Various laws and regulations are relevant to the issuance, placement, listing, sale, trading and buy-back of debt securities in Germany. The following list mentions the most important laws and rules.
German Securities Prospectus Act
This is the key legislation in respect of offering debt securities in Germany. It implements the EU Prospectus Directive 2003/71/EC, which was amended by Directive 2010/73/EC in 2010. It provides for the obligation to produce a prospectus for public offers or listings, any applicable exemptions, the main content of a prospectus as well as the procedure and the responsible authority - the German financial regulator, BaFin.
EU Securities Prospectus Regulation (EC) No. 809/2004
This EU regulation, which applies directly in Germany, implements parts of the EU Prospectus Directive as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses. It lays down principles to be observed when drawing up prospectuses. In addition, the European Securities and Markets Authority (ESMA) has delivered regulatory technical standards for publication of supplements to the prospectus as well as for the approval and publication of the prospectus. Furthermore, ESMA has published various guidelines and FAQs in respect of the format and the content of prospectuses. Although the prospectuses need to be approved by the relevant local regulator (in Germany, BaFin), ESMA provides relevant guidance in interpretation of various provisions of the prospectus regulation (for which ESMA is the respective European authority).
New EU prospectus regime
The European Parliament, the Council of the European Union and the Commission have agreed on the text of the new Prospectus Regulation (Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC). This new regulation will replace the existing Prospectus Directive and introduce new rules on prospectus contents as well as providing broader exemptions for small offerings, where no prospectus is required. The main changes from the current prospectus regime include:
- capital raisings up to €1 million will not need a prospectus at all;
- offerings below €8 million will not require an EU prospectus and will be subject to local rules;
- a new frequent issuer regime, which will halve approval times from 10 days to five;
- a shorter prospectus for secondary issuances;
- shorter prospectus summaries using language that is easier for investors to understand; and
- a paper prospectus will only be required if a potential investor explicitly requests one.
These new rules have been in force since 20 July 2017 and will be phased in until 21 July 2021.
German Investment Act
This act was introduced in 2012 and regulates investment products that are not captured by the Securities Prospectus Act and the relevant European legislation. It aims at previously unregulated products (which may take the form of debt securities). For example, German registered bonds as well as participation rights (which are not in the form of securities) fall within the scope of this act. The Investment Act sets out if and what kind of prospectus needs to be produced. It also provides for safe harbours. The obligations are very similar to the ones in the Securities Prospectus Act.
German Listing Act
This piece of legislation regulates stock exchanges in Germany, participation and trading thereon. Although the stock exchanges are mainly run by private companies (such as Deutsche Börse AG in Frankfurt), the exchanges are public law institutions governed by the Listing Act and its implementing secondary regulations.
German Custody Act
The Custody Act regulates the custodial arrangements when holding bearer securities, in particular if securities are held in collective safe custody. In the debt capital market in Germany, Clearstream Frankfurt is the main clearing house falling under this regime complying with the respective rules and requirements.
German Securities Trading Act
This act applies to financial instruments, which includes most debt capital markets products. This legislation has implemented, inter alia, Directive 2014/65/EU of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). The directive is complemented by Regulation (EU) No 600/2014 of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012. The new legislation has applied from the beginning of 2018 across Europe. The Securities Trading Act deals with insider trading, market abuse (in addition to the EU legislation on market abuse, see below), disclosure of voting rights, organisation, transparency and prudent behaviour in relation to advising, selling and dealing in financial instruments (including derivative transactions), supervision of BaFin and sanctions. In particular, the Securities Trading Act sets out the continuing obligations for issuers of debt capital markets in Germany. Furthermore, MiFID II requires securities services firms to comply with a detailed product governance regime.
German Banking Act
This act regulates certain activities requiring a licence. In the context of derivatives transactions, financial services institutions are required to hold a licence for the following activities, to the extent these activities are commercially organised on a large scale:
- the brokering of business involving the purchase and sale of financial instruments, which includes derivative transactions (investment brokering);
- providing customers or their representatives with personal recommendations in respect of transactions relating to certain financial instruments where the recommendation is based on an evaluation of the investor’s personal circumstances or is presented as being suitable for the investor, and is not provided exclusively via information distribution channels or for the general public (investment advice);
- the placing of financial instruments without a firm commitment basis (placement business);
- the purchase and sale of financial instruments on behalf of others (contract brokering);
- the management of individual portfolios of financial instruments for others on a discretionary basis (portfolio management); and
- the purchase and sale of financial instruments for own account as a service for others or the purchase and sale of financial instruments for own account as a direct or indirect participant in a domestic organised market or multilateral trading facility (proprietary trading).
The Market Abuse Regulation (MAR)
Regulation No. 596/2014 on market abuse came into effect on 3 July 2016. It aims to increase market integrity and investor protection, enhancing the attractiveness of securities markets for capital raising. Although the Market Abuse Directive (MAD) had already been adopted in 2013, the European Commission felt it was necessary to frame the legislative revision of MAD in an European regulation (rather than a directive, as before) as its direct applicability would reduce regulatory complexity and offer greater legal certainty for firms. MAR strengthens the previous German market abuse framework by extending its scope to new markets, new platforms and new behaviours. It contains prohibitions of insider dealing, unlawful disclosure of insider information and market manipulation, and provisions to prevent and detect these.
German Civil Code and German Commercial Code
These acts set out certain general principles of contract law, which also affect documentation and interpretation of debt capital markets instruments governed by German law.
International Capital Markets Association (ICMA) rules
Although these rules are not legally binding, the ICMA has established rules of conduct and market standards in the area of debt capital markets, which market participants should be aware of. These rules mainly provide recommendations, guidance and standard language and documentation, generally relating to offers of syndicated international bonds in the primary market, to programmes under which such offers may be made and to euro-commercial paper programmes and trades made under them.
German Derivative Association (DDV) rules
The DDV is the industry representative body for the 15 leading issuers of derivatives in Germany. DDV’s aim is to improve the general political and regulatory conditions for structured products in Germany and at European level, and to encourage increasing numbers of private investors to choose certificates and warrants. It provides standardised terminology, a fairness code and product categorisation establishing a set of industry standards.
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