non-share instruments. 

Financial services firms licensed by BaFin 

24. At end-2010, there were 717 nonbank financial institutions licensed to provide

investment services by BaFin, of which 521 were licensed to provide portfolio 

management services; around 800 banks also provide investment services under the 

licenses they hold as credit institutions.

Capital market activity 

25. As at end–2010, 908 issuers have been admitted to trade on regulated markets.

There were 65 initial public offerings (IPOs) in 2010 (down from 97 in 2008). Takeover 

activity has declined since the financial crisis, from a total of 39 in 2008 to 27 in 2010. 

Investment business 

26. At end-2010, there were 73 authorized asset management companies managing 

5,997 funds with total assets under management of €1,127 billion, including 42 hedge 

funds and funds of hedge funds. Over 8,000 foreign investment funds were licensed to 

distribute in German, of which all but a relatively small number are Undertakings for 

Collective Investment in Transferable Securities (UCITS) funds. A very large number of 

financial products are traded on some German markets (for example, more than 500,000 

products are available for trading on the Stuttgart market) , of which 70 percent are structured 

products—“certificates”—25 percent are bonds and 5 percent shares or mutual fund 

exchange traded funds). 

F. Recent Developments 

27. The financial crisis and its aftermath have affected activity in the securities 

sector as well as other parts of the financial sector and the real economy. Two particular 

points of stress should be noted: 
11 

 First, there has been considerable pressure on retail open-ended real estate funds, 

where a total of 48 regulated funds manage assets of almost €87 million, more than 

25 percent of the total value of all domestic funds operating at the retail level. 

Thirteen funds closed their redemption facility; 3 have made the decision to liquidate; 

and the remaining 10 must decide whether to reopen or liquidate in the near future. 

 Second, the investor compensation fund established under the Deposit Guarantee and 

Investor Compensation Act (EAEG) came under funding pressure because of a single 

incident—potentially involving fraud—that resulted in a very large number of claims. 

These claims placed stress on the ongoing liquidity of the fund, resulting in special 

levies and reconsideration of the long-term basis for fund contributions. 

G. Preconditions for Effective Securities Regulation 

28. The general preconditions necessary for the regulation of securities markets 

appear to be in place in Germany. There is a stable macroeconomic environment. There 

are no significant barriers to entry and exit for market participants. Competition is 

encouraged and foreign participation is welcomed. The legal and accounting framework is 

sound. The German legal framework for the securities sector is complemented by 

comprehensive legislation for companies and for commercial activity generally. Commercial 

law has been kept modern and corporate governance standards have been recently reviewed. 

H. Main Findings 

29. BaFin’s overall approach to supervision relies very heavily on (i) the flow of 

information coming to it from the regulated population; (ii) mandatory reports such as 

auditors’ reports on regulated entities’ financial condition; and (iii) compliance with 

legislative obligations. It has recently adopted a risk scoring methodology for the regulated 

population, but this is in its early stages and does not seem to have yet resulted in active 

monitoring programs calibrated on a risk basis. A new cross-divisional system of examining 

more systemic risks is in the process of being established. 

30. Principles for the regulator (Principles 1-5): Regulators at both the Federal and 

State levels work with a clear legal framework and clearly defined powers and 

responsibilities. In practice, BaFin and the ESAs appear to be operationally independent. 

However, since the ESAs are within the State Ministries, formal preconditions of 

independence are not met. BaFin has a high level of accountability to the BMF, supported by 

documented arrangements for information flows from BaFin to the Ministry, but 

consideration should be given to streamlining its reporting obligations to the Ministry of 

Finance and mechanisms to enhance the security of tenure of its most senior management. 

Powers available to the regulators are sufficient for effective supervision of market activity. 

BaFin’s funding arrangements and level of resources enable it to carry out regulatory 

mandate for securities markets. All authorities that play a role in regulation are treated as 
12 

public bodies and subject to the framework for fairness and accountability that applies to 

such bodies, and their decisions can be challenged under administrative law processes. BaFin 

has adopted integrity policies that support their general obligations to maintain high 

standards of professional conduct. However, there remains significant “grey market” activity, 

where financial products (such as closed end funds, or participation rights) and services 

relating to them (especially marketing and advice) are subject to regulation at a lower 

standard that would be required under the IOSCO Principles. 5

31. Principles for enforcement (Principles 8-10): BaFin (and where relevant, State 

regulated Trading Supervisory Offices and ESAs) have extensive powers to requisition 

documents and records and seek information from regulated entities and other persons. In 

addition, regulated entities have extensive reporting obligations and these reports provide a 

basis for review of compliance with legislative requirements. BaFin (and the State 

authorities) have power to take enforcement actions and sanction regulated entities (and other 

persons) for breaches, including by intervening in markets, issuing mandatory instructions to 

regulated entities and imposing monetary penalties. BaFin takes a systematic approach to 

ongoing supervision, based on report- and event-driven monitoring of the conduct of 

regulated entities and possible market abuse. It relies heavily on annual reports from external 

auditors relating to compliance systems and activities of regulated entities, and makes limited 

use of on-site inspections as a general tool to monitor entities’ compliance. It appears to have 

effective working arrangements with the prosecution authorities and there is a track record of 

enforcement action, including criminal action. As a whole the system works effectively, 

although it is not clear whether BaFin is making as much use as it could of routine on-site 

inspection to create a regulatory presence in the market place and focus on the conduct of 

business issues that may not be apparent in reports analyzed off-site. 

32. Principles for cooperation (Principles 11-13): BaFin has obligations to share 

information and cooperate with other domestic regulators, and these arrangements appear to 

work effectively in practice. These obligations also apply to ESAs in their role as exchange 

regulators. BaFin has sole responsibility for ensuring cooperation with foreign regulators, 

both within the EU and elsewhere. There are no material barriers to BaFin obtaining and 

sharing information with foreign counterparts about entities under its supervision or other 

persons, including where no breach of German law is at issue and it can use the same 

investigative powers for this activity as it uses to carry out its own investigations. BaFin is a 

signatory of the IOSCO Multilateral Memorandum of Understanding (MMOU), and many 

bilateral memorandums of understanding (MOUs). There is good evidence of BaFin’s 

practical cooperation with foreign regulators. 

 

5

 Examples include ship investment, real estate, and private equity funds. Data on the overall size of activity in 

grey markets are not readily available. 
13 

33. Principles for issuers (Principles 14-16): A prospectus approved by BaFin is 

required for securities offered to the public or admitted to trading on a regulated market. 

Prospectus content requirements conform to IOSCO principles. Issuers are also subject to 

requirements for audited annual financial reports; half yearly reports; and interim 

management statements. Material event reporting also applies for issuers of securities traded 

on a regulated market. Financial statements must be prepared in accordance with 

International Financial Reporting Standards (IFRS) as adopted in EU for issuers that 

consolidate; and under German accounting standards for other issuers. Issuers that submit 

company-only statements can issue them in accordance to national standards. BaFin monitors 

compliance by issuers with reporting and disclosure obligations; the Financial Reporting 

Enforcement Panel reviews compliance by issuers with financial statement requirements, and 

BaFin takes enforcement action for breaches. Substantial shareholder disclosure and specific 

takeover legislation, including mandatory bid requirements, provide an effective framework 

for change of control transactions. 

34. Principles for collective investment schemes (CIS) (Principles 17-20): Operators 

of CIS schemes must hold a license issued by BaFin. Licensing criteria that must be met 

include integrity requirements for managers and holders of more than 10 percent 

shareholdings; managers’ competence; adequacy of internal controls and risk management 

systems; and minimum capital. Funds rules and changes to them must be approved by BaFin. 

BaFin reviews all prospectuses. CIS operators (both asset management companies and 

investment stock corporations) must keep fund assets segregated and use a licensed bank to 

hold fund assets and perform other roles. Operators must prepare and publish annual and 

semi-annual reports for each fund, and are subject to annual audits focusing on their 

compliance with legislative requirements. Each CIS requires a prospectus, the content of 

which accords with IOSCO Principles, and the operator must lodge a copy with BaFin. Asset 

valuation methodology is detailed in the legislation, as is the way prices are to be calculated 

on issue and redemption of units. There is specific accounting standards legislation to be 

used in valuing assets. BaFin uses annual audit reports extensively in its supervision of 

compliance by CIS operators. It does a small number of on-site inspections and relies to a 

large degree on the review of audit and other reports and the comments made in relation 

Principle 10 apply to this area of activity. 

35. Principles for intermediaries (Principles 21-24): A license issued by BaFin is 

required to carry on a business of providing financial services, which is defined broadly to 

cover a broad range of financial market activity, including proprietary trading and providing 

customer-specific advice about financial instruments. Licensing criteria include integrity 

requirements for managers and holders of more than 10 percent shareholdings; managers’ 

competence; adequacy of internal controls and risk management systems; and minimum 

capital requirements (the level of which varies according to the nature of the activities 

undertaken). Ongoing risk-based capital requirements, mainly reflecting the institution’s 

credit and market risk, and other prudential requirements are also imposed on bank 

intermediaries permitted to hold client funds or assets; other intermediaries are not permitted 
14 

to hold client fund or assets and are subject to the minimum capital requirement and a general 

obligation to remain solvent. Licensees must submit monthly reports about their financial 

position and compliance with prudential standards (where required) to the Bundesbank, 

which passes them on to BaFin with its analysis. BaFin also receives daily reports of all 

market transactions by licensed entities. The comments made under Principle 10 apply to 

BaFin’s monitoring arrangements, especially in relation to on-site inspections, with regard to 

licensed intermediaries. 

36. Principles for secondary markets (Principles 25-30): Exchanges and MTFs require 

authorization by the relevant State authority (ESA) or by BaFin (for MTFs). Exchange 

markets are subject to continuous supervision by the Trading Surveillance Offices (TSOs) 

and ESAs, with BaFin responsible for investigating and taking action on market abuse. The 

two MTFs are subject to direct supervision by BaFin, but this does not appear as intensive as 

that applying to exchange markets. The transparency obligations required by MiFID are in 

place for exchange markets and MTFs and apply to trading in shares and certificates 

representing shares, but not other instruments traded on regulated markets. Given that there 

are multiple venues on which shares can be traded, both within Germany and elsewhere, the 

absence of standards for consolidation of post trade information detracts from the overall 

transparency of the market for trading in shares. 

Table 1. Summary Implementation of the IOSCO Principles 

FI: Fully implemented 

BI: Broadly implemented 

PI: Partially implemented 

NI: Not implemented. 

NA: Not applicable.

Principle Grading Findings 

Principle 1. The 

responsibilities of the 

regulator should be clearly 

and objectively stated 

BI The responsibilities of BaFin and the State-based 

ESAs are clearly established by law. Market 

participants understand the role played by BaFin, 

and exchange markets understand the role of the 

ESAs and exchange TSOs. Legislation requires 

cooperation and information sharing between the 

main regulators and other authorities with a 

regulatory role impacting on securities markets. 

However, at the time of the assessment, advice on, 

selling, and marketing of certain investment 

products (such as closed-end funds) was not 

regulated as fully as are other investment services, 
15 

Principle Grading Findings 

although the approval process for prospectuses has 

been unified.6

Principle 2. The regulator 

should be operationally 

independent and accountable 

in the exercise of its functions 

and powers 

PI BaFin is operationally independent. It has a strong 

line of accountability and detailed obligations to 

provide information to the BMF about its activities. 

BMF approval is not required for its operational 

decisions as a regulator. Security of tenure of its 

most senior management is not formally provided 

for but is de facto well-entrenched. 

The ESAs are separate units within the relevant 

State Ministry (for example Frankfurt stock 

exchange, and Eurex are supervised by an ESA 

located within the Hessian Ministry of Economic 

Affairs, Transportation and Regional Development). 

This structure does not meet the formal standards 

for independence required by the IOSCO principles. 

Although in practice ESAs do not appear to be 

subject to political interference, the institutional 

structure of exchange market supervision remains 

open to the potential for political direction. 

Principle 3. The regulator 

should have adequate 

powers, proper resources and 

the capacity to perform its 

functions and exercise its 

powers 

FI BaFin has extensive powers, including licensing 

and ongoing supervisory and enforcement powers. 

The fact that BaFin can only make enforceable 

rules in relation to specific matters expressly 

provided for by the Parliament may limit its ability to 

react quickly in a crisis. Resources appear 

adequate. BaFin staff are largely career civil 

servants, but where needed, BaFin can employ 

expertise outside the civil service framework. 

The State-based ESAs (and under them exchange 

TSOs) have the powers needed to carry out their 

functions. 

Principle 4. The regulator 

should adopt clear and 

consistent regulatory 

processes 

FI As public authorities, BaFin and the ESAs (and the 

TSOs) are subject to a comprehensive 

administrative law regime that requires consistency 

and fairness. There is no formal requirement for 

BaFin to take compliance costs into account when 

formulating policy, but BaFin plays a very limited 

role in policy formation, which occurs at the BMF 

level. 

 

 

6

 Proposals were published in April 2011 to treat “grey market” products as other financial instruments and to 

provide full BaFin supervision over investment services in grey capital market products performed by 

investment firms under BaFin’s supervision. 
16 

Principle Grading Findings 

Principle 5. The staff of the 

regulator should observe the 

highest professional 

standards 

FI Staff of BaFin are bound by extensive obligations–

including confidentiality obligations that apply to the 

civil service generally, and in addition BaFin has 

adopted internal policies (for example in relation to 

disclosure of trading by staff) to supplement these 

broad obligations. 

Principle 6 The regulatory 

regime should make 

appropriate use of selfregulatory organizations 

(SROs) that exercise some 

direct oversight responsibility 

for their respective areas of 

competence and to the extent 

appropriate to the size and 

complexity of the markets 

n/a Note: the regulatory role played by exchanges and 

especially the TSOs that each exchange has are 

dealt with under the Principles for secondary 

markets. Under German law, exchanges and their 

TSOs are public law entities subject to the general 

framework for public authorities, not private law 

entities under delegated authority. 

Principle 7. SROs should be 

subject to the oversight of the 

regulator and should observe 

standards of fairness and 

confidentiality when 

exercising powers and 

delegated responsibilities 

n/a 

Principle 8. The regulator 

should have comprehensive 

inspection, investigation and 

surveillance powers 

FI The regulators have broad supervisory, 

investigative and enforcement powers over 

regulated entities, and extensive information 

gathering and in appropriate cases enforcement 

powers not confined to regulated entities. 

Principle 9. The regulator 

should have comprehensive 

enforcement powers 

FI BaFin has extensive powers to requisition 

information, inspect documents, and enter 

premises. It can compel individuals to give it oral 

evidence (but not so as to involve selfincrimination). It can take a range of enforcement 

action directly, including by imposing substantial 

administrative fines. Criminal investigation and 

prosecution is the responsibility of the public 

prosecutor. 

ESAs appear to have powers adequate to enable 

them to be credible regulators of exchange markets 

under the Exchange Act. 

Principle 10.The regulatory 

system should ensure an 

effective and credible use of 

inspection, investigation, 

surveillance and enforcement 

powers and implementation of 

an effective compliance 

BI In broad terms, BaFin has a credible and effective 

monitoring and enforcement program. But its 

monitoring programs are heavily based on analysis 

of material reported to it, including annual audit 

reports on compliance by regulated entities, and it 

makes limited use of its on-site inspection powers. 

For regulation of market intermediaries and CIS 
17 

Principle Grading Findings 

program. operators, this approach may not detect concerns 

in a timely manner, especially relating to conduct of 

business as market conditions and market 

participant behaviors change. 

Insofar as it was assessed, the role played by ESAs 

seems appropriate to their function. 

Principle 11 The regulator 

should have the authority to 

share both public and nonpublic information with 

domestic and foreign 

counterparts 

FI BaFin and other regulators involved in the 

regulation of securities markets are obliged to 

cooperate and support one another’s functions, and 

have extensive information sharing powers. There 

are no materially significant limits on BaFin’s ability 

to share information with other regulators in the EU, 

and with foreign regulators, or preconditions to it 

doing so. 

Principle 12. Regulators 

should establish information 

sharing mechanisms that set 

out when and how they will 

share both public and 

non-public information with 

their domestic and foreign 

counterparts 

FI BaFin participates fully in European information 

sharing arrangements, is a signatory to the IOSCO 

MMOU, and has entered many unilateral MOUs 

with foreign regulators. There is good evidence that 

these arrangements are working in practice and 

result in a considerable flow of information between 

regulators, both domestically and internationally. 

Principle 13. The regulatory 

system should allow for 

assistance to be provided to 

foreign regulators who need 

to make inquiries in the 

discharge of their functions 

and exercise of their powers 

FI BaFin has no power to directly represent foreign 

regulators formally, for example in court 

proceedings. But it can and does assist foreign 

regulators to gather information and evidence, and 

provide other forms of practical assistance. 

Principle 14. There should be 

full, timely and accurate 

disclosure of financial results 

and other information that is 

material to investors' 

decisions 

FI To offer securities to the public or have them 

admitted to trading on a regulated market, issuers 

must have a prospectus approved by BaFin, the 

content of which is in line with IOSCO standards. 

Issuers must also publish annual and half yearly 

reports, and (for issuers of shares) interim 

management statements or quarterly reports. They 

must disclose material price sensitive information 

without delay. BaFin has published extensive 

guidance to assist issuers with their obligations, 

and its supervision of compliance with these 

obligations is effective. 

Principle 15. Holders of 

securities in a company 

should be treated in a fair and 

equitable manner 

FI German company legislation provides the basic 

framework for shareholders rights. Assertion of 

these rights is a private law matter. Separate law 

deals with company insolvency. The securities 

legislation has a transparency regime for 

substantial shareholdings. Comprehensive takeover 

legislation is administered by BaFin, and includes a 
18 

Principle Grading Findings 

mandatory bid requirement when a person reaches 

a 30 percent holding, and disclosure rules. There is 

good evidence of BaFin’s use of its powers to 

ensure compliance with disclosure requirements for 

substantial shareholdings and obligations under 

takeovers legislation. 

Principle 16. Accounting and 

auditing standards should be 

of a high and internationally 

acceptable quality 

FI Issuers of traded securities must prepare and have 

audited consolidated financial statements that 

comply with IFRS; other issuers must prepare 

accounts in accordance with German accounting 

standards. German national accounting standards 

are generally in line with international standards. 

Auditors must apply auditing standards which are 

analogous to the ISAs. Accounting standards are 

provided for in legislation supplemented by 

elaboration and guidelines set by a private body 

under an agreement with German Ministry of 

Justice. Audit standards are set by a private body. . 

Issuers’ compliance with financial reporting 

standards is monitored by the Financial Reporting 

Enforcement Panel, and by BaFin (which is 

responsible for enforcement action). Compliance 

with auditors’ obligations (including independence 

obligations) and compliance with audit standards is 

monitored by the Chamber of Auditors, which is 

itself supervised by the Auditor Oversight 

Commission. 

Principle 17. The regulatory 

system should set standards 

for the eligibility and the 

regulation of those who wish 

to market or operate a 

collective investment scheme 

PI CIS operators can operate as asset management 

companies or investment companies, and must be 

licensed by BaFin and meet eligibility criteria, 

including integrity requirements for managers and 

significant owners, minimum capital, and internal 

controls and risk management systems. The 

content of advertising is regulated by the 

investment legislation. Marketing of CISs can be 

undertaken without requiring a license issued by 

BaFin (provided no other BaFin regulated activity is 

involved), but is then regulated by licensing 

arrangements under the general commercial code. 

In its monitoring of compliance by CIS operators, 

BaFin is heavily reliant on analysis of audit reports, 

and does not have an intensive on-site inspection 

program. Such heavy reliance on audit reports 

increases the chance that undesirable conduct is 

not detected in a timely fashion, thereby increasing 

risks to market performance, investor protection, 

and BaFin’s reputation. Although all CIS operators 

and funds are subject to external audits, ongoing 
19 

Principle Grading Findings 

monitoring does not normally involve sufficient 

performance of on-site inspections of entities 

involved in operating CIS, given the materiality of 

the sector. 

Principle 18. The regulatory 

system should provide for 

rules governing the legal form 

and structure of collective 

investment schemes and the 

segregation and protection of 

client assets 

FI The legislation and fund rules approved by BaFin 

govern the legal form of CIS and the rights of 

investors. Fund assets must be kept separate from 

those of the operator, and be held by a licensed 

custodian bank approved by BaFin. Individual fund 

rules must be approved by BaFin. 

Principle 19. Regulation 

should require disclosure, as 

set forth under the principles 

for issuers, which is 

necessary to evaluate the 

suitability of a collective 

investment scheme for a 

particular investor and the 

value of the investor’s interest 

in the scheme 

FI For retail funds CIS, the CIS operator must issue a 

full prospectus and a simplified prospectus (to be 

replaced by the Key Information Document by mid 

2011) and lodge a copy of the prospectus with 

BaFin. Both full and simplified prospectuses must 

contain information necessary for investors to make 

an informed judgment, including about risks. The 

simplified prospectus regime will be replaced by a 

requirement for a Key Investor Information 

document as part of the German implementation of 

UCITS IV. 

Operators must also publish annual and half yearly 

reports for each fund containing financial and other 

information about fund activities. 

Principle 20. Regulation 

should ensure that there is a 

proper and disclosed basis for 

assets valuation and the 

pricing and the redemption of 

units in a collective 

investment scheme 

FI The Investment Act and related legislation contains 

detailed provisions for the valuation of CIS assets 

that apply to all retail funds, covering rules for 

valuation, the timing of valuations and the process 

for valuation and the pricing of units on issue and 

redemption. Compliance with these rules must be 

monitored by internal audit and is subject to annual 

external audit. The legislation also covers 

procedures for the pricing of units both on issue 

and on redemption. 

Principle 21. Regulation 

should provide for minimum 

entry standards for market 

intermediaries 

BI A person must hold an authorization issued by 

BaFin to carry on a business of providing financial 

services, a term that includes all forms of financial 

market activity, including proprietary trading and 

providing customer-specific advice about financial 

instruments, and operating an MTF. Eligibility 

standards include the integrity of managers and 

owners of significant shareholdings, managers’ 

competence, resource requirements including 

capital, and the adequacy of internal controls, risk 

management and supervisory systems operational 

requirements. Authorized institutions have 

extensive reporting obligations, and BaFin carries 
20 

Principle Grading Findings 

out extensive reviews of these reports and external 

audit reports, and some on-site inspections. See 

comments under Principle 10. 

Principle 22. There should be 

initial and ongoing capital and 

other prudential requirements 

for market intermediaries that 

reflect the risks that the 

intermediaries undertake 

FI Authorized institutions (under the German 

legislation this includes both credit institutions and 

financial services institutions) are subject to 

minimum capital requirements. Nonbank 

intermediaries are not permitted to hold client 

assets or funds, and as a consequence are not 

subject to detailed ongoing risk-based capital 

requirements. Banks conducting securities 

business are subject to ongoing, risk-based 

solvency and liquidity requirements monitored by 

BaFin’s Banking Directorate in collaboration with 

the Bundesbank. Authorized institutions must 

provide monthly returns which are reviewed both by 

the Bundesbank and BaFin. BaFin conducts 

extensive reviews of reports including annual 

compliance audit reports. 

Principle 23. Market 

intermediaries should be 

required to comply with 

standards for internal 

organization and operational 

conduct that aim to protect 

the interests of clients, ensure 

proper management of risk, 

and under which 

management of the 

intermediary accepts primary 

responsibility for these 

matters 

FI Licensees must have risk management, compliance 

and internal control functions. Compliance with 

these requirements is subject to specific review in 

the annual audit process, reviewed by BaFin. 

Principle 24. There should be 

a procedure for dealing with 

the failure of a market 

intermediary in order to 

minimize damage and loss to 

investors and to contain 

systemic risk 

FI There are no specific ex ante procedures for 

dealing with the consequences of the failure of an 

intermediary. For the nonbank sector, BaFin would 

deal with such a failure on an ad hoc basis, with a 

focus on ensuring orderly winding up (through a 

Court ordered insolvency process) and ensuring 

clients of the firm are fully informed. For banks 

involved in securities business, the Banking 

Department would be responsible. 

Principle 25. The 

establishment of trading 

systems including securities 

exchanges should be subject 

to regulatory authorization 

and oversight 

FI Exchange markets require approval by the ESA of 

the relevant State (Land) under the Stock 

Exchange Act; MTFs must hold a license issued by 

BaFin under the Banking Act. In each case, similar 

preconditions must be met before approval is 

granted. Exchange markets are monitored by 

exchange Trading Supervisory Offices under the 

supervision of ESAs. BaFin is responsible for 
21 

Principle Grading Findings 

supervision of the two licensed MTFs. 

Principle 26. There should be 

ongoing regulatory 

supervision of exchanges and 

trading systems, which should 

aim to ensure that the 

integrity of trading is 

maintained through fair and 

equitable rules that strike an 

appropriate balance between 

the demands of different 

market participants 

FI TSOs conduct real time monitoring and supervision 

of exchange markets, under the supervision of the 

relevant ESA. ESAs monitor and respond to the 

work of TSOs, and conduct periodic reviews of 

overall exchange compliance. Currently two MTFs 

are licensed by BaFin as investment services 

enterprises under the Banking Act, subject to 

additional MTF-specific obligations under the 

Securities Trading Act. BaFin monitoring activity is 

that applying to generally to market intermediaries. 

Principle 27. Regulation 

should promote transparency 

of trading 

BI The regulatory framework provides for pre- and 

post-trade transparency in equities, in line with 

MiFID requirements, for exchange markets, MTFs 

and systematic internalizers and permitted 

exceptions are in line with market norms in other 

jurisdictions. However, dispersal of trading across 

multiple venues highlights the absence of an 

integrated overview of activity. 

Principle 28. Regulation 

should be designed to detect 

and deter manipulation and 

other unfair trading practices 

FI Insider trading, market manipulation (and front 

running) are both criminal and administrative 

offences. The definitions for insider trading and 

market manipulation are appropriately broad, and 

apply to derivatives market activity as well as 

securities markets. BaFin has an active program to 

detect misconduct and enforce compliance, 

supported by the ESAs and TSOs. BaFin reviews 

daily trading reports from all market participants 

and other information to assist it to detect market 

abuse and insider trading. The enforcement record 

indicates this activity is working well. 

Principle 29. Regulation 

should aim to ensure the 

proper management of large 

exposures, default risk and 

market disruption 

FI Derivatives trading platforms monitor large 

positions and can set position limits. Large 

counterparty exposures for banks subject to 

prudential requirements are monitored as part of 

the prudential supervision process. 

Principle 30. Systems for 

clearing and settlement of 

securities transactions should 

be subject to regulatory 

oversight, and designed to 

ensure that they are fair, 

effective and efficient and that 

they reduce systemic risk 

n/a 
22 

I. Recommended Action Plan and Authorities’ Response 

37. The following recommendations aim to suggest measures to further improve the 

securities regulation framework and supervision. 

Table 2. Germany: Recommended Action Plan to Improve Compliance with 

the IOSCO Objectives and Principles for Securities Regulation 

Reference Principle Recommended Action 

Responsibilities of the regulator 

(Principle 1) 

The authorities should, as a matter of urgency, continue with 

steps to ensure that uniform regulatory standards apply across 

functionally similar financial market products and services, 

especially with regard to standards for advice on, selling, and 

marketing of products, as was recommended in 2003. 

Independence of the regulator 

(Principle 2) 

The authorities should give consideration to: 

a. mechanisms to strengthen the formal independence of the 

State ESAs; 

b. reviewing the reporting obligations of BaFin to the BMF with 

a view to streamlining them; and 

c. mechanisms, such as fixed term contracts, to ensure the 

position of the president and senior management of BaFin 

is secure and not open to potential arbitrary decisions 

based on political or other non-performance related 

considerations. 

Regulatory compliance programs 

(Principles 10, 17 and 21)

BaFin should continue to develop and refine its risk 

assessment system, and make more intensive use of on-site 

inspections by BaFin staff as part of its monitoring activities. 

This will require additional resources. It is understood that 

BaFin is moving in this direction. 

Market transparency (Principle 27) The authorities should work toward achieving a more complete 

transparency regime in the context of the current Europeanwide review of aspects of the MiFID regime. At a minimum 

such a regime should include standards for data 

interoperability, and it should result in an effective mechanism 

to produce consolidated post-trade reporting for the equities 

market. 

Authorities’ response 

38. The authorities broadly agree with the assessment.

39. A proposal of the government on “grey capital market products” was published 

in April 2011. The law is scheduled to be published at end-2011 or early 2012. According to 

the draft law, grey capital market products will be financial instruments in the terms of 

Securities Trading Act (Wertpapierhandelsgesetz, WpHG). The new definition of financial 

instruments will cover all grey market products, which are currently subject to the nonsecurities investment prospectus regime: this includes registered bonds, shares in civil-law 
23 

partnerships, general partnerships or limited partnerships, silent partnerships, participation 

rights, trust units and units in other closed-end funds. According to the draft, the new 

regulation provides full BaFin supervision over investment services in grey capital market 

products performed by investment firms under BaFin’s supervision. This means that the 

whole obligations of the WpHG are applicable.

40. Enterprises which provide investment services in investment funds or grey 

capital market products consisting solely of investment advice or investment brokerage 

to certain financial enterprises, and to the extent that the companies are not authorized 

to obtain ownership or possession of monies or shares from clients, will be supervised 

by the local commercial supervision authority. The mentioned enterprises are generally 

small entities with limited staff number or even run as sole trader business. Thus, full BaFin 

supervision including all legal requirements for investment firms seems inappropriate. 

However, core organizational requirements and rules of conduct of the securities trading act 

(WpHG) will be applicable according to the draft law. The applicable rules of WpHG will be 

specified in an ordinance following the law. 

II. DETAILED ASSESSMENT

Table 3. Detailed Assessment of Implementation of the IOSCO Principles 

Principles Relating to the Regulator 

Principle 1. The responsibilities of the regulator should be clear and objectively stated. 

Description Structure of the securities regulation regime 

Regulation of securities and other financial markets in the Federal Republic of Germany 

has a tiered structure. The main components of the regulatory regime are: 

At the Federal level, BaFin is an integrated regulator with responsibility for banking, 

insurance and securities supervision. Because of the major role banks play in the 

securities industry, the Deutsches Bundesbank as well as BaFin play a significant role in 

monitoring aspects of securities industry activity, for example by receiving and analyzing 

reports for regulated intermediaries. 

State authorities are responsible for authorization and regulation of exchanges that 

operate securities and derivatives markets. ESAs have overall authority; each exchange 

is a public body required to have a TSO, which operates under the supervision of the 

relevant ESA. 

Local (State-based) authorities are also responsible for authorization and supervision of 

some entities not required to be licensed as financial services institutions under the 

legislation administered by BaFin, such as intermediaries that provide advice or other 

services in relation products (for example, closed-end funds) that are not regulated as 

financial instruments under the Banking Act and the Securities Trading Act. 

Responsibilities and powers 

BaFin’s responsibilities, power, and authority are set out in legislation. Its broad 

objectives are to ensure the proper functioning, stability and integrity of the German 

financial market, by counteracting undesirable developments in the banking and financial 
24 

services sector which may endanger the safety of assets entrusted to institutions, impair 

the proper conduct of banking business or financial services or lead to serious 

disadvantages for the economy as a whole. (See sections 4 and s4a WpHG and section 

6 KWG). 

Under the Federal Exchange Act (Börsengesetz, BörsG), responsibility for the 

authorization and ongoing supervision of exchange markets rests with ESAs, special 

units within State Government Ministries (normally the relevant Ministry of Finance or 

Ministry of Economics); and the TSOs of stock exchanges, which are required by the 

legislation to carry out mandated statutory functions. 

Within BaFin, banking supervision, insurance supervision and securities/asset 

management supervision are carried out by three different organisational units 

(Directorates). Functions that extend beyond individual sectors are carried out by a 

Directorate that has cross-sectoral functions. 

In the securities sector, BaFin is responsible for regulation of public issues of securities 

and other financial instruments; public issuers’ reporting and disclosures; collective 

investment activity; market intermediaries; insider trading and other forms of market 

abuse; and markets not conducted by exchanges. 

The Deutsches Bundesbank (Bundesbank) has a significant role in monitoring market 

intermediaries licensed by BaFin under the Banking Act (KWG). This includes the 

analysis of reports submitted credit institutions and financial services institutions. 

BaFin derives all its responsibilities and functions, and its powers and authority, from 

legislation. In the securities sector, the body of legislation in this category is large, but 

the main laws are: 

a. The Securities Trading Act (Wertpapierhandelsgesetz (WpHG)) 

b. The Securities Prospectus Act (Wertpapierprospektgesetz, (WpPG)) 

c. Act on the Prospectus for Securities Offered for Sale (Verkaufsprospektgesetz, 

(VerkProspG)) 

d. The Securities Acquisition and Takeover Act (Wertpapiererwerbs- und 

Übernahmegesetz, WpÜG) 

e. The Banking Act (Kreditwesengesetz, KWG ) 

f. The Investment Act (Investmentgesetz, InvG). 

This legislative framework is supplemented by other laws dealing with specific issues, 

such as legislation dealing with stock exchanges, the obligations of depositories, the 

solvency of intermediaries, money launderings; and by general laws (such as company 

law and commercial law) not administered by BaFin. 

BaFin has authority for the securities market, with the exception of exchanges. The 

division of responsibility between BaFin and the State authorities is clearly delineated, 

and does not appear to give rise to gaps or overlaps. 

BaFin, the ESAs and the TSOs are all public entities under German law and so subject to 

other legislation that applies generally to Government authorities, such as administrative 

procedures legislation. 

Discretion to interpret its authority 

BaFin must at all times act within the authority granted to it by legislation and in 

accordance with administrative law. It can provide guidance on the laws it administers 

and its approach to monitoring and enforcing compliance with them. It has issued 

extensive guidance, for example on the obligations of issuers, and CIS operators. 
25 

BaFin does not have a general power to make rules that are legally binding on market 

participants. Under the German constitutional system of law, the power to make binding 

rules is reserved for the Parliament, or those to whom the Parliament expressly 

delegates the power to make subordinate legislation (regulations, ordinances). For the 

legislation BaFin is responsible for, the power to make subordinate legislation is 

ordinarily delegated to the BMF, but in some cases the legislation made by Parliament 

allows the BMF in turn to delegate this power to BaFin. In practice in the securities 

sector, this ordinarily applies only for technical matters such as the details of disclosures 

that the legislation requires regulated entities to make. 

The role and responsibilities of ESAs and TSOs and other elements of the regulatory 

regime (such as stock exchange disciplinary committees) is specified in legislation and 

associated regulation and ordinances. These bodies must also act within the limits 

prescribed by such legislation. 

Coordination and cooperation between regulatory authorities

BaFin, the Bundesbank, the Federal Cartel Office, ESAs and TSOs are obliged by 

legislation to cooperate with one another and share information, including personal data, 

needed for the performance of their functions. See especially s6 WpHG. Administrative 

law provisions require all public authorities to cooperate and communicate in shared 

areas of responsibility. 

The Banking Act also has detailed provisions relating to the roles played by BaFin and 

the Bundesbank in the supervision entities licensed under the Banking Act, including 

requirements for information sharing. This framework is supported by an MOU and a 

guideline issued by BaFin on carrying out and ensuring the quality of the ongoing 

monitoring of credit and financial services institutions by the Deutsche Bundesbank. 

In practice, there are regular formal and informal information flows and referrals from 

ESAs to BaFin. 

BaFin must also report to the prosecutorial authorities without undue delay report facts 

giving rise to suspicion of a criminal offence (see s4 WpHG). 

Assessment Broadly implemented 

Comments Although regulation of activity on exchange markets involves a division of responsibility 

and powers between BaFin and State-based authorities, the legislative framework is 

clear as to roles and functions. There do not appear to be any gaps or significant 

overlaps. TSOs under the supervision of State Authorities monitor compliance by 

exchanges and members’ compliance by members with exchange the rules. They and 

the ESAs have a duty to report suspicions of market abuse to BaFin. BaFin receives 

transaction reports from licensed intermediaries for all market activity, and actively 

monitors for compliance with prohibitions on insider trading and other market abuse. 

As noted in the 2003 assessment, the legislative framework does not provide for a fully 

uniform regulatory standards across the spectrum of financial instruments. Some 

products and services provided in relation to them—notably advice, marketing and 

distribution services—appear to be regulated differentially (for example, there is no 

Federal regulation of the selling function for closed-end funds, although the prospectuses 

for these funds are now subject to approval—see Principle 14). Selling and 

intermediation functions is subject to an authorization process under the Commercial 

Code administered by local authorities; the regulation imposed in this way is not as 

stringent as that applying to the financial instruments regulation administered by BaFin. 
26 

However, it is worth noting that all prospectuses are now subject to the same regime. 

While it is difficult to gauge the extent of this “grey market” activity with accuracy, it 

means there is a persisting risk of mis-selling of these products at the retail level. The 

framework also has the potential for incentives to structure products activities so as to 

avoid the cost of complying with the full securities regime; and the risk that substantial 

misconduct in the sector will damage the confidence of retail investors in the investment 

sector generally. 

The assessor understands the authorities are developing proposals to address the risk of 

mis-selling in the grey market and to provide more uniform regulation of advice and selling 

function across the financial sector, and supports that initiative; Proposals for regulation of 

these functions to a standard equivalent to the licensing regime administered by BaFin 

were released for public comment in April 2011 (shortly after the date of the assessment).

Principle 2. The regulator should be operationally independent and accountable in the exercise of its 

functions and powers. 

Description Governance 

BaFin was established by the Act establishing the Federal Financial Supervisory 

Authority (Gesetz über die Bundesanstalt für Finanzdienstleistungsaufsicht, FinDAG) as 

a separate institution governed by public law with its own legal personality. FinDAG 

specifies its management structure and basic organizational structure, and establishes 

an Administrative Council (Verwaltungsrat) that monitors and supports its performance. 

The FinDAG provisions are supplemented by more detailed provisions in BaFin’s ByLaws (Satzung der Bundesanstalt für Finanzdienstleistungsaufsicht); and an 

Organizational Statute for the Federal Financial Supervisory Authority 

(Organisationsstatut für die Bundesanstalt für Finanzdienstleistungsaufsicht, OsBaFin) 

As part of the Federal administration, BaFin is subject to the legal and technical oversight 

of the BMF, with the framework of which the legality and fitness for purpose of BaFin's 

administrative actions are monitored. 

The Administrative Council consists of a Chairman and Deputy Chairman (seconded by 

the BMF); two other BMF representatives; representatives of The Federal Ministry of 

Economics and Technology and the Federal Ministry of Justice; five representatives of 

the German Parliament (Bundestag); and 10 representatives of regulated entities (five 

from credit institutions, four from insurance undertakings, and one from asset 

management companies). 

§4 of BaFin’s By Laws sets out the role of the Administrative Council. Its role is to 

monitor and assist BaFin’s management of the Supervisory Authority, and its functions 

include: 

a. adopting the budget presented by the executive board ( see also section 12(2) 

FinDAG) ; 

b. approving BaFin’s audited annual accounts ( see also section 12(3) and (5) ); 

c. issuing rules of procedure of the Administrative Council ( see also section 7(2) 

FinDAG); 

d. proposing amendments to BaFin’s Articles of Association ( see also section 5(3) of 

the FinDAG); 

e. other oversight functions such as consideration of proposed formal cooperation and 

information sharing agreements with other supervisory authorities. 

Other bodies play an advisory role in relation to BaFin’s activities. These include a 

Securities Council comprised of representatives of the various States and the Federal 

Ministries of Finance, Justice and Economics and Technology; and a broadly based 
27 

Advisory Council. 

Responsibility for day-to-day management of BaFin rests with an executive board 

comprised of its President and four chief executive directors. 

BaFin’s President and its four executive directors are appointed by the President of the 

Federal Republic of Germany (section 9(2)) upon recommendation by the Federal 

Government (BMF). They hold office as civil servants and could, at least in theory, be 

subject to transfer at the same level elsewhere within the civil service at any time. 

The Supervisory Authority's statutory functions are performed by four directorates: 

a. Regulatory Services/Human Resources (including Cross Sectoral Issues) 

b. Banking Supervision; 

c. Insurance Supervision; 

d Securities Supervision. 

Each directorate is headed by a Chief Executive Director. 

The President oversees the International Policy/Affairs department and the President's 

Office, Internal Audit as well as Press and Public Relations/Information Management. 

Press and Public Relations/Information Management and the International Policy/Affairs 

department also assist the other members of the Executive Board. 

The President and the four Chief Executive Directors retain their status as permanent 

public officials, and are formally subject to the supervision of BMF. In practice this means 

that, at least in theory, they can at any time be moved (at their current level) to another 

part of the civil service subject to normal administrative procedures. 

 

Staff of ESAs are appointed in accordance with the normal procedures that apply to 

appointments within their relevant Ministry. ESA approval is required for the appointment 

of the senior management of TSOs. 

Interaction with government

BaFin is part of the portfolio of the BMF, and subject to legal and technical supervision by 

BMF (section 2 of FinDAG). BMF’s role in supervising is set out in detail in set out in 

detail in a set of publicly available Principles7

 and includes: 

a. approving BaFin’s formal rules of procedure; 

b. appointing members of the Administrative Council; 

c. being the supreme official authority for BaFin’s President and Chief Executive 

Directors (for example by considering complaints about the conduct of the President 

or chief executive directors); 

d. considering the audit of BaFin’s accounts and financial management. 

The role BMF plays in the supervision of BaFin results in a high level of formal 

accountability, but does not appear to have any adverse impact on the de facto 

independence of BaFin’s day-to-day decision making on regulatory issues. BMF is the 

focal point for broad public policy debates and BaFin does not have a role in public 

debate on such policy questions. 

 

7

 Principles governing the exercise of legal and technical supervision of BaFin by the Federal Ministry of 

Finance, February 2010, available on the BaFin website: 

http://www.bafin.de/nn_721300/SharedDocs/Veroeffentlichungen/EN/BaFin/Grundlagen/gs__aufsicht__bmf__

bafin__en.html.
28 

Funding

FinDAG make BaFin responsible for drawing up its own budget and raising sufficient 

revue to cover its costs. It does not rely on a budget allocation from the Federal 

government. Revenue is derived from the entities it regulates in the form of: 

a. fees charged for official acts; 

b. reimbursements for costs it incurs, for example by appointing a liquidator or 

commissioning an auditor; 

c. contributions for regulated entities. 

The actual amount of fees and contributions is calculated on the basis of the Ordinance 

on the Imposition of Fees and Allocation of Costs Pursuant to the FinDAG (Verordnung 

über die Erhebung von Gebühren und die Umlegung von Kosten nach dem 

Finanzdienstleistungsaufsichtsgesetz – FinDAGKostV) and in accordance with special 

rules governing the charges to be applied by BaFin. 

In 2010, approximately 88 percent of BaFin’s total budget of close to EUR 160 million 

was derived from industry contributions. The fee proportion declined from 25 percent in 

2009 to 11 percent. 

The executive board draws up the budget each year for approval by the Administrative 

Council. 

Legal protection

Broad constitutional provisions that apply generally to Government employees 

performing official functions protect BaFin staff from legal liability for acts or omissions, 

provided they act in good faith. Individual liability arises only for intentional or grossly 

negligent misconduct. These protections apply equally to staff of ESAs and TSOs. 

Accountability

BaFin is accountable to the BMF, with the Ministry’s supervisory powers set out in 

FinDAG and in more detail in the Principles governing the exercise of legal and technical 

supervision of BaFin by the BMF. These Principles contain quite detailed requirements 

for BaFin to provide reports and other information to BMF (see Part III). These 

requirements do not envisage pre-approval by BMF of BaFin’s regulatory decisions, but 

they do place a considerable reporting burden on it. 

ESAs are administrative units within State Ministries and do not have separate legal 

personality. 

In accordance with ordinary principles of German administrative law, there are rights of 

review available to those affected by decisions of BaFin and the ESAs, including by 

courts. 

Assessment Partially implemented 

Comments At a formal level, aspects of the German system do not meet the standards of 

independence envisaged by the IOSCO principles. The clearest example is the location 

of ESAs within State Ministries, which are directly accountable to and potentially subject 

to the direction of the relevant Minister. 

BaFin itself is operationally independent of government and accountable. However, it is 

subject to full, and potentially burdensome, reporting obligations to BMF. In addition, the 

senior management of BaFin is “embedded” within the civil service and not formally 
29 

protected from transfer to other positions other than through the reputational risk this may 

pose for government, and the limited number of comparable positions. 

There seems to be no evidence of political interference in the day-to-day operations of 

the ESAs or of BaFin. The express and detailed legislation that defines the 

responsibilities and powers of the regulators in the securities sector itself contributes to 

this de facto independence. 

Authorities should give consideration to: 

a. mechanisms to strengthen the formal independence of the State ESAs; 

b. reviewing the reporting obligations of BaFin to BMF with a view to streamlining them; 

c. mechanisms, such as fixed term contracts, to ensure the position of the President 

and senior management of BaFin is secure and not open to potential arbitrary 

decisions based on political or other non-performance related considerations. 

Principle 3. The regulator should have adequate powers, proper resources and the capacity to 

perform its functions and exercise its powers. 

Description Powers

BaFin has adequate powers to: 

a. issue authorizations (licenses) to entities carrying on business as financial services 

institutions; 

b. approve capital market activities, such as fundraising and takeovers; 

c. obtain information to enable it to monitor compliance by regulated entities and issuers 

in the capital market and to detect market abuse; and 

d. take corrective action to remedy breaches and reduce the risk of non-compliance. 

BaFin does not have a general power to make rules that are legally binding on market 

participants. Under the German constitutional system of law, the power to make binding 

rules is reserved for the Parliament, or those to whom the Parliament expressly 

delegates the power to make subordinate legislation (regulations, ordinances). For the 

legislation BaFin is responsible for, the power to make subordinate legislation is 

ordinarily delegated to the BMF, but in some cases the legislation made by Parliament 

allows the BMF in turn to delegate this power to BaFin. In practice in the securities 

sector, this ordinarily applies only for technical matters such as the details of disclosures 

that the legislation requires regulated entities to make. 

The Stock Exchange Act (Börsengesetz, BörsG) and related legislation gives ESAs 

sufficient powers to approve new exchanges, approve exchange rules and amendments 

to them and monitor exchanges’ and market participants’ compliance with their 

obligations. ESAs also approve key regulatory appointments, such as the management 

board of exchanges, the head of the TSO and the chair of the exchange’s disciplinary 

committee. If needed, they have power to take appropriate corrective action to enforce 

compliance. 

Resources and capacity 

BaFin’s resources appear adequate. The budget process is described under Principle 2, 

and gives BaFin the flexibility to allocate resources to areas of highest need. Staffing is 

scheduled to increase by 12 percent in the 2011 year. This is against a background of 

proposed cuts of 1.8 percent in staffing in government positions generally. 

BaFin’s securities supervision Directorate (located in Frankfurt) is structured into four 

Departments, and at the end of 2010 employed round 380 out of BaFin’s total staff of 

1,900. Staff numbers, including in the Securities Directorate, are scheduled to increase in 

2011. Some functions relevant to compliance with IOSCO Principles are carried out by 

other parts of BaFin, notably the supervision of licensed banks’ compliance with 
30 

prudential and solvency rules. 

BaFin staffs are largely permanent civil servants or public employees, but there is some 

scope to employ specialist expertise outside the public sector remuneration framework. 

Pay scales do not match those available in the financial markets, but employment is 

secure and staffs generally make a career as BaFin employees. 

Many BaFin staffs are recruited directly from their university studies at masters or 

doctorate level, as well as from the private or professional sector. Training is provided 

both through training programs and through rotation through different parts of BaFin in 

the early stages of recruits’ careers. 

Assessment Fully implemented 

Comment BaFin has adequate powers and financial resources to be an effective regulator. It 

employs professional staff with high qualifications. Its staff profile is largely permanent 

civil servants and it may lack depth of industry experience in some areas. It may be 

desirable for it to draw on industry expertise through, for example, secondments to 

ensure staff have exposure to industry practice. 

Principle 4. The regulator should adopt clear and consistent regulatory processes. 

Description Regulatory authorities (including BaFin and ESAs) are bound by general administrative 

law provisions requiring consistent and fair processes. These processes are codified in 

the Administrative Procedures Act (Verwaltungsverfahrensgesetz, VwVfG). In some 

cases, they are supplemented by specific procedural requirements in the legislation 

BaFin administers, such as the Securities Trading Act, the Securities Prospectus Act, 

and the Takeovers Act. 

The general administrative law legislation provides for fair and transparent procedures 

and this is the basis for clear and consistent processes. 

Procedures and guidance

Proposed rules, regulations and policies (other than some enforcement policies) are 

subject to prior consultations with affected stakeholders and, where appropriate, to public 

consultation. 

Proposals are always published on the BaFin-website, and sometimes also circulated in 

print form. BaFin also make public the comments it receives through the consultation 

process. Important policies are often also subject to an additional hearing on BaFin's 

premises. 

All policies are, when adopted, made available on BaFin’s website, as are changes to 

existing policies and rules made by BaFin under delegated authority. 

BaFin does not have a formal obligation to conduct formal cost-benefit analyses of 

proposed rules or guidance, but its mission statement8

 commits it to both proportionality 

and cost consciousness in carrying out its functions. 

 

BaFin Decisions 

 

8

 Published on BaFin’s website at 

http://www.bafin.de/cln_179/nn_721300/EN/BaFin/Legalbasis/Missionstatement/missionstatement__node.html

?__nnn=true
31 

The criteria on which BaFin makes decisions—including a decision to grant, deny or 

revoke a license, and other regulatory decisions—are set out in the relevant legislation 

and any associated guidance issued by BaFin. These decisions are administrative acts 

to which VwVfG applies, including Section 28 which entitles the subject of the decision to 

a hearing if they are not satisfied with the decision. Section 39(1) of VwVfG requires 

reasons to be given for decisions that affect the rights or interests of others. 

Under the Code of Administrative Court Procedures (Verwaltungsgerichtsordnung, 

VwGO), BaFin’s formal regulatory decisions can be appealed to formal judicial review. A 

prior internal administrative review is required before judicial review. 

BaFin does not generally make reports on investigations public, though it has the power 

to do so when a proceeding is complete (section 40B WpHG). 

Investor Education 

BaFin produces information sheets and leaflets that provide information to investors. Its 

website has a consumer portal, a frequently asked questions facility, and provides readily 

accessible databases listing all licensed firms, approved prospectuses, and major 

holdings in voting rights. 

BaFin does not have a broad mandate for financial literacy or generalized investor 

education and its activities in this area are largely limited to those described above. 

Assessment Fully implemented 

Comments 

Principle 5. The staff of the regulator should observe the highest professional standards including 

appropriate standards of confidentiality. 

Description BaFin staff are Federal Government employees and their obligations to observe 

standards of professional conduct derive from three sources: 

a. general administrative law provisions that apply to all Government employees, such 

as the Federal Civil Service Act (Bundesbeamtengesetz, BBG); the Administrative 

Procedures Act (VwVfG) and the Code of Criminal Procedure (Strafprozessordnung);

b. specific provisions in legislation that BaFin administers, such as the Securities 

Trading Act, the Banking Act, the Takeovers Act and the Prospectus Act; and 

c. regulations and internal instructions and directives such as regulations on personal 

account dealings by BaFin staff; standing instructions for the prevention of corruption 

at BaFin; and a directive on the acceptance of rewards and gifts. 

This framework is supplemented by BaFin’s internal control system which among other 

things defines procedures, responsibilities and reporting lines; and establishes 

compliance monitoring arrangements to detect and deal with potential misconduct. 

The Banking Act (section 9 KWG) and the Securities Trading Act (Section 8 WpHG), 

together with the Federal Data Protection Act require personal data and business/trade 

secrets to be kept confidential. Breaches of these provisions may expose a staff member 

to criminal penalties. Other specific legislation contains similar requirements. 

The Regulation on the Monitoring of Personal Account Dealings: 

a. prohibits any dealings by BaFin staff that may amount to insider trading under the 

Securities Trading Act; 

b. requires all BaFin staff to keep records of personal account dealings (dealing on the 

account of a staff member or a relative or friend of a staff member); 

c. requires BaFin staff who have or may have access to inside information (in practice, 
32 

all regulatory staff of BaFin are in this category) to immediately report trading 

transactions to senior management or a designated person; 

d. establishes processes for monitoring compliance with these rules. 

The Standing Instructions for the Prevention of Corruption at BaFin mandates that BaFin 

appoints an anti-corruption officer and sets out the functions of that role. 

Compliance by BaFin staff with these standards of professional conduct is the 

responsibility of senior management, working with internal audit and the anti-corruption 

officer. Senior management are also responsible for dealing with complaints about the 

conduct of BaFin staff, expect for complaints about conduct by the President and Chief 

Executive, for which BMF has responsibility. 

Breaches by BaFin staff of professional standards expose them to administrative action, 

and potentially to criminal sanctions (for example for insider trading). 

Staff of ESAs are subject to similar standards of conduct through general administrative 

law, specific provisions in the legislation they administer, and relevant internal 

instructions that apply to staff in the Ministries they work in. 

Assessment Fully implemented 

Comments 

Principles of Self-Regulation 

Principle 6. The regulatory regime should make appropriate use of Self-Regulatory Organizations 

(SROs) that exercise some direct oversight responsibility for their respective areas of 

competence, and to the extent appropriate to the size and complexity of the markets. 

Description Under the German system, only public law bodies perform regulatory functions and these 

functions are defined by and specified in legislation. The role played by stock exchange 

TSOs and other administrative bodies is within this characterization and for the purposes 

of this assessment TSOs are not treated as SROs. The role played by TSOs and other 

exchange bodies is described under the Principles for secondary markets. 

Assessment NA 

Comments 

Principle 7. SROs should be subject to the oversight of the regulator and should observe standards of 

fairness and confidentiality when exercising powers and delegated responsibilities. 

Description See comments under Principle 6. 

Assessment NA 

Comments 

Principle 8. The regulator should have comprehensive inspection, investigation and surveillance 

powers. 

Description BaFin has extensive powers to monitor compliance by entities it regulates and other 

persons subject to obligations or prohibitions under legislation it administers. 

Under the Securities Trading Act (Section 4 WpHG), BaFin has powers to require any 

person (including a person who is not a regulated entity) to supply information and 

documents and to answer questions, subject to safeguards provided by German 

constitutional law. This power includes the power to compel a person to provide details 

about changes in holdings of financial instruments, and the identity of those acquiring 

rights under transactions. BaFin also has the power to enter premises, including without 

prior notice. These powers give BaFin the authority to carry out on–site inspections of 

regulated entities, whether on a routine or for-cause basis. 
33 

The Banking Act (section 44 KWG) confers similarly broad powers to require information 

and carry out inspections in relation to credit and financial services institutions. The 

Investment Act empowers BaFin to issue any order deemed necessary to ensure 

compliance with that Act and related legislation (Section 5 InvG); and to require 

information and carry out inspections in relation to investment managers (Section 19g 

InvG). 

These powers can be used on a routine basis and do not require BaFin to suspect 

misconduct. 

WpHG requires a regulated entity to make and keep records of its business activity, 

transactions and the use of customer funds. It also requires the entity to keep records of 

the investment services it provides in such a way as to permit BaFin to verify the entity’s 

compliance with the legislation (see primarily Section 34 and also Section 25a KWG and 

section 9a InvG). This includes records of client agreements, and minutes of investment 

advice provided to retail clients. 

Records are required to be kept for a minimum of five years. 

Particular record keeping rules also apply under the anti-money laundering legislation 

administered by BaFin, including customer identity data for specified types of 

transactions. Regulated entities also must report transactions involving suspect antimoney laundering or anti terrorist financing under the Money Laundering Act

(Geldwäschegesetz), GwG).

BaFin has power to require investment services institutions to supply information about 

the identity of clients. In addition, some information regularly reported to BaFin (such as 

daily transaction reports submitted by investment services institutions) contains client 

identity information. See sections 4 and s9 WpHG. 

Use of external auditors

In addition to the powers described above, BaFin makes extensive use of the results of 

compliance audits by regulated institutions’ external auditors in its regulatory work. These 

audits fall into two groups: 

a. routine annual compliance audits (see Section 36 WpHG) 

These audits are separate from the audit of financial statements and focus on an 

institution’s compliance with conduct and organizational rules. BaFin has power to 

specify the scope of these audits, and determine points of emphasis. Auditors must 

report to BaFin without undue delay any serious contraventions of the institution’s 

reporting or conduct obligations. 

b. “special” audits (see Section 35 WpHG) 

These are audits commissioned by BaFin and carried out by an external auditor 

(normally other than the firm’s usual auditor), or by BaFin staff directly, or—most 

commonly—by BaFin staff working with an external auditor. No special reason (such 

as suspected misconduct) or even prior notice is required for these audits. 

The Stock Exchange Act (Section 3 BörsG) gives ESAs similar powers to those 

conferred on BaFin by The Securities Trading Act, including the power to seek 

information and documents from exchanges, exchange operators, trading participants 

and issuers of traded financial instruments. 

Assessment Fully implemented 

Comments BaFin’s high level of reliance on the work of external auditors is discussed under 
34 

Principle 10. It does not result from any lack of power for BaFin itself to obtain 

information, or to carry out on-site inspections, and BaFin’s powers of inspection, 

investigation, and surveillance are broad ranging. 

Principle 9. The regulator should have comprehensive enforcement powers. 

Description BaFin has comprehensive powers to deal with breaches, or threatened breaches, of the 

legislation it administers. These fall into three broad categories: 

a. requiring a regulated entity to take corrective action; 

b. imposing administrative penalties; and 

c. referring a breach to the public prosecutor for prosecution as a criminal offence. 

The authorities responsible for the regulation of stock exchanges (ESAs and TSOs) also 

have appropriate powers to monitor and take action to preserve the integrity of market 

trading. 

Enforcement powers can be summarized in the following table: 

Enforceme

nt action 

Legal foundation Content/description 

Criminal 

penalty 

§ 38 WpHG, § 54 

KWG 

Insider trading and market manipulation is a 

crime according to § 38 WpHG. The penalty 

is a monetary fine or imprisonment up to five 

years. 

Providing prohibited banking services or 

providing banking or investment services 

without a permission of BaFin is a crime 

according to § 54 KWG. The penalty is a 

monetary fine or imprisonment up to three 

years. 

Administrat

ive fines 

§ 39 WpHG, § 56 

KWG, § 30 WpPG, 

§ 17 VerkProspG, 

§ 143 InvG, § 60 

WpÜG 

All relevant obligations in the securities 

supervision are subject to an administrative 

fine in case of an intentional or negligent 

breach of the respective rules. Depending 

on the importance of the violated regulation 

fines ranging from up to 50.000 Euro to a 

maximum fine of 1.000.000 Euro. The 

amount is adjusted by BaFin according to 

the individual case and is subject to a 

judicial review if requested by the fined 

person. The economic profit of an offence 

can be withdrawn without a specific 

limitation. 

Penalty 

payment, 

coercive 

detention, 

execution 

by 

substitution 

VwVG 

(Verwaltungsvollstr

eckungsgesetz – 

Act on 

Administrative 

Enforcement) 

All administrative measures of BaFin can be 

enforced by penalty payment, coercive 

detention or execution by substitution. All 

unfulfilled obligations under securities 

supervision law can be enforced by BaFin 

using these coercive measures adjusted to 

the individual case. 

Profession § 36 KWG, § 70 According to § 36 KWG, BaFin can recall 
35 

al ban StGB 

(Strafgesetzbuch, 

Criminal code) 

managers of investment firms in case of 

substantial breaches of regulation or Noncompliance with the legal requirements for 

managers. In case of a criminal sanction, 

the criminal court can order a professional 

ban for up to five years against the 

respective person. 

Corrective action 

BaFin has power to impose a range of administrative remedies to compel compliance 

with the legislation it administers. These measures can be imposed without BaFin 

needing to seek orders from a court. Examples of these are powers to: 

a. issue orders to regulated entities to stop or prevent violations of legislation or prevent 

developments that may endanger the safety of assets entrusted to an institution, or 

impair the provision of financial services; 

b. issue instructions to the management of an institution, prohibit withdrawals or 

transfers from an account, and prohibit an institution from executing any other 

financial transactions; 

(See Sections 6 and 6a KWG.) 

c. issue orders to suspend trading in one or more financial instruments, including 

market trading; 

d. after consultation with the Bundesbank, issue orders needed to eliminate or prevent 

undesirable developments that may harm financial market stability or undermine 

confidence in financial markets; 

(See Sections 4 and s4a WpHG.) 

e. impose conditions on or revoke a license; 

(See Section 32(2) (license conditions) and Section 35(2) (revocation of license) 

KWG.) 

f. compel an issuer to publish errors detected in its financial reports. 

(See Section 37q(2) WpHG.) 

ESAs and stock exchange TSOs also have powers to suspend and discontinue trading, 

and to issue orders in response to irregularities and actual or threatened contraventions 

of relevant legislation. See for example, Section 3(5) of BörsG. 

Administrative penalties

The legislation BaFin administers makes a clear distinction between administrative 

offences subject to administrative penalties (fines) and criminal offences such as insider 

trading (see especially Sections 38 and 39 WpHG). For some offences (such as market 

manipulation), a distinction is made between the elements of an offence that gives rise to 

a criminal penalty and those that amount to an administrative offence (see Sections 38(2) 

and 39(1) nos. 1 and 2). 

BaFin is responsible for imposing fines and the public prosecutorial authorities for 

prosecution of criminal offences. 

The Securities Trading Act (Sections 39 and 40 WpHG) gives BaFin power to impose 

administrative penalties up to €1 million for breaches of a broad range of administrative 

offences. A detailed scale of maximum penalties applicable to specific offences is set out 

in the legislation, with the largest maximum penalty being for market manipulation. 
36 

Penalties apply to conduct, reporting and record keeping obligations. 

Within BaFin, administrative penalties are imposed by a special unit (sanctions unit) 

within the Securities Directorate. The ordinary practice is for the unit deals with matters 

on a referral from the relevant functional unit. The sanctions unit reviews the referral and 

decides if the conduct in question should be subject to an administrative fine. It may, if 

required, gather further evidence before making a decision. 

A decision to impose a penalty is subject to a process of review. If a person objects to 

such a decision, it will in the first instance be reviewed within BaFin. If it upholds its 

decision, BaFin refers the matter to the public prosecutor for review. If the public 

prosecutor upholds BaFin’s decision, the person can take the matter before a court. 

In practice, administrative penalties are most common for offences committed by 

securities participants, such as issuers and directors, who are not part of licensed 

institutions. For such regulated institutions, the use of powers to take corrective action is 

more common. 

The Disciplinary Committees of stock exchanges can also fines trading participants up to 

EUR 250,000, and suspend a trading participant for up to 30 days, for intentional or 

negligent breaches of market rules (see section 22 of BörsG). 

Criminal offences 

If BaFin becomes aware of facts giving rise to suspicion of a criminal offence, it must 

report them without delay to the public prosecutor’s office. It can provide confidential 

information, including personal data, as part of such a referral. The public prosecutor is 

responsible for investigation of criminal offences and has wide powers under the Code of 

Criminal Procedure. BaFin is kept informed about an investigation and generally has 

access to records held by the public prosecutor. See Sections 4(5) and 40a WpHG. 

If a person does not comply with BaFin’s instruction to supply information or documents, 

or to permit access to premises, BaFin can impose an administrative penalty of, for some 

breaches, up to €200,000. See Sections 39(3) and (4) WpHG. 

BaFin does not have authority to request telephone records or records from internet 

service providers, although the public prosecutor may gain access to these records with 

the permission of a court. 

Private right of action 

Enforcement actions by BaFin or the public prosecutor do not compromise the rights of 

other parties to take action, for example for tort or breach of contract. Breach of a 

legislative obligation does not of itself form the basis of a private right of action. 

Assessment Fully implemented 

Comments Within the system described above, a clear distinction is made between offences that 

can be dealt with by administrative action by BaFin (corrective action and the imposition 

of administrative penalties), and conduct giving rise to a criminal offence (the responsible 

of the public prosecutor). BaFin’s extensive powers for the role it plays, including for 

gathering information and evidence to support a referral to the public prosecutor. 

Principle 10. The regulatory system should ensure an effective and credible use of inspection, 

investigation, surveillance and enforcement powers and implementation of an effective 

compliance program. 
37 

Description Supervision of market intermediaries and investment managers 

BaFin uses the following regulatory tools in its ongoing supervision of licensed market 

intermediaries and investment managers: 

a. risk rating; 

b. continuing monitoring of reports and regular contact with regulated entities; 

c. specification of the scope and particular points of emphasis of annual external 

compliance audits; 

d. direct participation in annual compliance audits; 

e. review of compliance audits; 

f. commissioning “special” audits; 

g. thematic reviews, involving BaFin seeking and reviewing information from regulated 

entities going to compliance with a specific aspect of business conduct (such as 

those undertaken in 2010 covering compliance with new rules requiring investment 

advisers to take minutes of their dealings with advice clients). 

Risk rating 

BaFin risk rates all market intermediaries and investment managers it supervises. In its 

present form the risk rating system is relatively new (adopted in 2009) and can be 

expected to develop further. 

In this system, entities are risk rated based on the assessment of quality and the impact

scores. The resulting rating is shown in a twelve-field matrix on a green-amber-red basis.

Quality of entities is determined by risk-relevant information relating to the entity’s 

financial position, business organisation and management quality, and (for market 

intermediaries) information about conduct of business criteria (based on information from 

audit results, type of business, business volume, reports and complaints). Risks are 

classified on set, weighted, criteria and awarded a score. Three sub-categories exist: 

Asset, financial and income situation (sub-category 1), quality of management (subcategory 2) and quality of organisation (sub-category 3). 

Impact scores are based on predefined thresholds depending on the size of the entity 

(for asset managers, the amount of assets under management) and on the type of the 

business conducted (for example, hedge funds management is automatically considered 

high impact). 

This process result in classification in a twelve-field matrix from 3 (high impact) to 1 (low 

impact) combined with A (high quality) to D (low quality). Entities with a high impact and 

a lower quality (for example those rated 3C) would be subject to more intensive 

supervision. 

Banks are subject to a separate rating by the Securities Supervision Directorate based 

on the compliance with the conduct of business requirements as well as a rating by the 

Banking Supervision Directorate of BaFin based on prudential factors. 

Information entered into the system reflects information and assessments made at the 

time a license is issued; review of annual compliance audit reports; and other information 

coming to the attention of BaFin staff in the course of their supervisory work, including 

public and other complaints. An institution’s position in the risk matrix can affect the 

frequency of on-site inspections, closer review of reports performed by BaFin staff, or 

instructions given about specific topics to be covered in the annual compliance audit. In 

the intermediaries area, an institution being rated in the amber zone means BaFin staff 

will be present at the annual compliance audit (there are currently no institutions in the 
38 

red zone). 

Risk Ratings of (Non-Bank )Financial Services Institutions for 2010 

Financial service institutions 

 Total 

1A 227 

1B 386 

1C 43 

1D 14 

2A 29 

2B 55 

2C 13 

2D 3 

Total 770 

 Source: Information supplied to assessor 

Investment Managers Risk Ratings, 2009 

 Source: 2009 BaFin Annual Report. 

Compliance audits 

BaFin makes extensive use of the work of regulated entities’ external auditors in its 

supervision of both market intermediaries and investment managers and depositaries. 

The auditors of market intermediaries (see Section 36 of WpHG) and investment 

managers (see Sections 19f and 110a of InvG) must examine and report annually on 

whether an entity has complied with its reporting and conduct of business obligations. 

These audits (annual compliance audits) are all read by BaFin staff and are in effect the 

first line of compliance monitoring. 

The nature scope of such compliance audits is set out in detail in the legislation. For 

market intermediaries see sections 4 to 6 of the Regulation on the Examination of 
39 

Investment Services Enterprises pursuant to Section 36 of the Securities Trading Act 

(Wertpapierdienstleistungs Prüfungsverordnung, WpDPV); and for investment managers 

see the Investment Audit Reports Ordinance (Investment-Prüfungsberichtsverordnung - 

InvPrüfbV) issued by BaFin. In addition, BaFin has the power to direct focus on key 

issues (Prüfungsschwerpunkte) for any audit, a power it exercises regularly both 

generally and in specific cases. For example, in 2010 BaFin required auditors of banks to 

focus specially on the provision of investment advice and the performance of clients’ 

accounts over a period of several years. 

In addition to annual compliance audits, BaFin can commission “special” audits. These 

audits are in addition to the annual compliance audit and cover matters specified by 

BaFin. They are generally carried out by an auditor who is not the entity’s normal 

external auditor. 

BaFin staff participate both in some annual compliance audits, and routinely in special 

audits. In the BaFin context, on-site inspections ordinarily refer to inspection carried out 

jointly by an auditor (an institution’s normal auditor or an auditor specially appointed by 

BaFin) and by BaFin staff. 

For example, in 2010, the section supervising the 147 foreign and private banks under 

BaFin’s supervision on business of conduct provisions participated in 26 audits. 

As a general rule, major banks with significant relevance for the German market are 

visited regularly, most of them yearly. In all other cases, the selection of the entities that 

are visited by BaFin staff is met on the basis of the risk assessment. For these 

participations, BaFin staff participate in visits to banks’ headquarters, and also foreign 

and domestic branches. 

Supervision of market intermediaries

 

For (non-bank) financial services institutions, one person at BaFin is permanently 

allocated for the supervision of approximately 30 regulated entities. This gives 

supervisors an overview of the intermediaries under their supervision and the ability to 

assess the risk potential and issues of concern for these entities. As a general rule, 

supervisory contact with eight supervised entities per supervisor is foreseen in 

Department WA 3, ensuring that supervisors will have contact with each intermediary 

approximately every four years. The contacts are allocated on the basis of the risk 

assessment of the entity; therefore some intermediaries will be supervised more closely 

than others. Supervisory contacts will either be performed through participation in the 

external audits described above or via meetings with the intermediaries’ management. 

Deutsche Bundesbank holds yearly meetings with all financial services institutions (The 

Deutsche Bundesbank assists BaFin in the prudential supervision of banks and financial 

services institutions). The meetings serve to provide the participants with an update on 

the intermediary’s activities. BaFin staff participates in these meetings when necessary to 

discuss regulatory breaches, new business models or other matters of interest. Although 

these meetings are primarily focused on prudential matters, other supervisory issues will 

also be discussed during these meetings when BaFin deems this necessary. When 

BaFin staff does not participate in the meetings, the Bundesbank will inform BaFin of the 

content and outcome of the meeting. 

Ongoing supervision of investment managers 

BaFin supervision of investment managers employs a range of techniques, including: 

a. meetings with industry representative and auditors: 

BaFin meets with industry representatives (the representatives from relevant 
40 

associations and experts from different companies) and with auditors regularly 

(routine meetings) as well as on particular issues. In 2010 BaFin held 20 such 

meetings with industry representatives, most of which focused on specific regulatory 

issues, and two industry-wide workshops. 

b. meetings with individual companies to discuss ongoing supervision issues: 

In 2010 routine meetings were conducted with more than half of the supervised 

companies (regular and planned supervision meetings) with directors/managers and 

competent staff of the supervised companies. In addition, in 2010 there were 

50 meetings outside the regular plan with supervised companies to deal with specific 

issues (such as shortcomings of the company, market developments striking the 

company or its CIS or monitoring the decision making process of CIS management 

companies managing open-ended real estate funds with suspended redemptions 

regarding sustainable reopening or liquidation of the fund). 

c. audits and inspections: 

BaFin uses both routine annual compliance audits and special audits to monitor 

compliance by investment managers. For annual compliance audits, normally, two 

officers (who are responsible for the respective CIS operator and its funds) including 

one senior officer review each report. The officer establishes a written comment on 

the report including recommendations to proceed. This written comment is 

additionally reviewed by the senior officer who confirms or amends the conclusions or 

recommendations. The final decision on measures is taken by the head of section. 

Actions following review include: 

i. follow up phone calls with the auditors to get better insight into possible issues; 

ii. follow up phone calls to the investment manager; 

iii. letters requesting reasons for an identified infringement and for remedial action, 

and an instruction to bring operations into compliance with legal requirements; 

iv. in the case of major shortcomings, requiring a meeting with the company on short 

notice. 

 In 2010, BaFin staff directly participated in seven special audits of investment 

managers. 

d. targeted information requests to monitor specific issues: 

For example, in October 2008, BaFin requested that all German management 

companies had to submit trend reports on a daily basis for the purposes of monitoring 

their liquidity risk. The companies reported, for instance for funds with a low liquidity 

ratio (as defined by BaFin), the liquidity ratio, net cash outflows or the raising of credit. 

In order to monitor the liquidity risk of money market funds there was an additional 

daily reporting obligation on cash flows for these funds. BaFin changed from daily to 

weekly reports as liquidity stress weakened. Daily reports are still submitted on the 

liquidity situation of all open-ended real estate funds. Since October 2010 companies 

also have to hand in daily reports of funds of funds with real estate fund exposure. For

some of these funds of funds BaFin receives also detailed reports on the portfolio on 

a daily basis. 

The range of enforcement powers are described under Principle 9. 

Assessment Broadly implemented 

Comments BaFin’s use of its enforcement powers is robust. It makes effective use of its investigative 

and enforcement powers, both in relation to administrative sanctions and in meeting its 

obligations to refer possible criminal conduct to the public prosecutorial authorities. The 

assessor notes that administrative penalties are most commonly applied for breaches of 

obligations by persons or entities that are not licensed financial institutions or investment 
41 

managers, such as issuers and their directors. 

BaFin’s monitoring of compliance by regulated entities—specifically CIS operators and 

licensed intermediaries—is heavily reliant on the analysis of incoming reports and other 

data, including annual compliance audits prepared by external auditors. It makes 

comparatively little use of on-site compliance inspections, whether on a routine basis or 

as part of a program that identifies potential emerging compliance risks resulting from 

changes in market conditions or behavior. 

The use of annual compliance audits means that all regulated entities are subject to an 

annual audit specifically focused on compliance with legislative obligations. This, 

combined with BaFin’s practice of examining all such audits, means all entities are 

subject to scrutiny each year. 

On the other hand, it places a high level of reliance on the quality of the work carried out 

by auditors, and potentially lessens the direct presence of BaFin in the market place. 

These comments are not meant to imply that monitoring performed by BaFin staff is 

solely desk-based. BaFin staff have direct contact with an institution during the 

processing of license applications or other registration procedures (such as for new funds

formed by a CIS operator ), and BaFin staff are present during some annual compliance 

audits and at “special” audits required by BaFin either as part of a regular review 

program or to examine potential compliance problems. For example, in 2010 BaFin 

commissioned 10 “regular review” audits and staff from the investment management 

department were present for some of those, and were present for some annual 

compliance audits; and intermediaries department staff were present for 76 annual audits 

and for one special audit. Staff from the Securities Directorate also participate in an 

annual supervisors conference, involving BMFs’ bank supervisors and anti-money 

laundering staff and Bundesbank staff, to plan supervisory measures (including visits to 

banks during the annual external audit); and are present, along with bank supervisors 

and Bundesbank staff, at joint meetings with the senior management of major banks. 

In the assessor’s view, on balance, these measures do not result in BaFin having a 

sufficiently active presence in the marketplace, and risk its overall supervisory activity 

being too reliant on backward looking indicators. In particular, they may mean that BaFin 

is not in a position to detect at an early stage patterns of market conduct that have a 

potential adverse impact on regulated entities obligations, especially conduct obligations 

relating directly to investor protection issues. On balance, compliance with Principle 10 

should be rated Broadly Implemented for the reasons described above. 

These comments apply both where the type of regulated entity is relatively homogenous 

(such as the asset management sector, which is dominated by licensed banks), and 

where (as in the intermediaries sector) there is clear division between full service banking 

institutions and a more disparate population of nonbank institutions that do not hold client 

funds or assets. 

This analysis affects compliance with a number of the IOSCO Principles, notably 

Principles 17 and 21. 

It is recommended that BaFin review its approach by: 

a. continuing to refine its approach to assessing and scoring risk; and 
42 

b. making more frequent use of on-site inspections to monitor compliance, both on a 

risk score basis and for thematic issues such the selling practices of market 

intermediaries. 

Principles for Cooperation in Regulation 

Principle 11. The regulator should have authority to share both public and non-public information with 

domestic and foreign counterparts. 

Description Domestic Cooperation 

BaFin has obligations, and broad powers, to share public and non-public information with 

other domestic regulators. 

For securities market activity, the Securities Trading Act (Section 6 WpHG) requires 

BaFin and other relevant domestic regulators (for example, ESAs, TSOs, and the Federal 

Cartel Office) to communicate to each other findings and observations (including personal 

data) that may be necessary for the performance of their functions. 

The Banking Act (Section 7 KWG) requires BaFin and the Deutsche Bundesbank to 

cooperate in the monitoring of regulated institutions (banks and financial services 

institutions) and share data about licensed institutions. The legislative provisions are 

complemented by a more detailed Guideline outlining how BaFin and the Bundesbank 

work together in the supervision of regulated entities9

. 

Similar specific provisions apply in other legislation administered by BaFin, such the 

Takeovers Act (Section 7WpÜG). 

These specific provisions are supplemented by a broad obligation under the 

Administrative Procedures Act requiring administrative authorities to provide assistance 

on request to other authorities (Section 4 VwVfG). 

BaFin’s foundations legislation also expressly recognizes that its function includes 

cooperation with other bodies and persons in Germany and abroad (Section 4 FinDAG). 

This framework is expressed in broad terms and permits the exchange of information 

about authorization and licensing, findings from surveillance activities, observations about 

market conditions and events, regulated entities and their clients, and issuers in capital 

markets. 

A decision to share information in this way does not need external approval. 

International cooperation 

The authority to share information with foreign regulators is governed by specific 

legislative provisions. BaFin has broad powers to share non-public information with 

foreign regulators. ESAs are not authorized to provide information directly to foreign 

regulators, and BaFin acts as the conduit for such information. 

 

9

See Guideline on carrying out and ensuring the quality of the ongoing monitoring of credit and financial 

services institutions by the Deutsche Bundesbank of February 21, 2008. 
43 

The Securities Trading Act empowers BaFin to cooperate with its regulatory counterparts 

from members of the EU and the European Economic Area (EEA) (Section 7(2) WpHG), 

and with counterpart regulators in other jurisdictions (Section 7(7) WpHG). On request by 

a competent foreign authority, BaFin can conduct investigations and transmit information 

necessary for the supervision of organized markets or other markets for financial 

instruments, of credit institutions, financial services institutions, investment companies, 

financial enterprises or insurance undertakings or administrative or judicial proceedings 

related thereto. 

BaFin may only transmit information if the requesting authority is subject to an adequate 

confidentiality regime. For this purpose, the confidentiality regime set out in the IOSCO 

MMoU is used as the benchmark. 

If an authority of another country transmits personal data to BaFin, such data may only be 

processed or used in compliance with the purpose specified by such authority. BaFin may 

communicate such data, in compliance with the purpose specified, to the ESAs and the 

TSOs of the exchanges. 

The provisions on the cooperation with foreign counterparts do not require BaFin to have 

an independent interest in investigating the case in question, nor does the contravention 

being alleged by the foreign authority need to constitute a breach of German law. 

Section 37s WpHG makes BaFin responsible for cooperation with foreign authorities 

responsible for investigating possible violations of accounting regulations by companies 

whose securities are admitted to trading on an organized market. Among other things, this 

means BaFin can provide authorities in other EU states or signatories to the Agreement 

on the EEA these authorities with transcripts of decisions that it or the Financial Reporting 

Enforcement Panel (FREP) have made in individual cases. The transcripts of decisions 

may only be made available in anonymous form. BaFin's cooperation with international 

authorities is carried out after consultation with the FREP. BaFin is also a member of the 

European Enforcers Coordination Sessions (EECS), which is a subgroup of CESRFinancial (now ESMA). 

The Takeovers Act (Section 8 WpÜG) requires BaFin to cooperate with authorities of 

other countries responsible for the supervision of offers for the acquisition of securities, 

the supervision of exchanges or other securities or derivatives markets, and supervision 

of trading in securities and derivatives. BaFin is entitled to transmit to those authorities 

information necessary for the supervision of offers for the acquisition of securities or 

administrative or related court proceedings. 

Assessment Fully implemented 

Comments 

Principle 12. Regulators should establish information sharing mechanisms that set out when and how 

they will share both public and non-public information with their domestic and foreign 

counterparts. 

Description As described under Principle 11, BaFin: 

a. has obligations to co-operate with domestic regulators, including by exchanging 

information with them. In addition, a detailed Guideline sets out cooperation 

arrangements between BaFin and the Deutsche Bundesbank for the supervision of 
44 

licensed banks and financial services institutions; 

b. is a signatory to two multilateral MMoUs and numerous bilateral MoUs. 

The obligation to provide mutual assistance domestically arises under constitutional law 

and exists directly. No further arrangements (such as administrative agreements) for 

information shared in this way with courts, other authorities of the federation, the Federal 

States (Länder) or other corporations under public law, such as the exchange TSOs. 

The Securities Trading Act provides that that BaFin may cooperate with competent 

authorities of countries that are not members of the EU or the EEA and conclude 

information-sharing agreements with them (Section 7 (7) WpHG)). BaFin has a 

department specializing in concluding bilateral agreements on securities regulation as 

well as banking and insurance supervision.

Enforcement related information 

In 2010, BaFin made 193 requests for assistance to foreign authorities, and received 69 

on the basis of the IOSCO MMoU, the CESR MMoU and bilateral MoUs. 

Confidentiality

Information supplied according to the arrangements described above is subject to rules 

relating to confidentiality. These rules are contained in the legislation and also embodied 

in the multilateral and other MOUs signed by BaFin. The rules provide that: 

a. information supplied can only be used for the regulatory purpose for which it was 

requested, including related judicial or administrative actions; 

b. to the extent permitted by law, confidentiality is to be maintained; and 

c. the receiving authority will provide advance notice to (and in some cases seek the 

consent of) the receiving authority before making any disclosure to a third party. 

Assessment Fully implemented 

Comments 

Principle 13. The regulatory system should allow for assistance to be provided to foreign regulators 

who need to make inquiries in the discharge of their functions and exercise of their 

powers. 

Description As described under Principle 11 and 12, BaFin has powers to provide enter into 

information sharing arrangements with foreign regulators. It has used those powers to 

enter both MMOUs and bilateral MOUs on securities supervision with 30 countries 

(including MOUs signed by BaFin’s predecessor organizations). 

BaFin can use the information gathering and investigation powers described under 

Principles 8-10 to assist foreign regulators, and make use of information supplied to it by 

regulated entities for this purpose. These include powers: 

a. to obtain transaction records and records of fund and asset transfers associated with 

those transactions; 

b. to obtain records that identify the names of clients and other parties involved in 

transactions; 

c. details of transactions; 
45 

d. beneficial owners/controllers of issuers (both listed and non-listed) and regulated 

entities. 

These powers can be used to provide assistance to foreign regulators secure compliance 

with laws relating to insider trading and other forms of market abuse; the issue, offer or 

sale of securities or derivatives; licensed market intermediaries, including collective 

investment schemes and advisers; and markets, exchanges or clearing and settlement 

facilities. 

BaFin can also commence a formal investigation to secure information of this kind, 

including where it has no direct regulatory interest in the activities the foreign regulator is 

making enquiries about. 

BaFin cannot normally approach a court for orders (such as the freezing of assets) 

unless it is carrying out its own investigations, and even then it must demonstrate an 

imminent risk. But it can and would in appropriate cases assist a foreign regulator to do 

so, for example by providing advice on the German legal environment. In some 

circumstances involving criminal activity, the public prosecutor can approach a court 

asking for assets to be frozen. 

Pursuant to the European Directive on supplementary supervision of financial 

conglomerates (Financial Conglomerates Directive, 2002/87/EC), both the Banking Act 

and the Insurance Act require BaFin to cooperate with the competent authorities in other 

states of the EEA regarding the identification and supervision of financial conglomerates 

(for example, see Banking Act sections 8a and 8b—there are matching provisions in the 

Insurance Act). These provisions can be extended to cover conglomerates based in a 

country outside the EEA that are subject to regulation equivalent to that applying within 

the EEA. This has been done in the case of the regulatory regime administered by the 

banking, securities and futures authorities in the USA, and the relevant Swiss authorities.

Assessment Fully implemented 

Comments 

Principles for Issuers 

Principle 14. There should be full, accurate and timely disclosure of financial results and other 

information that is material to investors’ decisions. 

Description The legislative framework provides a detailed framework for disclosure of information 

material to the decision of investors in publicly offered and publicly traded securities. 

BaFin has also issued a detailed Issuer Guideline which, among other things, covers 

issuers’ obligations for material event (ad hoc) disclosure and financial reporting. 

For publicly offered securities, the framework consists of an initial disclosure (prospectus) 

obligation; requirements for audited annual financial reports; half yearly reports; interim 

management statements (required around the mid- point of the half yearly cycle); and 

(for listed securities) material event reporting. 

Public offers of securities 
46 

The Securities Prospectus Act (Wertpapierprospektgesetz, WpPG) gives effect to the 

European Prospectus Directive;10 and the EC Prospectus Regulation11 applies of its own 

force in Germany, as in other member states of the EEA. The securities prospectus 

regime applies to the offer of securities to the public (defined in Section 2 no. 4 of WpPG) 

and the admission of securities to trading on a regulated market. 

Exemptions from the prospectus requirements are in line with those under Prospectus 

Directive. 

The broad principle is that no public offer can take place without a published prospectus 

and no prospectus may be published without prior approval by BaFin under Section 13(1) 

of the Securities Prospectus Act. Under Sections 14(1) and 14(3), the offeror or the 

person asking for admission to trading must publish the prospectus and inform BaFin 

immediately about the time and place of publication. 

The required content of securities prospectuses is set out in Section 5(1) WpPG. The 

section requires the issuer to disclose in a securities prospectus all information which is 

necessary to enable investors to make an informed assessment of the assets and 

liabilities, financial position, profit and losses, and prospects of the issuer and of any 

guarantor, and of the rights attaching to such securities. This information must be 

presented in an easily analyzable and comprehensible form. 

In addition, depending on the nature of the issuer and the type of securities that are to be 

publicly offered or listed on a regulated market, different annexes of the Prospectus 

Regulation apply. 

The Prospectus Regulation includes, inter alia, a requirement for information about those 

who have a significant interest in a listed company or who seek control of a company. 

Other features of the European prospectus regime are reflected in the Securities 

Prospectus Act, including a requirement for a summary which briefly and non-technical 

language conveys the essential characteristics and risks associated with the issuer, any 

guarantor and the securities. 

A securities prospectus must be made available to the public at least one day before the 

beginning of the offer to the public or the admission to trading (Section 14 WpPG). 

Publication in a permitted medium is required and in addition a copy of the prospectus 

must be made available free of charge to the public upon request. 

Other related material, such as advertisements, must comply with Section 15 WpPG 

which among other things requires all information concerning the public offer or the 

admission to trading on a regulated market to be consistent with information in the 

prospectus. 

If information in a prospectus becomes materially out-of-date or otherwise inaccurate, the 

issuer must publish a supplementary prospectus (Section 16 WpPG), which also needs 

 

10 Directive 2003/71/EC of the European Parliament and the Council of 4 November 2003 on the prospectus to 

be published when securities are offered to the public or admitted to trading and amending Directive 

2001/34/EC. 

11 Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the 

European Parliament and of the Council as regard to information contained in prospectuses as well as the 

format, incorporation by reference and publication of such prospectuses and dissemination of advertisements. 
47 

BaFin approval. 

 

Public offers of nonsecurities 

For publicly offers of certain non-securities investments, a separate prospectus regime 

applies. The Act on the Prospectus for Securities Offered for Sale (WertpapierVerkaufsprospektgesetz - VerkProspG) and the Investment Prospectus Ordinance 

(Verordnung über Vermögensanlagen-Verkaufsprospekte - VermVerkProspV) 

establishes a similar prospectus regime for non-securities investment prospectuses. 

This regime requires a published prospectus approved by BaFin for the public offer of 

non-securitized instruments that grant the investor participation in a company's profits 

(participation rights), for shares in assets held or managed by the issuer or a third-party 

on its own behalf for the account of a third party (trust assets), or for units in other 

closed-end funds that are offered to the public in Germany and are not represented by 

securities within the meaning of the WpPG (Section 8f (1) VerkProspG). The Act also 

applies to registered bonds, for example the very large number of such bonds traded on 

the Stuttgart Stock Exchange (for which over 75,000 final term sheets were issued in 

2010). The term "non-securities investments" covers for example shares in civil-law 

partnerships, general partnerships or limited partnerships interests, silent partnerships or 

participation rights. 

Content requirements for prospectuses of this kind (Section 8g of VerkProspG and 

related regulations), distribution arrangements (Section 9), and the requirement for 

supplementary disclosures (Section 11) are analogous to those applying to securities 

prospectuses under WpPG. 

BaFin practice 

Securities prospectuses are all reviewed by BaFin staff, with each prospectus examined 

by two staff members and, for IPOs, 3 staff members. Staffs check not only compliance 

with the legislative requirements but also test for comprehensibility, consistency and 

completeness. They bring to this function their own review of the issuer and have a 

specialist group within the prospectus area to review financial information in 

prospectuses. BaFin’s decision on a prospectus is to be made within ten working days of 

its receipt; this time frame is extended to twenty working days for an IPO prospectus. 

If a prospectus is defective, BaFin will ordinarily take corrective action by requiring 

correction of the prospectus or a supplementary prospectus, but it can also refuse to 

revoke approval of a prospectus and prohibit the public offer. It has broad powers to do 

so under Section 21 WpPG. 

BaFin monitors the market to identify public offers made without and approved 

prospectus by sampling media such as newspapers and the internet. This applies to 

offers of securities and non-securities for which a prospectus is required. 

The prospectus figures for 2009 and 2010 are: 

Item Comment 2009 2010 

Securities 

prospectuses 

approved 

Includes supplements 2,477 2,102 

 IPOs and capital increases 88 65 

 Derivative products 148 166 

 Bonds 197 219 
48 

 Registration forms 28 32 

 Supplements 2,016 1,620 

Non-securities 

prospectuses 

approved 

Non-securities company 

shares, registered bonds, 

trust assets etc 

515 535 

In 2010, commenced nine new cases for breaches of the prospectus provisions. 

Financial reporting framework for issuers 

WpHG was amended in 2007 to transpose the EU Transparency Directive12 into German 

law. Domestic issuers are required to meet extended periodic financial reporting 

requirements. It therefore contains provisions requiring issuers to: 

a. prepare and publish an annual financial report, including audited financial statements 

by no later than 4 months after year end (Sections 37v); 

b. half yearly financial reports (Section 37w); 

c. interim management statements unless issuers publish quarterly financial reports (for 

example because rules of a market on which the issuer’s securities are traded requires 

such reports) (Section 37x); 

Issuers must make these reports publicly available and inform BaFin of their publication. 

BaFin monitoring of compliance with reporting obligations 

BaFin monitors compliance with the periodic financial reporting requirements and can 

issue orders appropriate and necessary for its enforcement. In this regard, BaFin can 

enforce its orders with means of penalty fines of up to EUR 200,000 (Section 39(4) 

WpHG). 

BaFin adopts a risk-oriented approach to its monitoring of periodic financial reporting 

requirements. BaFin conducts inspections on a random basis and in response to specific 

indications of a breach of financial reporting obligations (for example notices from 

whistleblowers or shareholders). BaFin usually checks each domestic issuer domiciled in 

Germany once a year. The financial reporting requirements are supervised by six 

employees. 

In 2009, BaFin commenced 46 new administrative procedures relating to reporting 

obligations of issuers. 

BaFin can also impose administrative fines not exceeding EUR 250,000 (Section 17 

FinDAG) for offences against the financial reporting requirements. In 2009, BaFin 

commenced 21 administrative offence procedures because of delayed and incomplete 

periodic financial reporting. 

Annual financial report 

As a basic principle, domestic issuers of securities must prepare an annual financial 

report as at the end of each financial year and make the report available to the public no 

later than four months after the end of the financial year. The annual financial report must 

 

12 Directive 2004/109/EC of the European Parliament and of the Council of December 15, 2004 on the 

harmonization of transparency requirements in relation to information about issuers whose securities are 

admitted to trading on a regulated market and amending Directive 2001/34/EC.
49 

include audited annual financial statements prepared in accordance with the national law 

of the member state in which the domestic issuer is registered, a management report and 

a compliance statement. 

If a domestic issuer is obliged to prepare consolidated financial statements and a group 

management report, the annual financial report must also contain the audited 

consolidated financial statements prepared in accordance with IAS/IFRS, the group 

management report and a compliance statement concerning the consolidated financial 

statements and the group management report (Section 37y no. 1 WpHG). 

Material event disclosure 

Section 15 WpHG requires an issuer of securities traded on a regulated market to 

publish any non-public material information that relates to the issuer or the securities. 

Material information is information about circumstances relating to one or more issuers of 

insider securities, or to the insider securities themselves, which are not publicly known 

and would be likely to have a significant impact on the market price of insider security if 

it became publicly known. 

As well as making information of this kind public, the issuers must first ensure it is 

published on the company register and notify any regulated markets in Germany on 

which the financial instruments are traded, any market in Germany on which derivatives 

based on the securities are traded, and BaFin. 

By Section 10 WpPG, issuers must also provide an annual disclosure to BaFin listing all 

information released by the issuer in last 12 months. 

This general obligations is subject to an exemption that relieves the issuers of the 

obligation to publish such information as long as it is necessary to protect its legitimate 

interests, provided there is no reason to expect a misleading of the public and the issuer 

is able to ensure that the inside information will remain confidential. The issuer is obliged 

to notify BaFin regarding the grounds for exemption together with the notification, stating 

the time of the decision concerning the postponement of the publication. BaFin can 

check whether the decision not to publish information is within the permitted exception, 

and, if it is not, require immediate disclosure. 

Shareholder voting decisions 

The Stock Corporations Act (Aktiengesetz,AktG) requires disclosure on matters relating 

to shareholder voting decisions: 

a. a shareholders' meeting must be convened a minimum of 30 days prior to the day of 

the meeting (Section 121); 

b. the agenda, including board proposals on any issue, motions and nominations must 

be disclosed to the shareholders with the convening notice (Sections 121 and 124), as 

must motions and counter motions submitted by non-director shareholders, if submitted 

at least 14 days prior to the meeting (Section 126); 

c. the same information must be given to credit institutions and associations of 

shareholders, which exercised voting rights at the previous shareholders meeting or 

demanded notice (Section 125). 

Listed issuers must publish documents related to the shareholders’ meeting on the 

company’s internet site shortly after the convening of the shareholders’ meeting (section 

124a). 

Details of any voting have to be published within seven days on the company’s internet 

site (section 130 (6)). 
50 

Enforcement of these provisions is a matter of private law, and BaFin does not have 

regulatory responsibility for compliance with them.

Admissions of securities to a market 

Subject to limited exceptions, an approved prospectus must be issued for all securities 

admitted to trading on a regulated market (s1(1) WpPG and s32 BörsG). This prospectus 

must contain additional information about the market on which the securities are to be 

traded and about intermediaries providing market making functions. An issuer must also 

meet any other listing requirements, including minimum market value, free float and 

shareholder diversification requirements (Section 32 BörsG et seq., and BörsZulV). 

Advertising or other information relating to an offer to the public of securities or to an 

admission to trading on a regulated market must comply with s15 WpPG , including that 

all information concerning the offer or admission to trading must be consistent with that 

contained in the prospectus. 

Derivative markets 

The prospectus regime applies also to offers of derivatives. Annex XII Item 4 of the 

European Prospectus Regulation requires the issuer of derivative securities to provide 

information in the prospectus concerning the securities to be offered to the public or 

admitted to trading on a regulated market. This applies to financial instruments other than

offers of share or debt instruments. These requirements include obligations to disclose: 

a. a clear and comprehensive explanation to help investors understand how the value of 

their investment is affected by the value of the underlying instrument(s) if the securities' 

denomination or the minimum subscription amount is less than EUR 50,000 (Item 4.1.2.); 

b. a description of the rights, including any limitations of these, attached to the securities 

and procedure for the exercise of those rights (Item 4.1.7.); 

c. information about the underlying (Item 4.2.). 

The prospectus must also specify any market disruption or settlement disruption events 

that may affect the underlying as well as adjustment rules relating to the underlying. 

The offeror or the person seeking admission to trading of the securities must also 

disclose any risks to enable the investor to assess the market risk associated with the 

securities (Annex XII Item 2 Prospectus Regulation). 

Financial leverage of issuers 

If securities prospectus rules apply to an issue or offer of derivative securities by market 

operators or intermediaries, the prospectus must include audited historical financial 

information of the issuer (Annex IV Items 13 et seq. Prospectus Regulation), and risk 

factors that may affect the issuer's ability to fulfill its obligations (Annex IV Item 4 

Prospectus Regulation). 

Responsibility for information in regulated offer documents

In both securities and non-securities prospectuses, the persons or entities responsible for

the content must be clearly identified by name and function, and these persons must 

make a declaration that to the best of their knowledge the information in the prospectus 

is accurate and contain no material omissions. See s5(4) WpPG and s3 VermVerkProsV 

(Investment Prospectus Ordinance) 
51 

Derogations

Under Section 8(1) of WpPG, final pricing and issued amount information may be omitted 

from a prospectus, subject to a requirement that the means of determining the pricing 

and amount are disclosed, and a maximum price is stated. 

BaFin has a more general power to permit information to be omitted in a prospectus if its 

disclosure would be contrary to the issuer or seriously detrimental to the issuer or is 

minor relevance (Section s8(2) WpPG). In practice, BaFin interprets the section narrowly 

and has only permitted one such exception. 

For secondary markets, the issuer has a power to withhold disclosure of ad hoc 

information otherwise required to be disclosed if this is necessary to protect its legitimate 

interests, provided it would not involve misleading the public and the information remains 

confidential: s15(1) WpHG. This exception is in line with the Transparency Directive, and 

requires BaFin approval. 

Cross border issues

The European Prospectus Directive (Recital 22 and Art 7(3)) explicitly refers to and 

incorporates IOSCO standards for cross-border offerings and initial listings by foreign 

issues. 

Assessment Fully implemented 

Comments 

Principle 15. Holders of securities in a company should be treated in a fair and equitable manner. 

Description Rights and equitable treatment of shareholders 

The Stock Corporation Act (Aktiengesetz, AktG) provides the overall regulatory 

framework and legal infrastructure for publicly traded corporations, supplemented by 

specific provisions in the WpPG. AktG (and the legislation relating to corporate mergers 

and reorganisation) was amended in 2009 to implement the European Shareholders 

Rights Directive.13 More specific legislation deals with takeovers and other changes of 

control. 

AktG provides that: 

a. all shareholders are to be treated equally under equivalent circumstances (sections 

53a and 134), and all shareholders with the same class of shares are to be treated 

equally (Sections 12, 53a and 179); 

b. shareholders are entitled to vote on 

1. the appointment of members of the supervisory board (other than employee 

representatives under the German co-determination system); 

2. the appropriation of distributable profits; 

3. the ratification of the acts of the members of the management board and the 

supervisory board; 

4. the appointment of the auditor; 

5. amendments to the articles; 

6. measures to increase or reduce the share capital; 

7. the appointment of auditors for the examination of matters in connection with the 

 

13 2007/36/EC. 
52 

formation or the management of the company; 

8. the dissolution of the company. 

Shareholders must be given 30 days’ notice of a shareholders meeting, either by 

publication of a notice in accessible media, or by writing to each holder of registered 

shares (Section 123 AktG, and section 121). The notice of meeting must contain the 

agenda for the meeting. Proxy voting is permitted and AktG contains special provisions 

relating to notices of meeting to be given, if requested, to credit institutions and 

shareholder associations who have or may vote proxies (Section 125). 

Registered shares can be transferred under to the procedure set out in Sections 67 and 

68 AktG. There are no restrictions in the transferring process for unregistered shares. 

BaFin does not have responsibility for administering AktG. The assertion of rights arising 

from AktG is a private law matter between shareholders and the corporation. 

Changes of corporate control 

Takeovers are regulated by the Securities Acquisition and Takeover Act 

(Wertpapiererwerbs- und Übernahmegesetz, WpÜG) and a related Ordinance.14 This 

legislation is administered by BaFin. 

Mergers not involving a takeover are regulated by separate legislation, the 

Reorganization of Companies Act (Umwandlungsgesetz, UmwG). 

The WpÜG provides a fair procedure in cases of takeover bids and change of control. 

Details of the procedure are provided in the Ordinance relating to the contents of the 

offer document, the consideration payable in the case of takeover bids and mandatory 

offers and exemption from the obligation to publish and to make an offer, WpÜGAngebV.

Section 3 of WpÜG sets out the general principles underlying the takeovers regime: 

(1) Holders of securities of the target company which belong to the same class shall be 

treated equally. 

(2) Holders of securities of the target company must have sufficient time and adequate 

information to be able to make an informed decision about the offer. 

(3) The board of management and supervisory board of the target company must act in 

the interests of the target company. 

(4) The offeror and the target company must implement the procedure in a speedy 

manner. The target company must not be hindered in its business activities for more than 

a reasonable period of time. 

(5) Trading in securities of the target company, the offeror company, or other entities 

affected by the offer must not result in market distortions. 

The WpÜG distinguishes between three kinds of offers: 

a. mandatory offers - required to be made to all shareholders if the offeror has achieved 

 

14 Verordnung über den Inhalt der Angebotsunterlage, die Gegenleistung bei Übernahmeangeboten und 

Pflichtangeboten und die Befreiung von der Verpflichtung zur Veröffentlichung und zur Abgabe eines Angebots, 

(WpÜGAngebV). 
53 

control of a target company (at least 30 percent of the voting rights of a target company, 

either resulting from direct shareholdings or by attribution of voting rights); 

b. voluntary offers—where the offeror is attempting to achieve control. 

The consideration paid to the shareholders in mandatory offers and voluntary offers is 

subject to a minimum price rule by Section 31 WpÜG and Sections 3-6 of WpÜGAngebV. 

Section 31 provides that the offeror must offer the shareholders of the target company 

adequate consideration. In determining the adequate consideration, the average stock 

exchange price of the shares of the target company and acquisitions of shares of the 

target company by the offeror, persons acting in concert with him, or subsidiaries of the 

latter, shall generally be taken into account. The minimum price must be at least equal to 

the value of the highest consideration paid or agreed by the offeror, a person acting in 

concert with the offeror or any of their subsidiaries, to acquire shares in the target 

company within the last six months prior to publication of the offer. 

c. simple offers for acquisition—where the offeror seeks to acquire securities without 

gaining control, or to build on a pre-existing position control. The general principle of the 

equal treatment of all shareholders applies to simple offers for acquisition as well, but the 

minimum price rules do not apply. 

Disclosure 

Shareholders to whom a takeover offer is made must have at least four weeks to 

consider the offer (section 16 WpÜG). Section 11 WpÜG and Section 2 WpÜGAngebV 

require adequate information to be given to offerees, including details about the type and 

amount of consideration offered, valuation methods used, funds available to the offeror, 

the offeror’s intentions for the target company, the offeror’s existing shareholdings and so 

on. 

The management board and the supervisory board of the target company must issue a 

statement regarding the offer (Section 27 WpÜG). They are also prohibited from taking 

action that may frustrate the offer (Section 33). 

BaFin monitors compliance with these disclosure obligations and its approval is required 

before the offer document is sent to shareholders. Non-compliance with the takeover 

legislation, especially the obligation to announce an offer or to produce a complying offer 

document, can result in BaFin ordering the suspension of the offer (section 15 WpÜG), 

and expose the non-complying party to administrative penalties of up to EUR 1 million 

(section 60 WpÜG). 

BaFin takeover activity in 2009 and 2010 is summarized below: 

Corporate Takeovers 

Item Comment 2009 2010 

Offers 

approved 

18 23 

 Acquisition offers 3 3 

 Takeover bids 8 11 

 Mandatory offers 7 9 
54 

BaFin new 

administrative 

fine 

proceedings 

Breach of WpÜG 28 16 

 

Bankruptcy and insolvency

Issuer insolvency is governed by the Insolvency Statute (Insolvenzordnung, InsO). The 

purpose of this legislation is to ensure the collective satisfaction of the creditors by 

liquidation of the debtor's assets and by distribution of the proceeds, or by reaching an 

arrangement in an insolvency plan, particularly in order to maintain the enterprise 

(Section 1 InsO). Within an insolvency plan, involved parties are to be treated equally 

(Section 226 InsO). 

The general provisions of AktG regarding the obligation to treat shareholders equally is 

not altered in case of insolvency. In the event of dissolution, the funds left after the 

settlement of all debts are distributed among the shareholders equal to their interest in 

the company’s share capital (Section 271 AktG). 

Substantial holder information 

Substantial shareholder information is required to be disclosed when thresholds of 

3 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 

50 percent and 75 percent are reached or crossed of an issuer, for issuers whose shares 

are admitted to trading on an organized market (Sections 21, 22 and 26 WpHG). These 

obligations apply not only to shareholdings but also of rights to acquires, such as options.

Disclosure must be made to the issuer and to BaFin. Disclosure must be may no later 

than 4 days after change. The issuer must disclose the holding no later than 3 days after 

receiving notice of it. BaFin also makes this information publicly available on its website. 

Prospectus disclosure is also required if a holding is notifiable as substantial beneficial 

ownership (3 percent or more). 

BaFin can impose financial penalties of up to €250,000 for breaches of these reporting 

obligations: (Section s39 WpHG) and can also make the disclosure on the issuer’s 

behalf. 

Disclosure of directors’/managers’ holdings and voting 

Directors and senior managers’ holdings are notifiable if they amount to substantial 

holdings. In addition directors and managers must notify the issuer of transactions in 

shares or financial instruments based on the shares within 5 business days after the 

transaction (Section 15a WpHG). These disclosures are also made public by the issuer 

and on BaFin’s website. 

There is an exception if sum of transactions in year is less than €5,000. 

BaFin can enforce any disclosure obligations of director/manager, impose financial 
55 

penalties up to €250,000 and remove voting rights of offending director/manager 

(s28WpHG). The following shows the new cases for potential breaches of these 

provisions in 2009 and 2010: 

Type of breach 2009 2010 

Breach of ad hoc disclosure rules 

20 22 

Breach of duty to report directors 

dealingsn offers 7 4 

Breach of disclosure rules for 

changes in voting rights 228 342 

Assessment Fully implemented 

Comments 

Principle 16. Accounting and auditing standards should be of a high and internationally acceptable 

quality. 

Description The framework for the preparation of financial statements and their audit is contained in 

the Commercial Code (Handelsgesetzbuch, HGB) and is supplemented by other 

legislation such as the Wertpapierhandelsgesetz (WpHG) and specific legislation relating 

to the accounting and audit process. 

Audited financial statements

Companies whose securities are traded on a regulated market must include 

comprehensive audited financial statements in prospectuses and other public offer 

documents such as listing particulars. The standards are those required by the EU 

Prospectus Regulation (see especially Annex I, Item 20.1, which ordinarily requires 3 

years historical information). 

Annual reports including audited financial statements must be prepared and published 

on the Federal Register (and, for issuers whose securities are admitted to trading on a 

regulated market, made available on their website) within 4 months of the close of the 

relevant financial year (section 325 HGB and Section 37v WpHG). 

Reports must include: 

a. balance sheet; 

b. income statement; 

c. a statement showing either all changes in equity or changes in equity other than those 

arising from capital transactions with owners and distributions to owners; 

d. cash flow statement; 

f. accounting policies and explanatory notes 

Half yearly reports containing condensed financial reports must be prepared and 

published within two months of the close of the relevant period. Half yearly reports need 

not be audited. They must be prepared in accordance with the accounting standards 

required to be used for the annual report. (See Section 37w WpHG.) 

Setting of accounting standards 
56 

Financial statements contained in financial reports must be prepared in accordance with 

domestic accounting standards, IFRS or accounting standards recognize as equivalent to 

IFRS. 

IFRS is required for the consolidated financial statements of companies whose securities 

are admitted to trading on a regulated market. For the financial statements of other 

companies, IFRS standards may be used for information purposes but for profit 

distribution, taxation and financial services supervision purposes German domestic 

standards must be used. 

The requirements for German domestic standards, including presentation standards, are 

set out in the Commercial Code (HGB) and regulations made under that Act. These 

standards accord with relevant European directives. Elaborations of these standards and 

guidance on applying them are provided by the German Accounting Standards 

Committee (Deutscher Standardisierungsrat, DSR), the standard setting arm of the 

German Accounting Standards Committee (DSRC). DSRC is a private institution 

contracted by the Federal Ministry of Justice to play this role. One standards are 

published by the Ministry, they are taken represent German Proper Accounting Principles 

for consolidated financial reporting. DSR is also responsible for interpretation of 

standards, in conjunction with IASB IC for IFRS. 

Issuers may also use international standards recognized for the preparation of financial 

statements required under the German securities legislation. 

Setting of auditing standards

Audits of required financial statements are undertaken by an auditor registered by the 

Chamber of Auditors under the Public Auditors Act (Gesetz über eine Berufsordnung der 

Wirtschaftsprüfer, WPO). Auditors are appointed by the shareholders. Legislation 

(section 317(5) HGB provides that audit standards adopted by the European 

Commission apply to statutory audits (such as those for listed issuers). To date there are 

no such standards and the audit standards in use are those issued by the Institute of 

Auditors (Institut der Wirtschaftsprüfer in Deutschland e.V., IDW). 

Auditor independence 

WPO imposes professional obligations on auditors, including independence; and HGB 

prohibits the auditor from acting in specified circumstances. (See Section 43 WPO; and 

Section 319ff HGB.). 

Compliance monitoring

Issuers’ compliance with their obligations in the preparation of financial statements is 

subject to review at two levels. 

The Financial Reporting Enforcement Panel (FREP, Deutsche Prüfstelle für 

Rechnungslegung (DRP) – a private body) reviews financial statements: 

a. breaches of the legislation or standards are suspected; 

b. at BaFin’s request; 

c. as part of a random sample (under principles agreed with the Federal Ministries of 

Justice and Finance, sampling involves both risk-based and statistically random 

sampling techniques).. 

FREP carries out round 120-130 such reviews each year, 90 percent of which are 

selected through the random sample process. 
57 

FREP has no enforcement powers, so BaFin reviews compliance by issuers with 

financial statement obligations either on referral of a matter from FREP or if it is 

concerned about the review carried out by FREP. BaFin ordinarily requires issuers to 

publish the errors established by BaFin or FREP. (See section 37q WpHG.) 

Non-German companies are also subject to the enforcement procedure if their securities 

are admitted to trading on the regulated market of a German stock exchange. (See 

Section 37n WpHG) 

To 1 July 2009, 960 companies have been subject to this enforcement process – 815 

German and 145 non-German companies. BaFin’s priority is to ensure that the market 

has reliable information in financial statements. 

Auditors are required by legislation to submit to peer reviews and are subject to 

monitoring and disciplinary action by the Chamber of Auditors (Wirtschaftsprüferkammer, 

WPK).15 The Auditor Oversight Commission (Abschlussprüferaufsichtskommission - 

APAK) is responsible for the public supervision of the WPK, including its oversight and 

disciplinary activities. APAK operates according to published rules of procedure 

approved by the Federal Ministry of Economics and Labor. The APAK is also responsible 

for cross-border co-operation concerning statutory auditor. (See sections 57a; s61a; 

s66a and s66b WPO.) 

Assessment Fully implemented 

Comments 

Principles for Collective Investment Schemes 

Principle 17. The regulatory system should set standards for the eligibility and the regulation of those 

who wish to market or operate a collective investment scheme. 

Description Outline of regulatory regime 

CIS activity is regulated primarily through the Investment Act (Investmentgesetz, InvG). 

This legislation regulates diversified, open-ended funds. It covers German asset 

management companies and investment stock corporations, funds, investments that can 

be held by funds, and public offers of foreign funds in Germany. The legislation classifies 

funds according to underlying asset classes, and has special provisions dealing with 

(among others) real estate funds and hedge funds. 

Undiversified funds, or closed-end funds that do not offer redemption facilities, are not 

regulated through InvG. 

InvG provisions are supplemented by other specific legislation. For example, the 

Derivative Regulation (Derivateverordnung, DerivateV) regulates fund investment in 

derivatives (by imposing additional rules for risk management systems, market risk 

assessment, stress tests and investment in structured products); and other regulations 

deal with the audit of investment funds (InvPrüfbV16) and accounting and valuation for 

investment funds including the content and presentation of annual reports (InvRBV17). 

 

15 Amendments to the WPO implemented Article 29 of Directive 2006/43/EC on statutory audit and the 

recommendation on external quality assurance for statutory auditors and audit firms auditing public interest 

entities (2008/362/EC). 

16 Verordnung über die Inhalte der Prüfungsberichte für Kapitalanlagegesellschaften, 

Investmentaktiengesellschaften und Sondervermögen (Investmentprüfungsberichtsverordnung). 
58 

Asset management companies must hold a license under the InvG. 

The legislative scheme currently reflects the European UCITS III directive. Legislation to 

implement UCITS IV is come into effect by 30 June 2011. 

BaFin has responsibility for administering this legislative framework. 

The regulatory framework applies in full to retail investment funds. The regulatory 

framework applies also to non-retail funds but aspects of the regime, such as the 

approval of fund rules, the prospectus provisions and some investment restrictions do not 

apply, or (as in the case of investment restrictions) do not apply if the investors elect to 

have them not apply. 

BaFin has issued a number of circulars, including a circular (5/2010 (WA)) on the 

minimum requirements for the risk management of asset management companies and 

investment stock companies (Mindestanforderungen an das Risikomanagement für 

Investmentgesellschaften, InvMaRisk). The circular sets out minimum requirements for 

risk management systems, which require management companies and investment 

companies to identify, measure, manage and monitor on a continuous basis all risks 

relevant to the funds they manage. 

The funds management industry, in conjunction with BaFin has also developed model 

fund rules and model prospectuses for use by the industry. 

CIS activity subject to authorization 

Marketing a CIS 

A person is exempt from the need to hold a license as an investment adviser, an 

investment broker or contract broker under the Banking Act if they provide these services 

only in relation to CIS unit admitted for marketing in Germany and they do not hold 

customer funds (section 2(6) no 8 KWG and section 2a(1) no 7 WpHG). In practice this 

means that the Banking Act licensing provisions only apply to persons who carry on an 

investment advice, investment broking or contract broking business in addition to their 

CIS marketing activities, or who act as an agent of the CIS operator (whose license will 

make it responsible for the conduct of the person). 

Intermediaries who fall within the exception outlined above are required to hold an 

authorization under the German Industrial Code (Gewerbeordnung, GewO), a process 

involving personal integrity and financial checks. In addition, they must comply with 

regulations18 relating to their conduct, including an explicit obligation to provide a client 

with access to the prospectus required by InvG. Compliance with these provisions is 

monitored not by BaFin, but by relevant State authorities. 

 17 Verordnung über Inhalt, Umfang und Darstellung von Jahres-, Halbjahres-, Zwischen-, Auflösungs- und 

Liquidationsberichten von Sondervermögen und der Jahresabschlüsse und Lageberichte, Halbjahres-, 

Zwischen-, Auflösungs- und Liquidationsberichte von Investmentaktiengesellschaften sowie die Bewertung der 

dem Investmentvermögen zugehörigen Vermögensgegenstände (Investment- Rechnungslegungs- und 

Bewertungsverordnung)

18 The relevant regulation is a regulation on the obligations commercial brokers and agents, including 

investment brokers and advisers, and property developers (Bauträger- und Marklerverordnung, BMV). 
59 

Operating a CIS 

CIS operations may be carried out through an asset management company or an 

investment stock corporation. In both cases, operators must be authorized under InvG 

(section s7 InvG). 

Before operators can be licensed, they must meet eligibility criteria including for: 

a. the integrity of managers and holders of qualified participating interests (more than 

10 percent of shares in the management company); 

b. the professional competence of managers; 

c. business organization, internal controls and risk management systems; and 

d. minimum initial capital (€300,000). 

International cooperation

Under the legislation, UCITS compliant schemes can be marketed within the EU and the 

EEA by the holder of a passport issued by BaFin. UCITS schemes based elsewhere in 

the EU can be marketed in Germany but the operator must notify BaFin. Offering 

schemes in Germany from countries outside the EU can be done if BaFin is satisfied 

about home jurisdiction regulation and cooperation from the home regulator. 

As well as the general information sharing and cooperation arrangement described in 

Principles 11-13, the investment legislation specifically requires BaFin to cooperate with 

relevant authorities in the EU and the EEA, and empowers it to enter information sharing 

arrangements with third country regulators. 

Sanctions for non–compliance 

BaFin has extensive powers to gather information and obtain evidence about CIS 

activity. 

Operating a CIS without a license is a breach of the legislation exposing the operator to 

criminal sanctions. BaFin can also require immediate cessation of business activities. 

BaFin can sanction breaches by licensees of obligations under the investment legislation 

by imposing administrative fines (Section 143 of InvG), revoking the operator’s license 

(Section 17) and demanding dismissal of managers (section 17a). Section 5 authorizes 

BaFin to issue all orders deemed necessary and appropriate to ensure the operations of 

an asset management company or an investment stock company comply with the Act. 

CIS operators are under a general obligation to act solely in the interest of investors, and 

a specific duty to minimize conflicts of interest. Operators’ conduct of business is also 

covered by an industry code developed in association with BaFin and intended to flesh 

out the general obligation. 

Outsourcing of functions is permitted, but subject to rules to ensure it does not detract 

from investor protection or effective supervision. Operators remain accountable to BaFin 

for outsourced functions. 

BaFin practice

The techniques BaFin uses for monitoring compliance by asset management companies 
60 

are described under Principle 10. 

In 2010, BaFin carried out 10 on-site inspections. All of them were regular on-site 

inspections, which take place after a specific period of time according to the risk 

assessment of the investment companies. Inspections were carried out by auditors by 

order of BaFin, in some cases the auditors were accompanied by BaFin-staff. In three 

cases, the audit is not yet completed. The other seven inspections identified minor or 

middle organizational shortcomings. The most severe deficiency (insufficient outsourcing 

controls) is being followed up control by BaFin. There were no on-the-spot inspections in 

2010. No formal sanctions (like a fine or the removal of a director) were imposed on a 

CIS operator. 

In roughly 300 cases management companies have been asked to modify prospectuses. 

There were no criminal cases arising from the activity of a CIS. 

Assessment Partly implemented 

Comments The comments made under Principle 10 apply in the assessment of Principle 17, which 

explicitly contemplates the use of on-site inspections of entities regulated as part of the 

retail investment management sector (including CIS operators and custodians). 

In its monitoring of compliance by CIS operators, BaFin is heavily reliant on analysis of 

audit reports, and does not have an intensive on-site inspection program. As noted under 

Principle 10, a benefit of the audit system is that all entities involved in investment 

management—asset managers, custodians and depositories—are reviewed annually. 

Nonetheless, heavy reliance on audit reports increases the chance that undesirable 

conduct is not detected in a timely fashion, thereby increasing risks to market 

performance, investor protection, and BaFin’s reputation. 

The assessor considers that the regulatory and supervisory measures adopted for the 

supervision of CIS operators do not place sufficient emphasis on the use of on-site 

inspections, both where potential problems occur at individual firms and more broadly for 

thematic reviews of specific compliance issues. As a result, BaFin has a less than 

optimal presence in the marketplace, and risks its overall supervisory activity being too 

reliant on backward looking indicators. In particular, they may mean that BaFin is not in a 

position to detect at an early stage patterns of market conduct that have a potential 

adverse impact on regulated entities obligations, especially conduct obligations relating 

directly to investor protection issues. Given the overall scale of the industry, with 73 

licensed operators and over 6,000 funds (including more than 2,000 retail funds), the 

supervisory activities undertaken directly by BaFin seem relatively few in relation to the 

size and importance of the industry for retail investors. 

Thus, the assessor judges that ongoing monitoring does not normally involve sufficient 

performance of on-site inspections of entities involved in operating CIS, given the 

materiality of the sector (Key question 8 and Principles Sections 11.4, 8.2, and 8.3). 

It is recommended that BaFin review its approach to the supervision of CIS activity by: 

a. continuing to refine its approach to assessing and scoring risk; and 

b. making more frequent use of on-site inspections to monitor compliance, both on a 

risk score basis and for thematic issues such the selling practices of market 

intermediaries. This will require additional resources. It is understood that BaFin is 

moving in this direction. 
61 

Principle 18. The regulatory system should provide for rules governing the legal form and structure of 

collective investment schemes and the segregation and protection of client assets. 

Description For each CIS, fund rules are required which set out the legal relations between investors 

and CIS operator, the rights of investors (including redemption rights), and details about 

the fund. For retail funds, these rules and any changes to them require BaFin approval 

(except for rules setting fees and charges). Fund rules and amendments to them must be 

published in the Federal Gazette. 

Fund assets must be segregated from the assets of the operator and held by a licensed 

custodian bank the appointment or replacement of which requires BaFin approval. This 

custody function is treated for regulatory purposes as part of the custodian’s banking 

business. If the CIS operator is an investment stock corporation, the legislation prohibits 

transactions between managers and the CIS. 

As well as CIS operators being subject to the general commercial law relating to books 

and record keeping, the investment legislation requires specifically that transaction 

records be kept. 

The requirement to keep a register of holders of units currently only applies to registered 

certificates (Section 33 (1) InvG) not to bearer certificates. This will change under the 

legislation implementing UCITS IV which will take effect in mid 2011. 

An annual audit is required for each scheme, the CIS operator and the relevant 

custodian. The Investment Audit Reports Ordinance (Verordnung über die Inhalte der 

Prüfungsberichte für Kapitalanlagegesellschaften, Investmentaktiengesellschaften und 

Sondervermögen, InvPrüfV) codifies the applies to these audits. 

BaFin reviews all audit reports for retail CIS, including reports on management 

companies, individual funds and custodians. 

InvG (Sections 38-40 and 44) creates a process for orderly winding up of a CIS business 

if its operator voluntarily ceases to act or through insolvency. If the operator’s right to 

manage ceases, the assets of the fund pass to the custodian bank, which must either 

liquidate the assets and distribute the proceeds to investors, or, with BaFin’s approval, 

transfer management of the fund to another CIS operator. If a fund is dissolved, the 

operator must prepare a dissolution report equivalent to an annual report, and subject to 

external audit. 

Assessment Fully implemented 

Comments 

Principle 19. Regulation should require disclosure, as set forth under the principles for issuers, which is 

necessary to evaluate the suitability of a collective investment scheme for a particular 

investor and the value of the investor’s interest in the scheme. 

Description Prospectuses 

 

Section 42 of InvG provides a detailed set of requirement for fund prospectuses. It 

requires that a prospectus for the offer of funds to retail investors to be published and 

filed with BaFin “without undue delay” after it is first used. BaFin does not approve fund 

prospectuses but the BaFin team responsible for the relevant CIS operator reviews it 

and, if is defective, BaFin can order termination of the marketing of the CIS and take 

action for an administrative offence. 
62 

As well as a full prospectus, a simplified prospectus must be published.19 The simplified 

prospectus requirement does not apply to real estate funds, infrastructure funds and 

hedge funds. 

Both the full prospectus and the simplified prospectus must contain all information 

material to making an informed judgment, and a clear and easily comprehensible 

explanation of the risk profile of the fund. The full prospectus must contain detailed 

information specified in the legislation, including a profile of a typical investor in the fund. 

Certain types of funds (real estate funds, infrastructure funds, hedge funds) are subject 

to additional disclosure requirements. 

Information of material importance that becomes out of date must be updated in both the 

full and the simplified prospectus—see Section 42(5) of InvG. 

Some information—such as fees and charges—must be set out in the fund’s rules. 

Funds rules must be attached to the full prospectus and also must be made available 

free of charge on request. 

If a prospectus is defective, BaFin can order termination of marketing and take action for 

administrative offence: section 143(2) InvG. 

Advertising

Advertising material must refer to the prospectus and how it can obtained. Advertising 

relating to some types of funds (such as funds of hedge funds) must contain specified 

disclosures. BaFin can prohibit some types of advertising, such as that containing 

misleading material. 

The legislation prohibits public marketing of hedge funds (Section 112(2) Investment Act) 

and funds not permitted to be offered in Germany (Part 4 of InvG). 

Reports

For each CIS fund it manages, a CIS operator must prepare an annual report and publish

it no later than 4 months after year end. The annual report must include a report on the 

CIS’s activities and any significant information that will enable investors to assess its 

performance. Half yearly reports are also required. Both reports must be published in the 

Federal Gazette. 

Annual reports and half yearly reports contain financial information and other information 

about fund activity. These must be made available to holders of interests free of charge 

(sections 44-45 of InvG (German funds) and section 121(1) (foreign funds)). 

Accounting standards 

Accounting standards used in the preparation of CIS reports are set out in InvRBV. The 

standards are designed in accordance with the international accounting principle of fair 

valuation. 

 

19 The simplified prospectus is to be replaced by a 2 page Key Investor Document by July 2011 in the German 

legislation implementing Directive 2009/65/EC. 
63 

Assessment Fully implemented 

Comments 

Principle 20. Regulation should ensure that there is a proper and disclosed basis for asset valuation 

and the pricing and the redemption of units in a collective investment scheme. 

Description Section 36 of InvG contains detailed provisions for the valuation of CIS assets. They 

cover rules for valuation, the timing of valuations and the process for valuation. The 

accounting and valuation standards to be used for valuation are those in InvRBV, 

including for assets where current market prices are not available. 

Unit values must be calculated on each trading day. Exceptions are, for example, so 

called “other” funds for which the calculation must be conducted at least monthly if this is 

laid down in the fund rules and hedge funds and funds of hedge funds for which the 

calculation must be conducted at least once in a quarter if provided in the fund rules. 

For assets not traded on an organized market, or for which no traded prices are 

available, valuation is based on a prudent assessment by using appropriate valuation 

models, taking into account current market conditions. 

The value of a fund is to be determined on each stock exchange day by the custodian 

bank in conjunction with the CIS operator or by the CIS operator itself on the basis of the 

relevant market prices of the assets of the fund less the borrowings made and other 

liabilities incurred. 

The valuation procedure is divided between the CIS operator and the custodian bank on 

the “four-eyes” principle. If the CIS operator evaluates the assets, the custodian bank 

must supervise the valuation process. If the custodian bank evaluates the assets in 

cooperation with the CIS operator, the CIS operator must verify the custodian bank's 

measurement approaches (Sections 36 (1) and 27 (1) Investment Act, Section 22 

InvRBV). To avoid potential conflicts of interests, there must be segregation between 

“back office” (the evaluating division) and “front office” (portfolio management). 

As well as being required to be the subject of internal audit, the annual external audit 

must verify compliance with the valuation requirements of the legislation. 

The legislation sets out the way the price for units on both subscription and redemption is 

to be calculated. 

Section 23(2) of InvG requires that the issue price must be the pro rata value of the share 

in the fund plus any issuance fee set out in the fund rules and the prospectus. The 

redemption price must be pro rata value of the share in the fund less any redemption fee 

set out in the fund rules and the prospectus. The model fund rules developed by industry 

in cooperation with BaFin deal in more detail with the timing of valuations, and measures 

to ensure a deadline for receipt of issue and redemption notices. 

Issue and redemption prices must be published at the time of each issue or redemption, 

and in any case at least twice per month. For most public funds, in practice this means 

daily publication since rules require daily redemptions. 

Should a pricing error occur, BaFin’s powers of intervention allow it to issue instructions 

to remedy the problem (see Section 5 Investment Act); and Section 28(1) empowers the 

custodian to assert claims on behalf of investors relating to breaches by the operator of 

the CIS. 

Section 37 and 81 of InvG provide for suspension of redemptions. These can be put in 
64 

place by operation of fund rules that empower the CIS operator to suspend redemption if 

exceptional circumstances prevail which justify the suspension in the interests of the 

investors; or by order of BaFin if such an order is needed in the interests of all investors. 

If the operator suspends redemption, it must inform BaFin immediately. 

Recent experience with open ended real estate funds illustrates the way these 

suspension arrangements work in practice. In October 2008, redemptions were 

suspended for 12 real estate funds in the wake of the financial crisis. Currently 13 real 

estate funds are affected by suspensions according to section 81; three of these have 

permanently stopped redemptions and are currently subject to an orderly winding up. On 

the basis of reported figures concerning subscriptions and redemptions BaFin had the 

management companies present liquidity status reports and assess their situation in 

terms of possible measures to prevent suspensions of redemptions. After suspensions 

were put in place, BaFin had the management companies report on a regular basis about 

their progress being made in respect of a “re-opening” of the real estate funds. Guidance 

was issued concerning the sale of real estate property during suspension in order to 

raise liquidity stressing the point that investors’ interest to have their units redeemed is to 

be given more consideration as time elapses. As the law provides for a maximum period 

of time of 2 years in which redemptions may be continuously suspended, BaFin held 

regular meetings with those management companies that did not manage to “re-open” 

their real estate funds to review the options of “re-opening” these funds sustainably. 

By the end of October 2010 the management companies of three real estate investment 

funds came to the conclusion that an orderly winding up of these funds is the only option 

in order to assure a fair and equal treatment of all investors of these three real estate 

funds. 

Changes concerning the real estate funds regime in InvG now generally a 1-year-notice 

prior to redemptions of units in real estate funds is made mandatory in order to facilitate 

liquidity management). BaFin is in talks with the management companies of the other 10 

real estate funds still suspended about their prospects of a sustainable “re-opening”. 

Assessment Fully implemented 

Comments 

Principles for Market Intermediaries 

Principle 21. Regulation should provide for minimum entry standards for market intermediaries. 

Description Legislative and industry background 

The main legislation governing the authorization and ongoing regulation of market 

intermediaries is KWG (Gesetz über das Kreditwesen, KWG). BaFin is responsible for 

administering this legislation as well as other legislation relating to entities licensed 

financial services providers under KWG, notably the Securities Trading Act (WpHG). 

Section 32 of KWG requires a person to hold a license to carry on a business of 

providing financial services. The KWG definition of financial services (section 1(1a)) is in 

broad terms and covers a wide range of activities. The definition covers most forms of 

financial market activity involving financial instruments, including proprietary trading and 

providing customer-specific advice. A person conducting a multilateral trading facility is 

also a financial services institution for the purposes of KWG licensing requirements. 

Financial instruments are likewise defined in broad terms to include of equity and debt 

securities, options over these securities, units in collective investment schemes, money 

market instruments and derivatives. Derivatives are defined to include both exchangetraded instruments (such as futures and options) and OTC instruments. See section 

1(11) of KWG. As noted under Principle 1, some types of financial instruments—such as 
65 

closed end funds—are not financial instruments for the purposes of KWG licensing 

regime, and are subject to lesser regulation. 

The main categories of licenses issued by BaFin are: 

a. investment broking (buying and selling, or arranging to buy and sell financial 

instruments) 

b investment advice 

c. contract broking (buying and selling financial instruments in the name of and on 

account of third parties) 

d. portfolio management (discretionary trading on behalf of individual clients) 

e. asset management.

 

Licensed banks dominate the market intermediary business, with over 1,800 banks 

authorized to carry on financial services. Some 770 nonbank entities are licensed to 

provide financial services. This industry structure means that the majority of industry 

participants are regulated as banks and aspects of the regulation that applies to them 

flows from their status as credit institutions (banks). For example, only an institution 

licensed as a bank may hold assets or funds on behalf of investment services clients. 

This means that, as a general rule, capital rules in practice apply quite differently to nonbank licensees. 

Authorization 

All applicants for authorization must supply detailed information. This includes 

information about: 

a. the identity of managers and direct and any shareholder with more than 10 percent 

of the capital or voting rights of the applicant (a qualified participating interest) 

b. the applicant’s business plan 

c. available resources, including initial capital 

d. ethical standards of managers and qualified participating interest holders 

e. the competence of managers 

f. internal controls, risk management and supervisory systems 

(See section 32 KWG.) 

Authority of Regulator 

BaFin must refuse a license if minimum capital requirements are not met or it has 

adverse evidence about the integrity or competence of managers or the integrity of 

holders of qualified participating interests. It has the discretion to refuse a license if it is 

aware of facts that warrant the assumption that effective supervision will be impaired. 

See Section 33 KWG. 

BaFin also has the power to revoke an authorization, including if it becomes aware of 

information that would justify refusal of authorization. As a matter of general 

administrative law, an authority such as BaFin has the power to revoke an administrative 

act it has taken, and this includes the grant of an authorization. See Section 35 KWG and 

Sections 48 and 49 of the Act on Administrative Enforcement (VwVfG). 

BaFin has broad powers to support its regulation of authorized institutions, including the 

power to instruct licensee to cease or limit activities; to demand the dismissal of 

managers; and to transfer the powers of institution’s board to a special commissioner. 
66 

See Section 36 and Section 46 KWG. 

BaFin also has the broad information gathering and enforcement powers described 

under Principles 8 and 9. 

Ongoing requirements 

All authorized institutions must report to BaFin (and the BundesBank) any material 

changes in personnel, financial position, legal form or organizational structure; and 

changes in or acquisition of qualified participating interests (significant shareholdings). 

See Section 24 KWG and the related Ordinance on Reports according to Section 2c 

KWG and Section 104 VAG, Inhaberkontrollverordnung, InhKontrollV). 

Public disclosure of licensed intermediaries 

The legislation requires BaFin to publish details of the grant or withdrawal of licence, 

including activities permitted under the license. BaFin makes these details available 

through its website. [Relevant legislative provision: s32(4) KWG]. Details on the legal 

form of the institution, names of managers and members of supervisory board and 

individuals authorized to act in the licensee’s name are on the Commercial Register 

rather than BaFin’s website. 

Supervision and enforcement powers 

As noted under Principles 8 and 9, BaFin has extensive powers to monitor compliance by 

market intermediaries with their obligations under the regulatory regime. As a general 

rule, BaFin appears to be inclined to corrective action rather than administrative penalties 

in its dealings with regulated entities. 

Supervision practice 

The main techniques BaFin uses in the supervision of market intermediaries are outlined 

under Principle 10. 

Strong reliance is placed on the work of auditors, especially on the annual compliance 

audits carried out by the regulated entity’s auditor. BaFin staff may decide to participate 

in the yearly audits performed by external auditors; and BaFin can determine key issues 

for these external audits within the scope of the audits. 

Additionally, BaFin staffs meet with board members, compliance officers or other staff of 

intermediaries when there are compliance issues, such as indications of a breach of 

regulation or significant customer complaints or a change of the scope of the business. 

For all intermediaries, the allocation of supervisory resources, also for the contacts with 

the supervised entities, is based on a risk assessment. 

BaFin also holds quarterly meetings with the banking and investment firms’ associations 

to discuss current issues. In these meetings, common violations across investment firms 

will be discussed as well as all other questions on the applicable code of conduct 

regulations, matters of current interest (e.g., due to press coverage), or new legislative 

proposals. Representatives of the associations of all the supervised investment firms 
67 

participate in these meetings. 

With respect to banks, BaFin staff influence the external audit process by determining 

key issues for the audits (so-called Prüfungsschwerpunkte) and by participating in the 

audits. 

BaFin also does Apart from occasional thematic works, for example in the 

implementation of the obligation for investment advisors to provide clients with minutes 

on the investment advice being given that was introduced in January 2010. BaFin has set

such special focus in 2010 for banks’ provision of investment advice and the 

performance of clients’ accounts over a period of several years. This focus was set for 

the external audits of all banks with significant retail client business, and included foreign 

and private banks, as well as public and cooperative banks. 

As well as the techniques described above and under Principle 10, BaFin uses a special 

supervisory approach for those firms which are rated “C” or worse in the risk matrix and 

have significant impact on the market. Besides the determination of key issues for the 

audit and on-site participation in the audits, BaFin staffs meet with the firm’s 

representatives at least on a quarterly basis to discuss current issues. Also, if the audit 

reports show that a firm has considerable weaknesses or difficulties in eliminating the 

regulatory violations, BaFin will order the firm to implement a special program involving 

regular reporting obligations and BaFin follow-up. 

In 2010, in the section supervising the 147 private German and international banks nine 

of these firms were rated “C”. The section staff spent approximately 40 days on-site at 

these firms’ premises comprising visits during the external audits and supervisory 

contacts beyond the annual audit. 

Investment Advisers 

An entity providing clients with personal recommendations about transactions in financial 

instruments, where the recommendation is based on an evaluation of the client’s 

personal circumstances or is represented as being suitable for the client must hold an 

investment advice license under KWG (the definition is in section 1(1a) of KWG). As 

noted under Principle 17, there is an exception for some advisers on CIS; and KWG 

definition only applies to advice about financial instruments as defined in KWG. 

Entities licensed to provide investment advice are subject to the same capital and other 

controls, including record keeping requirements, as apply to other licensees. 

Custody of client funds or assets is only allowed if the entity is licensed as a credit 

institution (bank). 

Assessment Broadly implemented 

Comments In its monitoring of compliance by market intermediaries, BaFin is heavily reliant on 

analysis of audit reports. On-site inspections are used, especially for entities with higher 

risk ratings, and some thematic work is done. But both techniques are relatively sparingly 

used and continuing reliance is placed on annual compliance audits, including for 

adjustments to risk ratings. 

The comments made under Principle 10 apply in the assessment of Principle 21, which 
68 

contemplates the use of on-site inspections of regulated entities regulated as a routine 

part of the regulator’s activities. 

As noted under Principle 10, a benefit of the audit system is that all regulated entities are 

reviewed annually. Nonetheless, on balance the assessor considers that the regulatory 

measures adopted for the supervision of market intermediaries do not place sufficient 

emphasis on the use of on-site inspections, both where potential problems occur at 

individual firms and more broadly for thematic reviews of specific compliance issues. As 

a result, BaFin has a less than optimal presence in the marketplace, and risks its overall 

supervisory activity being too reliant on backward looking indicators. In particular, they 

may mean that BaFin is not in a position to detect at an early stage patterns of market 

conduct that have a potential adverse impact on regulated entities obligations, especially 

conduct obligations relating directly to investor protection issues. 

It is recommended that BaFin review its approach to the supervision of CIS activity by: 

a. continuing to refine its approach to assessing and scoring risk; and 

b. making more frequent use of on-site inspections to monitor compliance, both on a 

risk score basis and for thematic issues such the selling practices of market 

intermediaries. 

Principle 22. There should be initial and ongoing capital and other prudential requirements for market 

intermediaries that reflect the risks that the intermediaries undertake. 

Description KWG and the Solvency Ordinance (Solvabilitätsverordnung, SolvV) govern the capital 

requirements of financial services institution licensed under the Banking Act. These 

provisions are based on and incorporate the standards of the EU Capital Requirements 

Directives 2006/48/EC and 2006/49/EC (Capital Requirements Directive, CRD). 

Minimum capital requirement 

Entities licensed as financial services institutions are subject to initial capital 

requirements under s33 of KWG. 

a. entities that do not hold client funds/assets and do not deal on their own account: 

€50,000 

b. entities that may hold client fund/assets but do not deal on their own account: 

€125,000 

c. entities that deal own account dealings (and securities trading banks): €730,000 

In some cases, indemnity insurance is accepted as a substitute for these minimum 

capital requirements. 

Ongoing capital requirements 

Entities are also subject to ongoing capital requirements set out in KWG (Section 10), 

which sets out what is to be recognized as capital for regulatory purposes, and the 

SolvV, which specifies the minimum amount of capital to be held. 

For ongoing capital purposes, licensed entities fall into two groups (see Section 2 of the 

SolvV): 

a. financial services institutions that (i) do not conduct a proprietary trading business and 
69 

(ii) do not as investment brokers, contract brokers or portfolio managers hold 

customer funds or assets or deal in financial instruments on their own account. 

These entities must maintain initial capital and must also meet the liquidity test in 

section 11 of KWG (institutions must investment funds so as to ensure adequate 

liquidity for payment purposes at all times). 

b. other financial services institutions, including credit institutions (banks) and securities 

firms not within the exceptions in (a). These institutions must comply with the full 

capital requirements in KWG and the Solvency Regulation. 

Under these requirements, institutions must quantify credit/counterparty risk, 

operational risk and market risk and must support them with own funds. Institutions 

are required to hold at least an overall capital ratio of 8 percent against risk weighted 

assets. These provisions apply to the consolidated and individual entity levels. 

The eligible components of an institution’s or a group’s own funds (including positions 

to be deducted) are listed in Section 10 (2) to (2c) of KWG which reflects the 

European Capital Requirements Directive (CRD). 

The individual risk profile of the institution is considered in the calculation of capital 

requirements, either through the credit risk standardized approach or the internal 

ratings based approach. Operational risks and market price risks are taken into 

account when calculating the capital ratio. The calculations take into account credit 

risk (including balance sheet, derivatives and off-balance sheet exposures (sections 

11-14 of the Solvency Ordinance)); market risk exposures (Section 295), commodities 

positions (Section 296) and interest rate and equity price related risks (Section 298). 

Unlicensed affiliates or off balance sheet activities are regulated though rules for 

consolidated supervision or though minimum capital requirements under Sections 10, 

10a and 10b of KWG.

Guarantee scheme 

Financial services institutions licensed to provide financial services such as investment 

broking, contract broking, financial portfolio management and trading for own account 

under KWG are required to secure deposits and liabilities from investment business 

through membership of an investor compensation scheme in accordance with the 

Deposit Guarantee and Investor Compensation Act (Einlagensicherungs- und 

Anlegerentschädigungsgesetz, EAEG). If compensation is payable, the creditor of an 

institution has a right to compensation as provided in the EAEG from the compensation 

scheme to which the institution belongs (Section 3 EAEG). 

For the securities market, non-bank licensees belong to a statutory Investor 

Compensation Fund established by EAEG. Licensees who are banks may belong to one 

of the non-statutory compensation schemes established the banking industry, such as 

the Deposit Protection Fund of German Banks. 

Compensation is payable if BaFin determines that, for reasons directly related to its 

financial circumstances, an institution is unable to repay deposits or meet its liabilities 

arising from investment business and there is no prospect of repayment or the liabilities 

being met at a later date (section 1(5) EAEG). The claim to compensation of the creditor 
70 

of the institution is based on the amount of a creditor’s deposits or liabilities resulting 

from investment business, taking into account any set-off and counterclaims. There is no 

claim to compensation if deposits or funds are not denominated in the currency of a state 

of the EEA or in Euros. The amount of the claim to compensation is limited to 90 percent 

of deposits to a maximum EUR 20,000, and 90 percent of other liabilities arising from 

investment business to a maximum of EUR 20,000 (section 4 EAEG). 

A licensed financial services institution must inform non-institutional investors about its 

membership in an investor deposit guarantee scheme (see Section 23a KWG). 

If claims by clients exceed resources of the statutory Investor Compensation Fund, the 

Fund can demand additional contributions from its member firms. The Fund can also 

raise loans if required. The Fund itself decides about possible pro rata compensation and 

the order of disbursement. 

The funding base of the Statutory Fund has come under pressure in recent years as a 

result of a large number of retail investor claims resulting from the failure of a single 

licensed institution to meet its obligations to customers. 

Reporting and monitoring 

Compliance with the minimum and ongoing capital requirements is monitored through the 

institutions’ monthly financial reports (Section 25(1) KWG) and quarterly reports on 

capital adequacy (Section 6 Solvency Ordinance). These reports are submitted to the 

Deutsche Bundesbank, which analyses them and passes on the reports and its analysis 

to BaFin. 

Financial statements audited by an independent auditor must be submitted to BaFIn and 

the Deutsche Bundesbank within 3 months after end of financial year (Section 26 KWG). 

Financial services institutions must comply with financial requirements at all times. 

Under Section 7(1) of the Solvency Ordinance, BaFin and the Deutsche Bundesbank 

must be immediately notified if a licensee: 

a. falls below the minimum capital requirements; or 

b. sustains a loss of 25 percent of the institution’s liable capital; 

BaFin is authorized by Sections 45 and 46 KWG to take formal measures, including by: 

a. prohibiting withdrawals by proprietors or shareholders and distribution of profits; 

b. by prohibiting or limiting lending; and 

c. requiring specific risk-reducing measures, if the institution fails to restore the minimum 

capital ratio within an appropriate period;. 

If there is a threat to an institution's ability to meet obligations to creditors, BaFin can also 

issue instructions to the institution’s management, to prohibit deposit-taking or lending, to 

prohibit proprietors or managers from carrying out their activities or to appoint a 

supervising person. Since 2009, if the institution’s financial or revenue situation indicates 

that the institution will not be able to meet its capital requirements in a sustainable way, 

BaFin can take these measures before an actual breach of the minimum capital 

requirements occurs. 
71 

Assessment Fully implemented 

Comments 

Principle 23. Market intermediaries should be required to comply with standards for internal 

organization and operational conduct that aim to protect the interests of clients, ensure 

proper management of risk, and under which management of the intermediary accepts 

primary responsibility for these matters. 

Description Management and organization structure 

KWG requires a credit or financial services institution to have in place a proper business 

organization to ensure it complies with legal obligations as well as appropriate 

arrangements by means of which the financial situation of the institution or group can be 

gauged with sufficient accuracy at all times (section 25a KWG). “Proper business 

organization” in this context includes appropriate and effective risk management. 

The legislation specifies broad standards for the design and functioning of such a risk 

management system. The legislative provisions are supplemented by detailed 

requirements set out in 2 circulars issued by BaFin: 

a. Circular 15/2009: Minimum Requirements for Risk Management 

(Mindestanforderungen an das Risikomanagement, MaRisk) BaFin published a revised 

MaRisk on 14 August 2009. 

b. Circular 4/2010 (WA) - Minimum Requirements for the Compliance Function and 

Additional Requirements Governing Rules of Conduct, Organisation and Transparency 

pursuant to Sections 31 et seq. of the Securities Trading Act (Wertpapierhandelsgesetz - 

WpHG) for Investment Services (Mindestanforderungen an die Compliance-Funktion und 

die weiteren Verhaltens-, Organisations- und Transparenzpflichten nach §§ 31 ff. WpHG 

für Wertpapierdienstleistungsunternehmen, MaComp). 

Another circular (22/2009) deals separately with remuneration systems for regulated 

institutions. 

This framework provides that: 

a. all senior managers (regardless of their formal internal roles) are responsible for 

ensuring the institution has and continues to develop a proper business organization. 

This responsibility also extends to outsourced activities and processes, and continues to 

apply even if duties are delegated. (see MaRisk AT3; MaComp AT4); 

b. there must be a documented set of internal rules for identifying, assessing, treating 

monitoring and communicating all material risks; 

c. there must be an independent compliance function that reports directly to senior 

management. The duties of this function are set out in detail in MaComp, They include 

ensuring compliance with obligations to clients (such as disclosure requirements). The 

compliance function must report at least annually to the chairman of the supervisory 

board. 

d. there must be an internal audit function which (among other things) monitor and 

assess independently the effectiveness and appropriateness of the risk control system; 

e. any break down in internal controls must be reported immediately to senior 

management; 
72 

A regulated institution must implement effective and transparent processes to ensure 

adequate and timely processing of complaints from retail clients and to record each 

complaint as well as the measures taken to remedy the complaint (section 33 (1) no. 4 

WpHG). 

Client funds and assets 

The basic principle for client assets is that only institutions licensed as credit institutions 

are permitted to hold client funds and assets. Safe custody and administration of 

securities for the account of others is treated under s1(1) of KWG as component of 

banking business and thus may be performed only by entities licensed as credit 

institutions. 

Section 34a(1) of the Securities Trading Act requires financial services institutions that 

receive client funds in connection with an investment service they provide to keep them 

separately from any other funds or assets (whether their own or other clients’) and to 

deposit them without delay in a trustee account with an institution licensed to conduct a 

deposit-taking business (or a comparable institution in the EEA or a third party 

jurisdiction). 

Section 34a(2) applies analogous rules to client securities (as defined in the Act). 

Client funds

Client funds and assets must be identified as such to the custodian bank. The Safe 

Custody Act (Depotgesetz, DepotG) contains provisions to protect investors who entrust 

tradable securities to a credit institute for safekeeping. To protect investors and their 

securities, DepotG provides for different forms of safekeeping (collective deposit and 

individual safekeeping). In addition to the right to separation. DepotG provides for further 

mechanisms to protect investors against the risks of third party safekeeping such as 

restricting claims of rights to pledge or retention (section 4). 

For investment firms that are deposit-taking banks, client money will in most cases be in 

the form of deposits. These are not required to be held separately from the proprietary 

assets of the institution. However, such deposits must be covered by a deposit guarantee

scheme, and are also protected by the more stringent regulation applying to banking 

business. 

Client assets 

A deposit business as defined in section 1(1) sentence 2 no. 5 KWG can be provided in 

different forms. Generally, the securities are entrusted to a bank for central depository of 

securities (collective deposit) unless the depositor requires individual safekeeping. 

For collective deposits, the depositary may keep safe securities unsegregated from its 

own assets of the same kind or those of third parties or entrust those to a third party for 

collective depositing only when the depositor has given express and written consent (see 

Section 5 (1) sentence 2 DepotG). The depositary may entrust the securities to a third 

party, in most cases a bank for central depository of securities. In case of individual 

safekeeping, the depositary must keep safe securities separately from other assets and 

under an externally recognizable designation of the depositor (Section 2 DepotG). 
73 

Under DepotG, investment firms are not allowed to hold omnibus accounts and securities 

of one client cannot be affected by activities of other clients. 

Reporting to clients

A depositary is required to issue a securities account statement. Under a regime set out 

in the Depot-Bek20 ( no. 11 (2)), a securities account statement given to a client s must 

include information about: 

a. securities entrusted to the credit institute individually with their nominal amount or 

number; 

b. the exact name of the security type including the information about the characteristics 

and form of safekeeping. 

Clients must be able to understand how they own their securities. These requirements 

also apply to contractual claims (e.g., purchase and delivery of securities). 

There are no legal requirements for clearing houses or other central counterparties to 

maintain the separate identification of collateral posted by an investment firm for its client 

positions. Eurex Clearing AG requires clearing members to transfer proprietary funds for 

both client and proprietary positions. Under its clearing conditions clearing members 

have to ask clients to transfer collateral equivalent to the one transferred by the clearing 

member to Eurex, but no segregation of assets is required at the clearing member level. 

Any margin segregation requirements at that level are determined by the laws applicable 

to the relevant clearing member and its arrangements with its clients. 

Client information, know your client and suitability rules 

When providing investment advice or portfolio management, a licensee must obtain all 

necessary information about the customer’s knowledge and experience in the investment 

field relevant to the specific type of product or service, his financial situation and his 

investment objectives so as to enable the intermediary to recommend to the customer 

the investment services and financial instruments that are suitable for him. Where the 

intermediary does not obtain the information required, the licensee must not recommend 

investment services or financial instruments to the customer (Section 31 (4) WpHG) 

When providing investment services other than advice and portfolio management, the 

licensee must ask the customer to provide information about his knowledge and 

experience in the investment field relevant to the specific type of product or service 

offered or requested to enable the intermediary to assess whether the investment service 

or product envisaged is appropriate for the client. If the intermediary comes to the 

conclusion that the product or service is not appropriate to the customer, the intermediary 

must warn the customer. If the customer chooses not to provide the information required 

or provides insufficient information, the intermediary must warn the customer that it is not 

able to determine whether the service or product envisaged is appropriate for the 

 

20 Official Requirements regarding Safe Custody Business, Depot-Bek (Amtliche Anforderungen an das 

Depotgeschaft - Bekanntmachung über die Anforderungen an die Ordnungsmäßigkeit des Depotgeschäfts und 

der Erfüllung von Wertpapierlieferungsverpflichtungen). 
74 

customer (Section 31 (5) WpHG). 

Customer access to terms and conditions of services 

Intermediaries that provide an investment service other than investment advice are 

required to enter into a written basic agreement with the customer setting out the 

essential rights and obligations of the firm and the customer (Section 34 (2) sentence 2 

WpHG). The intermediary must provide this agreement to the customer in paper or 

another durable medium. The intermediary must inform the customer about the terms of 

the agreement before the customer is bound by it (Section 5 (2) and (3) sentence1 of the 

Ordinance on the Conduct and Organization of Investment Services Enterprises, 

Wertpapierdienstleistungs-Verhaltens- und Organisationsverordnung, WpDVerOV). If this 

is not possible, because the agreement was concluded by telephone at the request of the

client, the information must be provided immediately after the client is bound by the 

agreement (Section 5 (3) sentence 2 WpDVerOV). 

In addition, licensees providing investment advice are required by Section 34(2a) of the 

Securities Trading Act to take minutes of any investment advice session, which must be 

signed by the advice giver and must be provided to the client before any transaction 

resulting from the advice is concluded. Where this is not possible (for example telephone 

discussions), the licensee may accept a client order if requested to do so by the client, 

but only if it permits the client to withdraw from the transaction after reviewing the 

investment advice. 

Statement of account and information on remuneration 

The Ordinance on the Conduct and Organization of Investment Services Enterprises 

(Wertpapierdienstleistungs-Verhaltens- und Organisationsverordnung, 

WpDVerOV) sets out detailed requirements for reports to clients of financial services 

institutions. 

Reports required by Sections 8 and 9 of the WpDVerOV include: 

a. transaction confirmations 

b. periodic reports for clients of portfolio management services, 6 monthly or 3 monthly if 

requested by the client. Clients can also request elect to receive information about 

executed transactions on a transaction-by-transaction basis, in which case the 

intermediary must provide promptly to the client, on the execution of a transaction by 

the portfolio manager, the essential information concerning that transaction in a 

durable medium 

c. periodic reports for holder of interest in collective investment undertakings in relation 

to transactions executed periodically, at least 6 monthly 

Section 5(2) of the WpDVerOV requires a licensee to inform their retail clients and 

potential retail clients with information about costs and associated charges including 

where relevant: 

a. the total price to be paid by the client in connection with the financial instrument or the 

investment service or ancillary service, including all related fees, commissions, 

charges and expenses, and all taxes payable via the investment firm or, if an exact 

price cannot be indicated, the basis for the calculation of the total price so that the 

client can verify it. Commissions charged by the licensee must be separately 
75 

itemized; 

b. where any part of the total price is to be paid in or represents an amount of foreign 

currency, an indication of the currency involved and the applicable currency 

conversion rates and costs; 

c. notice of the possibility that other costs, including taxes, related to transactions in 

connection with the financial instrument or the investment service may arise for the 

client that are not paid via the investment firm or imposed by it; 

d. the arrangements for payment or other performance. 

Books and records 

Section 34 of the Securities Trading Act requires financial services institutions to keep 

records of the investment services they provide, and records of transactions undertaken 

by them, to enable BaFin to monitor their compliance with their obligations. Records 

must be kept for at least 5 years. These requirements are in addition to licensees’ record 

keeping obligations under general commercial law, and under the record keeping 

requirements under the MiFID regime (EC 1287/2006). 

Appropriate systems of customer protection, risk management and internal and 

operational controls 

A licensed financial services institution must ensure that all clients are treated in a fair, 

honest and professional manner (Section 33(1) no. 3 and Section 31(1) WpHG). It must 

also establish a conflicts of interest policy (section 13 (2) WpDVerOV) and a best 

execution policy (Section 33a (1) WpHG). 

The Securities Trading Act contains detailed provisions on the execution of customer 

orders in Sections 31c (handling client orders) and 33a (best execution). These sections 

provide for the way in which client orders are to be recorded; the sequence of execution; 

the circumstances and conditions under which aggregation of orders is permitted 

(including client and licensee orders); how allocation is to occur; and communication with 

clients about orders. They also prohibit misuse by the licensee of information about 

client orders. 

Handling conflict of interests 

Section 31(1) of the Securities Trading Act requires financial services institutions to avoid 

conflicts of interest wherever possible and to ensure that in the event of unavoidable 

conflicts of interest customers' orders are executed with due regard to customers' 

interests. The general nature and/or sources of conflicts of interest must be disclosed if 

they cannot be avoided. The intermediary is required to identify the types of conflict of 

interest that arise in the course of providing investment services and whose existence 

may damage the interests of a client.’ 

Under section 33 (1) no. 3 of the Securities Trading Act a financial services institution 

must maintain permanent and effective arrangements to allow it to take all reasonable 

steps to identify conflicts of interest between itself (including its employees and related 

parties) and its clients. 

These general obligations are supplemented by specific provisions, such as the provision 

dealing with personal account dealings by employees of a financial services institution 
76 

(Section 33b of the Securities Trading Act). Further guidance is provided in MaComp, 

including the role that the compliance functions should play in monitoring conflicts, the 

use of information restrictions and barriers (“Chinese walls”), separation of functions, and 

remuneration structures. 

Assessment Fully implemented 

Comments 

Principle 24. There should be a procedure for dealing with the failure of a market intermediary in order 

to minimize damage and loss to investors and to contain systemic risk. 

Description KWG provides a procedural framework for dealing with the insolvency or imminent 

insolvency of a financial services institution. 

Early warning systems 

An institution that becomes insolvent, or is at risk of becoming so, must immediately 

report that fact to BaFin (Section 46b(1)). 

Monthly and quarterly reports to the Bundesbank and BaFin also provide regular 

information relevant to the financial and operating condition of an institution. In addition, 

as noted under Principle 22, institutions must notify the Bundesbank and BaFin if they fall 

below minimum capital requirements or sustain losses amounting to more than 

25 percent of their capital. 

Procedures 

BaFin has extensive powers to deal with the failure or threatened of a regulated 

institution. These powers include: 

a. the power to approach a court and file a petition for the initiation of insolvency 

proceedings over the institution’s assets(see section 46b (1) KWG). Only BaFin may 

file such a petition. 

The competent court will then issue a decision whether formal insolvency proceedings 

are commenced. An Administrative Officer is selected by the competent court. The officer

must be independent and possess adequate experience. The Officer is subject to 

personal liability for all breaches of his duties and is solely responsible for the oversight 

and decisions of major importance unless these persons are evidently unsuited (section 

60 of the Insolvency Statute, Insolvenzordnung, InsO). The insolvency regime focuses on 

returning client money and client securities to clients. Similarly, client positions are 

liquidated and valued. Under the provisions of the Restructuring Act, client assets may 

be transferred from an insolvent bank to a solvent bank. It covers the cases of such a 

transfer with and without client consent. In case of insolvency of a depositary, the 

depositor is entitled to claim segregation and the return of the securities. Client securities 

do not form a part of the insolvency assets (section 47 InsO). 

b. the extensive powers to intervene in the operation of the institution described under 

Principle 22 (such as the power to issue instructions, limit the conduct of the institution’s 

business, and order the institution to cease business (sections 46 and 46a KWG). 

Communication and cooperation with other authorities

As well as the general powers and duties BaFin has to cooperate with other authorities, 
77 

both domestic and international (described under Principles 11-13), KWG contains 

express provisions (sections 46b(2) and 46d) requiring it to notify the relevant authorities 

in EEA jurisdictions if it files a petition for insolvency for a domestic institution; and to 

advise those authorities if BaFin forms the view that an institution domiciled in their 

jurisdiction has insufficient liquidity (section 53b(4). 

 Fully implemented 

Comments BaFin relies heavily on regular reporting by intermediaries to make its early warning 

system effective, and has adequate powers to deal with a firm facing insolvency. The 

assessor accepts that there is a clear practical understanding of the steps that need to 

be taken in such a case, and that BaFin can and would take those steps. Nonetheless, it 

is desirable for there to be a clear and complete ex ante plan for dealing with the 

threatened failure of both bank and non-bank firms. 

Principles for the Secondary Market 

Principle 25. The establishment of trading systems including securities exchanges should be subject to 

regulatory authorization and oversight. 

Description Organized market activity is subject to a comprehensive, if somewhat complicated, 

legislative regime. 

The Federal Exchange Act (Börsengesetz, BörsG) and regulations made under it (such 

as regulations relating to admission to listing,21 are supplemented by regulations made 

by individual States, such as the regulations relating to exchanges in the State of Hesse, 

or regulations dealing with individual exchanges such as Frankfurt and Eurex.22

Clearing and settlement facilities are regulated as banking activities under the Banking 

Act. 

Exchange markets 

Under BörsG, exchanges are institutions established under German administrative law 

having the legal status of a public authority acting with administrative powers. These 

entities are separate from the entities that provide trading and clearing services to the 

exchange market on a commercial basis (Administering and Operating entities). So for 

example, the Frankfurt Stock Exchange is a public law body, with commercially oriented 

trading and clearing services provided by a publicly listed company, the Deutsche Börse 

group. Exchanges are subject to constitutional restrictions for public authorities, and 

operate under the supervision of the relevant State-based Exchange Supervisory 

Authority (ESA). 

 

The Act requires an exchange to act through its executive bodies 

a. Management Board (Geschäftsleitung), 

b. Exchange Council (Börsenrat), 

c. Trading Surveillance Office (Handelsüberwachungsstelle, TSO), and 

d. Disciplinary Committee (Sanktionsausschuss). 

 

21 Verordnung über die Zulassung von Wertpapieren zum regulierten Markt einer Wertpapierbörse ̧ BörsZulV. 

22 Such as Börsenverordnung des Landes Hessen, BörsV HE, and Börsenordnung für die Frankfurter 

Wertpapierbörse, BO FWB 
78 

All executive bodies act in a sovereign capacity. This includes the power to apply 

coercive measures under administrative law. Administrative decisions of an exchange's 

bodies can be appealed against in administrative courts. 

The Exchange Council is the representative body of exchange users (trading 

participants, issuers and investors), and is elected by them every three years. The 

Exchange Council adopts the rules and regulations of the exchange and nominates and 

supervises the members of the management board. The management board is 

responsible for the conduct of the ongoing business of the exchange. 

 

Each exchange is obliged to establish a Trading Surveillance Office (TSO). A TSO—

though located at the exchange—is an independent body not subject to direction by the 

exchange. In particular: 

a. the appointment and the dismissal of the Head of the TSO require the consent of the 

ESA; 

b. the TSO is bound only by instructions issued by the relevant ESA; 

c. as it acts in a sovereign capacity and orders given by the TSO are binding. They can 

be enforced using sovereign powers; 

d. as an independent body, the TSO only reports to the responsible ESA. 

Each TSO must keep and analyze complete records of all trading data of the relevant 

exchange. In practice, TSOs use databases and electronic monitoring systems designed 

to ensure to complete capture and comprehensive analysis of all exchange data. TSOs 

also have extensive rights of inspection. They are entitled to: 

a. demand information, or documents from trading participants; 

b. enter their premises during normal office hours; 

c. require trading participants to disclose information regarding the ultimate 

beneficiaries, or obligors, of exchange trades. 

TSOs must also inform BaFin regarding any indications of market manipulation or insider 

trading. TSOs are authorized to exchange data with other monitoring bodies in Germany 

or abroad, where this is necessary for the fulfillment of their duties, and provided that any 

exchange of data with foreign authorities is subject to confidentiality requirements which 

are comparable to German rules. 

The Disciplinary Committee of an Exchange can take disciplinary action against trading 

participants for breaches of rules or provisions under exchange law, imposing fines of up 

to EUR 250,000 or suspending admission for up to 30 exchange trading days. The 

Disciplinary Committee can be convened by the ESA or by the management board of the 

exchange. At some exchanges, the Disciplinary Committee can act upon its own 

initiative. For example, in calendar 2009 the Disciplinary Committee of Frankfurt Stock 

Exchange imposed sanctions in 18 cases, with 7 cases pending. In practice, the largest 

fine imposed to date was EUR 208,000. 

The ESAs of the Federal States (Länder) supervise exchanges and the trading 

participants. The ESA in each state usually forms part of the Ministry of Finance or the 

Ministry of Economics. Their regulatory authority includes: 

a. the approval of exchange operations; 

b. the approval or adoption of exchange rules and regulations; and 

c. monitoring trading participants’ and order book specialists’ compliance with their 
79 

duties (in particular, regarding orderly price determination and order execution). 

ESAs also supervise the orderly settlement of exchange trades. They are authorized to 

take appropriate regulatory action in the event of any abuse. The ESA has to approve the 

appointment of members of the management board of the exchange. 

ESAs have the same rights to access information and documents as TSOs. An ESA can 

also convene the Disciplinary Committee of the relevant exchange (Section 3 of BörsG). 

BaFin is responsible for monitoring and enforcing compliance with market abuse 

prohibitions (insider trading, market manipulation), and listed entities’ compliance with 

their disclosure obligations (including prospectus, continuous (ad hoc) disclosure and 

major shareholdings) and obligations under takeovers legislation. BaFin has sole 

responsibility for international information flows and cooperation with respect to regulated 

markets and market activity. 

For exchanges, therefore, compliance monitoring functions are performed at three levels,

exchange level (through the TSO); State level (by the relevant ESA); and BaFin. 

Authorization of exchanges

 

Before they can operate, exchange markets require approval by the ESA of the relevant 

State (Land), pursuant to BörsG (Section 4 BorsG). 

Currently 7 authorized exchanges operate securities markets (Frankfurt, München, 

Berlin, Hamburg, Hannover, Düsseldorf, Stuttgart), Eurex Deutschland based in Frankfurt 

operates an authorized derivatives exchange, and EEX operates an authorized energy 

exchange in Leipzig. 

Under section 4 of BörsG, for an exchange to be granted a licence, BörsG provides that 

the relevant ESA must be satisfied (among other things) about: 

a. the business case for the establishment of the exchange market

b. exchange resources 

c. the integrity of senior managers and major shareholders 

d. the ability of an applicant to comply with the regulation applying to exchanges. 

BörsG mandates the key elements of an exchange’s governance and structure 

(Exchange Council, Disciplinary Committee and TSO). See BörsG Section 7(1) (TSO); 

section 22 (Discplinary Committee; and Section 12 (Exchange Council). 

Exchanges must also adopt rules – which are subject to approval by the relevant ESA —

that cover a large number of matters specified in the legislation and regulations made 

under that legislation. Matters covered in this way include: 

a. admission to membership; 

b. exchange organization; 

c. types of trading; 

d. exchange members’ ability to meet obligations arising from their trading activities; 

and 

e. the conditions under which the exchange’s trading and settlement systems can be 

linked to external settlement systems. 
80 

ESAs can impose ongoing conditions on exchange operator and have extensive powers 

of intervention to ensure orderly trading and settlement, and compliance with Exchange 

Act and exchange rule obligations (section 3 BörsG). 

Multilateral trading facilities 

 

Conducting a market in the form of MTF is treated as a financial service requiring the 

operator to be licensed as a financial services institution under the Banking Act Banking 

Act (see Section 1(1a)). 

As licensees MTFs are subject to the obligations common to all licensees. They are also 

subject to additional special provisions under the Securities Trading Act (WpHG): 

a. Under Sections 31f, MTFS must have rules governing: 

i. access by trading participants at least as stringent as those required for 

exchanges under BörsG; and 

ii. the admission to trading and orderly trading in financial instruments; 

They must also have control mechanisms for monitoring and recording all trading 

activity; comply with Exchange Act provisions on price formation; and publish 

information about the operation of the MTF; and 

b. Under section 31g, MTFs must comply with MiFId-standard requirements for preand post-trade transparency. 

BaFin has to date licensed 2 institutions to operate MTFs, Eurex Bonds and Eurex Repo. 

Both these markets were well established before the requirement to register as MTFs 

came into effect. Eurex Repo is a wholly owned subsidiary of the Eurex Frankfurt AG 

(itself ultimately owned jointly by SIX Swiss Exchange AG and Deutsche Börse AG). 

Eurex Bonds is owned 79 percent by Eurex Frankfurt AG, with the remaining 21 percent 

held by major financial institutions. 

BaFin monitors compliance by MTFs with their obligations as a licensed institution under 

the Banking Act and the rules for MTFs set out in the Securities Trading Act (WpHG). 

TSOs must report suspect insider trading and other market abuses to BaFin (section 7(5) 

BörsG). 

MTF operators are also required to report to BaFin serious contraventions of trading 

rules and other threats to market integrity (Sections 10 and s31f(3) WpHG). 

Assessment Fully implemented 

Comments 

Principle 26. There should be ongoing regulatory supervision of exchanges and trading systems, which 

should aim to ensure that the integrity of trading is maintained through fair and equitable 

rules that strike an appropriate balance between the demands of different market 

participants. 

Description Exchange supervision 

 

As described under Principle 25, ESAs have overall responsibility for supervision of 

exchanges and monitoring and enforcing compliance with BörsG and related regulations. 

They have extensive powers under Section 3 of BörsG to obtain information from market 

operators and market participants and their clients and to intervene in market operations 
81 

(for example by suspending trading in one or more financial instruments). 

 

ESAs monitor trading activities and the functions performed by the TSOs of the 

exchanges. The TSOs have access to all pre- and post-trade information and review 

trading and settlement data, operate electronic surveillance systems and conduct 

investigations to ensure compliance by participants with the regulatory framework, 

including exchange rules and regulations. 

Compliance monitoring 

Exchanges

[Note: The following information is based on information about the regulation of markets 

in the State of Hesse. The assessor did not have contact with ESAs in other States.] 

BörsG makes TSOs responsible for front-line regulation of trading activity under the 

supervision of the relevant ESA (Section 7). ESAs run surveillance and compliance 

monitoring programs. 

TSO’s have continuous access to trading information. An ESA can demand information 

about trading activity from the exchange. 

For exchange trading, monitoring of market activity takes place at three levels: 

 

a. TSOs monitor trading and price formation; 

b. ESAs examine misconduct and violations of stock exchange law; and 

c. BaFin ensures that German securities and derivatives markets operate in 

accordance with the Securities Trading Act (WpHG). 

If a TSO identifies irregularities, it informs the management board of the exchange and 

the ESA, which may then initiate proceedings against market participants before the 

Disciplinary Committee of the exchange. Among other measures, the Disciplinary 

Committee may impose fines and exclude the participants for up to 30 days from the 

exchange. 

Apart from the Disciplinary Committee and the management board of the exchanges, the 

ESAs can impose sanctions on market participants. The main tasks of the ESA are the 

supervision of the integrity of the price formation process, investigations of violations of 

exchange regulations and development of preventive measures and supervision of 

proper trading of the exchange bodies. Their extended tasks encompass the supervision 

of the market participants admitted to exchange trading and contributions to legislation 

and exchange policy. 

The ESAs are authorized to issue orders for the maintenance of order and for the 

conduct of business on the exchange (section 3 (5) BörsG). With regards to the 

exchange and the trading participants, they may issue any necessary orders which are 

designed to prevent violations of exchange law provisions and orders, or to eliminate 

irregularities which could impair the orderly conduct of exchange trading, the settlement 

of exchange transactions and the supervision thereof. For this purpose, they are 

empowered to order the suspension or discontinuation of exchange trading in one or 

more financial instruments, rights or economic assets. 

Additionally, BaFin monitors compliance with the prohibitions and requirements of the 
82 

WpHG also as far as market manipulation and insider trading are concerned (section 4 

(2) WpHG). 

In the State of Hesse, a total of ESA 20 staff are employed in the supervision of Frankfurt 

Stock Exchange and Eurex; the ESA for the State of Hesse consists of 8 staff and its 

routine functions include: 

a. approval of new or changed rules for the markets; 

b. case-driven matters, where non-compliance with the legislation or market rules is 

examined. The ESA has daily contact with the TSO, and monitors for breaches of 

exchange rules, and investigates and initiates disciplinary committee proceedings; 

c. regular reviews of exchange activity. For example, the ESA has recently examined 

at issues relating to the admission of trading participants, because of concern that 

BörsG requirements were not being systematically complied with. 

As part of their obligations as financial services institutions, MTFs are required to 

maintain records of trading on their facilities. BaFin can require information to be 

provided to it. 

ESAs have the power to revoke an exchange authorization (see section s4(5) BörsG). 

MTFs

BaFin does not appear to have developed an MTF specific compliance regime, and the 

techniques it uses are those applying to licensed market intermediaries generally. It has 

not yet carried out an on-site inspection of either of the two existing licensed MTFs. 

BaFin can revoke the license of an MTF operator (section 33 KWG). 

Assessment Fully implemented 

Comments The two existing MTFs licensed in the German market are well established, relatively 

specialist, markets that pre-dated the MiFID compliant regime. In practice, they are 

owned by the operator of licensed exchange markets, and operate within the overall 

framework of the Deutsche Börse Group, but are not licensed as exchanges. The 

combination of these factors means that the risk of non-compliance with the market 

components of the regime that applies to them (such as the transparency rules) may be 

small. But if other MTFs are established in Germany, this approach is unlikely to t be 

adequate and would need to be supplemented by a more specifically designed 

compliance regime. 

Principle 27. Regulation should promote transparency of trading. 

Description Both exchange markets and MTFs are subject to pre- and post-trade transparency in line 

with those applying to equities and equity options admitted to trading in an EEA market in 

line with the MiFID directive. The MiFID requirements are imposed for exchanges by 

sections 30 and 31 of BörsG (and for example, s173 BO FWB); and by for MTFs by 

section 31g of the Securities Trading Act (WpHG). 

Pre-trade transparency

Pre-trade transparency requires disclosure of bid and offer prices, and volumes tradable 

at those prices (section 30 BörsG). In practice, this rule is elaborated by exchange-
83 

specific regulations. For example, for Frankfurt Stock Exchange, section 30 BO FWB 

provides that: 

a. for floor traded market an estimated price must be published showing the range of bid 

and ask limits at or between which the exchange price can be determined; 

b. for continuous trading systems, at least the aggregate order volumes of the five best 

price limits and order volumes for each price limit must be published; 

c. for periodic auctions, either the indicative auction price or the best bid and/or offer 

limit including the volume at that price must be published; and 

d. for the pre-call and call of an auction in a continuous trading model where specialists 

are used, the specialist’s indicative quote must be published. 

 

Waivers from these requirements are available, in accordance with the MiFID 

requirements, for: 

a. large scale orders that are large in scale as determined by MiFID; 

b. some negotiated trades; 

c. reference price systems, where the system executes trades at a price (or prices) 

generated by another system and the price is considered reliable and is widely 

published. 

d. orders held in order management systems pending disclosure to the market (such as 

iceberg orders). 

For MTFs, the relevant provision is section 31g of WpHG. 

Post-trade transparency

Under section 31 BörsG, exchange prices and the volume and the time of the exchange 

transactions have to be published without delay. Under section 174 BO FWB, exchange 

prices and the volume and time at which the trades were concluded must be published 

immediately in real time and not later than three minutes after occurrence, subject to an 

exception of delayed publication appears necessary to avoid disadvantage to the parties 

to the transaction. 

For MTFs, the relevant provision is Section 31g of WpHG. 

Information must be made available without delay (exchange markets) or continuously 

(MTFs) on reasonable commercial terms in an easily accessible form. 

An ESA (for exchange markets) and BaFin (for MTFs) can allow deferred publication if 

immediate publication is to the detriment of the trading parties (Section 30 BörsG; 

Section 31g(4) WpHG; and Articles 18-20 of the MiFID Implementing Regulation; Article 

28 of MiFID Implementation Regulation). 

Assessment Broadly implemented 

Comments The transparency regime required by MiFID has been fully implemented for exchange 

markets, MTFS and systematic internalizers, so there are the required levels of 

transparency at each market venue. But in an environment where trading in equities can 

take place on a range of venues, both within Germany and elsewhere, the absence of 

standards for consolidation of post trade information detracts from the overall 

transparency of the market for trading in shares. 
84 

In the assessor’s view, the transparency contemplated by Principle 27 is to be read in the 

light of the current market environment shaped by developments in technology and the 

competitive environment facilitated by MiFID. The current MiFID consultation identifies 

concerns about the practical effectiveness of the current requirements for post-trade 

transparency and raises issues about both comparability of post trade data and the 

desirability of consolidating it to ensure full and effective transparency. The assessor 

considers until these concerns are effectively resolved, the Principle should be rated 

broadly implemented. 

Principle 28. Regulation should be designed to detect and deter manipulation and other unfair trading 

practices. 

Description The regulatory framework 

The Securities Trading Act (WpHG) expressly prohibits insider trading (sections 13 and 

14) and market manipulation, including the supply of misleading information, false trading 

and deceptive conduct generally (section 20a). Front running of client orders is 

prohibited as a type of insider trading (see the definition of inside information in section 

13 of WpHG). 

The prohibition on insider trading extends beyond traditional securities. Section 12 of 

WpHG makes a variety of financial instruments subject to the prohibition, including 

securities, money market instruments and derivatives. For derivatives, the prohibitions 

apply to a financial instrument relating to a market traded instrument (even if not itself 

traded). For derivatives, “financial instruments” includes derivatives based on 

commodities and precious metals. 

Insider trading and some form of market manipulation are subject to sanctions as 

criminal offences (Section 38(1) WpHG). Other forms of market manipulation are treated 

as administrative offences for which BaFin can impose substantial monetary penalties 

(section 39 WpHG). For insider trading purposes, disclosure of inside information is 

prohibited; the disclosure of inside information amounts to a criminal offence when 

committed by a “primary insider”. If a “secondary insider” discloses information, a lesser 

degree of wrongfulness is assumed and such an infringement constitutes an 

administrative offence. 

Regulatory practices 

BaFin monitors compliance with the prohibitions and requirements of the WpHG as far as 

market manipulation and insider trading is concerned. Its powers are wide-ranging (see 

section 4 WpHG). 

BaFin’s monitoring the prohibitions on insider trading and market manipulation is 

supported by a variety of information and reporting obligations, such as requirements 

that: 

a. licensees report their market transactions to BaFin each day (section 9 WpHG); 

b. exchange TSOs (section 7(5) BörsG) and intermediaries including MTF operators 

(Section 10WpHG) to reports suspect trading activity to BaFin; and 

c. issuers maintain insider lists (section 15b WpHG) and to disclose material price 

sensitive information through ad hoc disclosures (section 15 WpHG) 

BaFin has issued detailed guidance on compliance with the market abuse provisions and 

the associated reporting obligations of issuers in its 2009 Issuer Guideline. 

For monitoring of markets, BaFin relies substantially on the reports it receives from 
85 

intermediaries, information from ESAs and TSOs, and its own monitoring of capital 

market activity (such as takeovers and ad hoc disclosures). 

Market participants report all completed transactions to the BaFin. These reports 

constitute a database that aids investigation of suspicious trading and more general 

analysis of market developments. 

In 2009, there were ten court convictions in respect of insider trading one of which 

resulted in custodial sentences for two offenders. In other cases, criminal fines were 

imposed. In 2010, there were eleven court convictions for insider trading. 

In the year 2010, BaFin focused particularly on market manipulation and commenced a 

total of 116 new investigations. BaFin found evidence of criminal breaches of the 

prohibition on market manipulation in 62 cases and reported 109 suspected persons to 

the appropriate public prosecutor. 

Cross market supervision 

BaFin has access to cross market information through information flows from TSOs and 

ESAs, and daily transaction reporting by market intermediaries of all trading (on-and offmarket), and through its ability to require documents and information from market 

participants and others. TSOs can share information with one another. BaFin is the 

competent authority for cooperation with authorities in other countries. It is party to the 

CESR MMoU on the Exchange of Information and Surveillance of Securities Activities, 

the IOSCO MMoU and a large number of bilateral MOUs. 

Assessment Fully implemented 

Comments 

Principle 29. Regulation should aim to ensure the proper management of large exposures, default risk 

and market disruption. 

Description [Note: observations about compliance with this Principle are based on an examination of 

the rules and procedures applying to the Frankfurt Stock Exchange and Eurex.] 

Exchange participant are obliged by section <> of BörsG to In accordance with BörsG 

<>, German exchanges have developed mechanisms to ensure the proper management 

of large exposures and reduce the risk of default and resulting market disruption. The 

main mechanisms are: 

a. the use of central counterparty clearing; 

b. requiring margins from market participants to support their ability to meet their 

obligations arising from trading activities; 

c. for Eurex, use of the power to impose position limits; 

d. monitoring by TSOs and ESAs, using their powers to access information about the 

trading activities of market participants and their clients. 

Central counterparty clearing (CCP) 

CCP is used for both Frankfurt Stock Exchange (Deutsche Börse) and Eurex, the two 

largest exchanges in Germany. This means potential large exposures – at clearing 

participants level – are monitored as part of the daily clearing and settlement process. 

Margin requirements

 

Frankfurt Stock Exchange rules (Rules 19-24) require participants to provide margin for 

the total risk from their exchange transactions. Eurex rules (Rule 4.8) require its 
86 

participants to provide margins for positions. Margins can be in the form of cash, 

securities, and bank guarantees. 

The risk-based margining encompasses the entire process of measuring, calculating and 

administering the margin required for open positions in order to cover any contractual 

risks that may arise 

Position limits 

Eurex rules empower its board of management to set or alter position limits for trading 

participants to ensure orderly trading and avoid risk (Eurex Rules 4.7.1) and oblige the 

Eurex TSO to monitor compliance with such limits (4.7.3). 

Monitoring 

 

TSOs monitor adherence to the security limit of the admitted enterprises and lead 

brokers. If it identifies overruns, it notifies the management board without delay. If the risk 

amount overruns the security limit of an admitted enterprise or lead broker, this 

enterprise or lead broker shall furnish security in cash or as securities, acceptable to the 

management board, to Deutsche Börse AG in the amount defined by the management 

board. On the basis of the risk amount announced under section 16 (4) BörsO, all 

admitted enterprises and lead brokers shall notify the management board on each 

trading day of any overrun on the security limit by a deadline before start of trading, 

which has been fixed by the management board. The security furnished ensures that 

admitted enterprises and lead brokers meet the obligations they incur in their stock 

exchange trades. The Deutsche Börse AG administers the security furnished in 

accordance with these provisions. If the security already furnished does not cover the 

amount as fixed, the admitted enterprise or lead broker shall furnish the difference on 

any trading day by a deadline set by the management board. 

Access to information

The ESA and the TSO have powers to request information of size and beneficial 

ownership if needed. Pursuant to Section 3 (4) no. 1 BörsG and Section 7 (3) BörsG, the 

ESA and the TSOs are authorized to require that trading participants disclose the identity 

of their customers and of the persons obligated under or entitled to the benefits of the 

executed transactions, as well as any changes in the trading participants’ holdings of 

financial instruments which are traded on the exchange. 

Power to take appropriate action 

If a market participant does not provide the requested information to either the exchange 

or the TSO, the management board can initiate a Disciplinary Committee proceeding. 

Information sharing 

Domestic 

The regulators are authorized to exchange information with other domestic regulators. 

Section 8 BörsG enables the ESAs to exchange information with each other and with 

BaFin. The TSOs are empowered to exchange information with each other (Section 7 (4) 

BörsG). 

Other jurisdictions 

The regulators are authorized to exchange information with other non-domestic 

regulators. The TSO is authorized to exchange data with TSOs of foreign exchanges and 
87 

with other authorities which are responsible for monitoring trading on foreign exchanges. 

Data may only be transmitted to such authorities if they and the persons commissioned 

by them are bound by an obligation of confidentiality comparable to that set forth in 

Section 7 BörsG. 

BaFin is empowered to exchange information with foreign authorities pursuant to section 

7 WpHG. 

Default Procedures 

For Eurex, the general default circumstances are set out in section 4.7 BO Eurex (default 

occurs if a participant exceeds the position limits and is not able to reduce the position). 

For Frnakfurt Stock Exchange the general default circumstances are described in 

Section 29 BO FWB (default occurs if for any reason an entity or lead broker does not 

collateralize the reported total risk in time or does not timely fulfill any other provision 

according to the obligations under the rules). 

The management board may take action as set out under Sections 29 to 33 BO FWB 

and Section 4.7 BO Eurex. 

Section 28 BO FWB states that, if a company or lead broker does not meet its obligations 

from exchange trading in their entirety, the operator of the exchange shall, upon order of 

the management board, liquidate the margin provided by the company or lead broker in 

question 

If the security required pursuant to exchange rules is not provided or is no longer 

available, a participant may: 

a. be suspended for a maximum period of six months; 

b. have its brokerage activities restricted; or 

c. have its rights to enter into exchange transactions suspended for as long as the 

admission of the enterprise for which such person enters into transactions is 

suspended. 

If an admitted enterprise or lead broker defaults, the management board may adopt 

measures pursuant to sections 21 to 24 FWB BO (increase in the risk amount; 

completion of pending trades; restriction to brokerage operation; suspension of 

admission; suspension of admission to stock exchange trading; withdrawal of entitlement 

to take part in block trading). Default occurs if an admitted enterprise or lead broker does 

not post defined security in time or does not timely fulfill any other provision according to 

the obligations under the present rules. Hence it is immaterial if there is lack of culpability 

on the part of the admitted enterprise or lead broker. 

Each admitted enterprise and each lead broker shall notify the management board 

without delay if it cannot meet obligations from stock exchange trades, security postings 

or other obligations existing pursuant to the present rules. 

Admitted enterprises and lead brokers are to receive a hearing from the management 

board before any measure under Sections 21 to 24 FWB BO is adopted. A hearing may 

be dispensed with if the circumstances do not warrant it (section 30 (2) FWB BO). 

The management board may disclose to other trading participants the measures it has 

taken pursuant to Sections 21 to 24 FWB BO insofar as this does not conflict with the 

overriding interests of the enterprise or lead broker concerned which warrant protection 
88 

(Section 30 (3) FWB BO). 

Reference is also made to the Settlement Finality Directive23 which has been transposed 

into national law in the relevant provisions of the KWG and the InsO. 

Consultation between market authorities 

The market authorities can consult with each other. The general rules on information 

exchange apply.

Assessment Fully implemented 

Comments 

Principle 30. Systems for clearing and settlement of securities transactions should be subject to 

regulatory oversight, and designed to ensure that they are fair, effective and efficient and 

that they reduce systemic risk. 

Description Assessed as part of assessment of CPSS-IOSCO standards. 

Assessment 

Comments 

 

23 Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in 

payment and securities settlement systems
89 

APPENDIX I. NEW IOSCO PRINCIPLES

41. In June 2010, IOSCO reviewed its Principles; 9 new Principles were added and 

one Principle removed (Principle 6). IOSCO is currently developing a revised 

Methodology, which will put in place criteria for the assessment of these new Principles. 

Until the methodology is in place the new Principles are not assessed. However, a short 

discussion on the new Principles was held on the “state of readiness” to implement these 

Principles when they come into effect. A summary of each is below. 

Systemic risk monitoring and perimeter of regulation 

New Principle 6: The Regulator should have or contribute to a process to monitor, mitigate 

and manage systemic risk, appropriate to its mandate. 

New Principle 7: The Regulator should have or contribute to a process to review the 

perimeter of regulation, appropriate to regularly. 

42. Existing structures and practices in BaFin support a focus on systemic risk. 

43. Within the Directorate responsible for cross-sector issues there is a risk and 

financial markets analysis department, with organizational units dealing with separate 

aspects of financial market stability and market developments (financial stability, risk 

analysis, financial instruments, basic issues relating to accounting and auditing, and the 

real economy and effects on the financial sector). Other directorates (banking, insurance 

and securities) also conduct sector-based research. 

44. Two years ago, BaFin established an organization-wide risk committee with 

representatives from all sectors, including insurance and supervision.

45. In addition, a new risk committee was formed in late 2010 to focus on the 

nonbank components of the securities industry, such as hedge funds. The committee has 

representatives from each department in the Securities Directorate (investment management, 

intermediaries etc). Its function is to channel information from the banking and insurance 

area to the relevant parts of the Securities Directorate, and from the Securities Directorate to 

other areas of BaFin. 

46. BaFin reports regularly to the BMF on issues relating to the regulation of 

financial markets, and on occasion produces special reports on particular aspects. For 

example, in 2009 BaFin reported to BMF on problems in the regulation of the “grey” capital 

market, and suggested the need for more stringent regulation. 
90 

Securitization 

New Principle 8: The Regulator should seek to ensure that conflicts of interest and 

misalignment of incentives are avoided, eliminated, disclosed or otherwise managed. 

47. Criteria for this Principle have yet to be developed but are expected to focus on 

conflicts of interest arising in securitization. Securitization was therefore the focus of 

discussion with the BaFin. 

48. The regulation of securitization is implemented on an EU-wide basis. The EU has 

taken the view that conflicts of interest should be addressed via obligations for investors 

(rather than issuers/originators). Regulation includes conflicts of interest provisions in CRD 

(banks), Solvency II (insurers), and AIFM (fund managers) and through central bank 

initiatives. As these are the major investor groups, the rules developed will apply to all 

securitizations in the EU. Meanwhile, detailed conflict rules for licensed market 

intermediaries are in force (see under Principle 23 and the material referred to there). 

49. In January 2011, a new legislative framework for securitization came into effect 

in Germany. For new securitizations conducted after January 1, 2011 this framework 

introduced: 

 a 5 percent retention rule: a credit institution may only be exposed to the credit risk of 

a securitization position if the originator, sponsor or original lender of the 

securitization has explicitly disclosed that it will maintain a net economic interest in 

the securitization on an ongoing basis of not less than 5 percent. The minimum 

retention level will increase to 10 percent in 2015; and 

 disclosure rules for sponsors and originators of securitizations: : next to their level of 

retention sponsors and originators have to disclose all materially relevant data on the 

credit quality and performance of individual underlying exposures, cash flows and 

collateral supporting a securitization exposure; disclosure must also 

comprise information necessary to perform comprehensive and well informed stress 

tests on the cash flows and collateral values supporting the underlying exposures. 

50. Furthermore, the new regulation requires investors to be able to demonstrate 

that they have a comprehensive and thorough understanding of their investments in 

securitized positions. This enables them to analyze (i) all relevant information such as the 

risk characteristics of the securitized positions and the underlying exposures; (ii) the 

reputation and loss experience in earlier transactions of the originators or sponsors; and 

(iii) the disclosures made by the originators or sponsors, or their agents or advisers regarding 

their due diligence on the securitized exposures and the quality of the collateral (if 

applicable). Banks investing in securitizations also have to implement formal policies and 

procedures to record, analyze, and monitor relevant information including prepayment rates 
91 

and default rates of the exposures underlying the securitized positions. Additional investors’ 

duties comprise the performance of own stress tests and a thorough understanding of all 

structural features of a securitization, which have a material impact on their exposures such 

as the contractual waterfall, waterfall-related triggers, credit enhancements, and liquidity 

enhancements. Investors have to notify any breach of the requirements to the competent 

authorities. If they do not meet their duties in any material respect, the authorities will 

impose a risk weight that is at least 3.5 times higher than the risk weight which would 

regularly apply to this securitized position (maximum 1 250 percent). In case of subsequent 

infringements the risk weight will be progressively increased by the competent authorities. 

51. Originators and sponsors have to apply the same sound and well-defined criteria 

for credit-granting and the same processes for amending, renewing, and refinancing 

credits to exposures to be securitized as they apply to exposures to be held on their 

book. Originators not complying with this provision are not allowed to exclude the 

securitized exposures from the calculation of their capital requirements. 

52. In case of a material breach of the disclosure requirements mentioned under 

point b., the competent authorities impose an increased risk weight that is at least 3.5 

times higher than the risk weight regularly applied to the retention exposure held by 

the sponsor or originator (maximum 1250 percent). 

53. The compliance with the new German regulation will be part of the banks’ 

annual audit. In addition to the new law, German securitization transactions usually consist 

of credits from the bank balance sheet, meaning that they have gone through a credit 

origination process, where the sales force does not know which credit is going to be 

securitized later on. 

54. Assessment of conflicts of interest and misalignment of incentives are part of 

ongoing supervision of regulated entities. This is done through regular contact by BaFin 

with the regulated entity (by supervisory interviews and participation in the auditors' on-site 

examination), analysis of auditors' reports (reports according to the Banking Act in 

conjunction with Deutsche Bundesbank), request for information and relevant documents as 

well as exchange of information on ongoing supervision in national and international bodies. 

BaFin has adopted and published a Circular on the Minimum Requirements for the 

Compliance Function and Additional Requirements Governing Rules of Conduct, 

Organisation and Transparency pursuant to Sections 31 et seq. of the Securities Trading Act 

(Wertpapierhandelsgesetz - WpHG) for Investment Services Enterprises 

(Mindestanforderungen an die Compliance-Funktion und die weiteren Verhaltens-, 

Organisations- und Transparenzpflichten nach §§ 31 ff. WpHG für Wertpapierdienstleistungsunternehmen – MaComp). This Circular strengthens the compliance function in 

regulated entities, promoting sufficient measures to detect and resolve conflicts of interest. 

Also, recent legislative actions target the adequate assessment and resolution of conflicts of 

interest: minutes need to be written down when investment advice is given, a register for 
92 

investment advisors is in place as well as the so called "key investor document" pursuant to 

the Securities Trading Act (Produktinformationsblatt) which will be mandatory from July, 1 

2011. BaFin acts actively and preventive in the scope of its delegated power. With regard to 

the new key investment documents, for example, a market survey will take place in summer 

to assess the quality and comparability of this information. 

Auditor oversight 

New Principle 19: Auditors should be subject to adequate levels of oversight 

New Principle 20: Auditors should be independent of the issuing entity that they audit. 

New Principle 21: Audit standards should be of a high and internationally acceptable 

quality 

55. The new Principles expand on Principle 16, accounting and auditing standards, 

and reflect some of the detailed work IOSCO has done on oversight of auditors and 

auditor independence. The assessment found full compliance with Principle 16. 

56. Auditors are subject to a system of public oversight by:

 requiring auditors to be subject supervision by the Chamber of Auditors 

(Wirtschaftsprüferkammer, WPK). WPK is a professional body with public law 

responsibilities. It conducts examinations and reviews of audits and auditors. 

Auditors are required by legislation to submit to peer reviews and are subject to 

monitoring and disciplinary action by WPK. 

 making the Auditor Oversight Commission (Abschlussprüferaufsichtskommission,

APAK) responsible for supervision of the WPK, including its oversight and 

disciplinary activities. APAK’s most senior roles are held by independent people who 

are not current members of the audit profession. APAK operates according to 

published rules of procedure approved by the Federal Ministry of Economics and 

Labor. The APAK is also responsible for cross-border co-operation concerning 

statutory auditor. 

57. Independence standards are specified in the Commercial Code. They include a 

requirement for auditor rotation after 7 years. The Banking Act also allows BaFin to require 

the rotation of an audit partner or at any time. 

58. The Commercial Code provides that audit standards adopted by the European 

Commission apply to statutory audits (such as those for listed issuers). To date there are 

no such standards and the audit standards in use are those issued by the Institute of Auditors 

(Institut der Wirtschaftsprüfer in Deutschland e.V., IDW). 

59. Audit standards are largely in line with international audit standards (ISAs).
93 

Credit rating agencies 

New Principle 22: Credit rating agencies should be subject to adequate levels of oversight. 

The regulatory system should ensure that credit rating agencies whose ratings are used for 

regulatory purposes are subject to registration and ongoing supervision 

60. A comparatively large number of locally based CRAs (8), as well the three global 

CRAs are active in Germany.

61. Regulation of CRAs is set at the EU level and there is no separate German 

national regime. The relevant European Regulation (EC 1060/2009) provides a 

comprehensive set of rules regarding conflicts of interest, procedures, internal organization, 

transparency and the presentation of ratings. This framework reflects the IOSCO code of 

conduct for CRAs. 

62. Current oversight of CRAs is based on an integrated oversight model involving 

supervisory colleges. These colleges deal with the “Big 3” CRAs and consist of 10-15 

authorities and deal with applications for registration and taking supervisory measures. 

Applications require a unanimous decision, but current applications have not yet reached the 

decision stage. 

63. A specialist team within BaFin is examining applications for locally based CRAs 

and working with the existing colleges.

64. From mid 2011 the European Securities and Markets Authority (ESMA) will 

assume responsibility for CRA regulation. Future assessments will have to determine 

whether ESMA, rather than the any national regulator, is adequately fulfilling this function. 

65. Under the European Regulation credit rating agencies are required to declare if 

they adhere to any Code of Conducts, including the IOSCO Code of Conduct. While not 

obliged to adhere to the IOSCO Code of Conduct, the conditions within the Regulation 

mirror that of the IOSCO Code of Conduct. Specifically: 

Independence and avoidance of conflicts of interest 

66. The Regulation requires sound internal controls and sound reporting lines, 

clearly separating the rating function from business incentives. External surveillance is 

strengthened by internal discipline by giving the independent, non-executive members of the 

administrative or supervisory board of the credit rating agency specific tasks to ensure 

efficient control (Article 5 and Annex I, Section A, Point 2). 

67. To ensure the independence of ratings, credit rating agencies are required to 

prevent conflicts of interest and/or to manage these conflicts adequately where they are 

unavoidable. They must disclose conflicts of interest in a complete, timely, clear, concise, 
94 

specific and prominent manner and record all significant threats to the rating agency’s 

independence or that of its employees involved in the credit rating process, together with the 

safeguards applied to mitigate those threats. They must limit their activity to credit rating and 

related operations, excluding consultancy or advisory services (Article 5 and Annex I, 

Section B). 

68. CRAs must have adequate internal policies and procedures to insulate 

employees involved in credit rating from conflicts of interest and ensure the quality, 

integrity and thoroughness of the rating and review process at all times. Linked to this, 

agencies must allocate sufficient employees with appropriate knowledge and experience to 

their credit rating activity and make appropriate rotation arrangements for analysts and 

persons approving credit ratings. (Article 6 and Annex I, Section C). 

69. The compensation arrangements of employees involved in the rating process 

must be determined primarily by the quality, accuracy, thoroughness and integrity of 

their work (Article 6(6)). 

Disclosure 

70. Under the Regulation CRAs are obliged to disclose ratings on a non-selective 

basis and in a timely manner, unless the ratings are only distributed by subscription.

CRAs have to distinguish between ratings for structured products and for traditional products 

(corporate, sovereign) by the use of a different rating category for structured finance 

instruments or the provision of additional information on their risk characteristics. Specific 

disclosure requirements apply to unsolicited credit ratings (Article 8). 

71. To ensure that internal processes and procedures are sufficiently transparent, 

credit rating agencies must publicly disclose some important information, e.g., on 

conflicts of interest, methodologies and key rating assumptions and the general nature 

of their compensation policy. They must also periodically disclose data on the historical 

default rates of rating categories and give competent authorities certain elements such as the 

list of the largest 20 clients by revenue (Article 9 and Annex I, Section E). 

72. To ensure that relevant, standardised data on credit rating agencies’ 

performance is available to allow market participants to make industry-wide 

comparisons, CESR is to create a publicly available central repository for such data 

(Article 9(2)). To restore public confidence in the rating business, credit rating agencies must 

publish an annual transparency report (Article 10 and Annex I, Section E, Part III), and keep 

records of their activities (Articles 5-7 and Annex I, Section B, Points 7-9). 

Confidential Information 

73. Credit rating agencies shall ensure that employees directly involved in the credit 

rating process:
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 take all reasonable measures to protect property and records in possession of the 

credit rating agency from fraud, theft or misuse; 

 do not disclose any information about credit ratings or possible future credit ratings of 

the credit rating agency, except to the rated entity or its related third party; 

 do not share confidential information entrusted to the credit rating agency with 

employees of any person directly or indirectly linked to it by control; and 

 do not use or share confidential information for the purpose of trading financial 

instruments, or for any other purpose except the conduct of the business of credit 

rating agency. 

Analysts 

Principle 23: Other entities that offer investors analytical or evaluative services should be 

subject to oversight and regulation appropriate to the impact their activities have on the 

market or the degree to which the regulatory system relies on them. 

74. In Germany, round 400 licensed banks and financial services institutions 

provide forward looking analysis to their clients. In addition, about 150 “independent 

analysts” provide these services. 

75. For licensed firms, research activities from part of the regulated activities 

supervised by BaFin. These activities are subject the relevant requirements of MiFID and 

the Market Abuse Directive (MAD). BaFin undertook thematic work on research activities in 

2010 by focusing on conflicts of interest and the use of watch lists. BaFin will also deal with 

any complaints about analysis activity. Research activities are part of the risk analysis 

process within BaFin . 

76. The independent analysts are not required to be licensed but they are subject to 

regulation:

 they must inform BaFin of their identity and planned activities, including the types of 

securities on which they will provide research (though BaFin approval is not 

required); 

 MAD provisions apply; 

 the same disclosure requirements as for analysts working for banks and financial 

service institutions (section 34b Securities Trading Act); and 

 broad provisions of the Commercial Code apply, including requirements as to 

conflicts of interest. 
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Hedge Funds 

Principle 28: Regulation should ensure that hedge funds and/or hedge fund 

managers/advisers are subject to appropriate oversight 

77. Hedge funds are already subject to regulation in Germany under the regulation 

applying to collective investment schemes. They are subject to the same rules as apply to 

other collective investment schemes, and to additional rules that apply specifically to them. 

These rules are described in the detailed assessment under Principle 17 (see also Principle 

10). 

78. A basis distinction is made between single hedge funds and funds of hedge funds.

Single hedge funds are subject to few investment restrictions but are not permitted to invest 

in commodities (other than precious metals) or real estate. 

79. Among the hedge fund specific rules are:

 disclosure rules – the simplified prospectus rules do not apply to hedge funds; and 

hedge funds are subject to additional mandated disclosures; 

 marketing rules – the legislation prohibits public marketing of hedge funds in 

Germany. 

80. BaFin monitors hedge funds more closely than most other collective investment 

schemes, and in its risk classification hedge funds management is automatically 

considered high impact. 

81. The European Directive on Alternative Investment Funds Managers (AIFM) 

was formally approved in late 2010. It is intended to come into force in early 2011 and be 

transposed into national law and applied by Member States by 2013. 

82. BaFin does not anticipate any major changes will be required to the existing 

regime to comply with the new IOSCO Principle, or the European AIFM directive. 
EXHIBIT H INFORMATION SHARING

Exhibit H-1: A description of the arrangements among the Commission, the foreign board of trade,

the clearing organization, and the relevant foreign regulatory authorities that govern the sharing of

information regarding the transactions that will be executed pursuant to the foreign board of

trade’s registration with the Commission and the clearing and settlement of those transactions.

In Germany, the Federal Financial Supervisory Authority (BaFin) is the regulatory body charged with

addressing matters relating to information sharing agreements with a foreign regulatory authority. In

1997, BaFin’s predecessor, the Bundesaufsichtsamt für den Wertpapierhandel (BAWe), signed a joint

memorandum of understanding with the Commodity Futures Trading Commission in order to

enhance cooperation and the exchange of information regarding futures laws in both countries (see

Attachment to Exhibit H). This memorandum of understanding is still in effect, and may be found attached to this application as

Annex 8. In addition, the Exchange Supervisory Authority has issued a statement whereby it has

agreed to fully cooperate with the Commodity Futures Trading Commission in all matters concerning

the European Energy Exchange’s registration as a Foreign Board of Trade (see Exhibit F-6).
EXHIBIT H INFORMATION SHARING

Exhibit H-2: A statement as to whether and how the foreign board of trade has executed the

International Information Sharing Memorandum of Understanding and Agreement.

EEX has not executed the International Information Sharing Memorandum of Understanding and

Agreement. Under German exchange law, strict confidentiality applies to all persons who are

members of the exchange bodies, as well as all those employed at operator of the exchange.

However, the provisions of the Exchange Act allow the supervisory authorities as well as the Market

Surveillance Department to share information with other surveillance or supervisory authorities.

As stipulated in Section 7 par. 4 of the German Exchange Act the Market Surveillance Department

may transmit transaction data to the management and the market surveillance department of

another exchange to the extent that they require such data for the discharge of their duties. By the

same token the Market Surveillance Department may transmit transaction data to the Market

Surveillance Department of a foreign exchange and may receive data from such bodies to the extent

they are required for the proper conduct of trading and exchange trading and settlement. Data may

only be transmitted to such bodies, if these bodies, and any persons mandated by them, are subject

to confidentiality obligations equivalent to the provisions of Section 10 of the German Exchange Act. The Market Surveillance Department must notify the Exchange Supervisory Authority, the

Management of the Exchange and the BaFin as to which kind of data is intended to be exchanged

with which competent bodies in other countries.

On this basis, EEX has already executed Information Sharing Agreements with the Market Supervision

Departments of other exchanges (the most prominent being the one with the market surveillance

department of EPEX Spot in France) and has committed itself to provide reports to foreign

supervisory authorities where this was required. On this basis CFTC has been provided with quarterly

reports on the trading activities of US customers under the roof of the no-action relief which has

been granted to EEX in 2004.

All other cooperation with competent bodies outside of Germany lies in the hands of the Federal

Financial Supervisory Authority (Bafin) according to Section 8 par. 3 of the German Banking Act and

Section 7 of the German Securities Trading Act (Please refer to Exhibit H-1).
EXHIBIT H INFORMATION SHARING

Exhibit H-3: A statement as to whether the regulatory authorities governing the activities of the

foreign board of trade and clearing organization are signatories to the International Organization

of Securities Commissions Multilateral Memorandum of Understanding. If not, describe any

substitute information-sharing arrangements that are in place.

The Federal Financial Supervisory Authority (BaFin) is a signatory to the Multilateral Memorandum of

Understanding Concerning Consultation and Cooperation and the Exchange of Information of the

International Organization of Securities Commissions (“IOSCO MMoU”) and is listed as such under

current signatories on the IOSCO webpage

https://www.iosco.org/about/?subSection=mmou&subSection1=signatories.
EXHIBIT H INFORMATION SHARING

Attached, as Exhibit H-4, please find the following statement regarding whether the regulatory

authorities governing the activities of EEX and ECC are signatories to the Declaration on

Cooperation and Supervision of International Futures Exchanges and Clearing Organizations:

The Federal Financial Supervisory Authority (BaFin), through its predecessor, the Bundesaufsichtsamt

für den Wertpapierhandel (BAWe) is a signatory to the Declaration on Cooperation and Supervision

of International Futures Exchanges and Clearing Organizations for the sharing of large exposure

information, signed on March 15, 1996, at Boca Raton, Florida. Confirmation of this can be found

here http://www.cftc.gov/opa/press97/opa4003-97.htm.












EXHIBIT I ADDITIONAL INFORMATION AND DOCUMENTATION

EXHIBIT I: Any additional information or documentation necessary to demonstrate that the 

requirements for registration applicable to the foreign board of trade set forth in Commission 

regulation 48.7 are satisfied.

The European Energy Exchange has provided all the necessary information and documentation 

necessary to satisfy regulation 48.7. There is therefore no additional documentation to be herewith 

included in order to fulfill this requirement.