On 30 March 2017, the German Parliament (Bundestag) finally approved a complete revision of the German Securities Trading Act (Wertpapierhandelsgesetz) as part of the Second Financial Markets Reform Act (2. Finanzmarktnovellierungsgesetz). The key changes relate to the implementation of MiFID II and MiFIR as well as the Securities Financing Transactions (SFT) Regulation (EU 2015/2365) and the EU Regulation on Benchmarks (EU 2016/1011) into German law.
The key elements of the Act comprise:
- The regulation of so-called organized trading facilities, i.e. multilateral trading venues which are currently not regulated markets, by imposing authorization requirements and business organization and conduct obligations;
- Additional disclosure obligations for financial instruments and the regulation of data reporting services providers;
- Stricter supervision of commodity derivatives by imposing position limits and controls;
- Regulation of algorithmic trading and in particular high-frequency trading;
- Regulation of transaction reporting by central counterparties;
- Stricter rules for business organization and conduct for investment firms, including conflict of interest rules, inducements, suitability statements for investment advice, requirements as to knowledge and experience when providing discretionary investment advisory services;
- Increased supervision and enforcement powers by the Federal Financial Supervisory Authority, including the right to search private residences and offices; and
- Tightened sanctions for violations of the applicable obligations in line with the recent approach within the European Union to ensure that sanctions are sufficiently deterrent by linking pecuniary sanctions to the annual turnover of a group and making sanctions public (naming and shaming).
As part of the revisions, the numbering of the German Securities Trading Act that was just introduced about 20 years ago will be completely revised. Practitioners have to adapt the new articles which were only recently amended to reflect the changes that came through the revision of the Transparency Regime in 2015 and the Market Abuse Regime in 2016.
The revised law can still be stopped by a second chamber of the German Parliament (Bundesrat) but it is highly likely that it will pass in the form as approved by the Bundestag and become thus enacted prior to 3 July 2017, by which date MiFID II has to be imposed into German law, even if MiFID II and MiFIR will not be applicable until 3 January 2018.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.