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Securities Trading Act (Gesetz über den Wertpapierhandel/ Wertpapierhandelsgesetz – WpHG)

As promulgated on 9 September 1998 (Federal Law Gazette I p. 2708), as last amended by Article 2 of the Law Implementing the EC Deposit Guarantee Directive and Investor Compensation Directive of 16 July 1998 (Federal Law Gazette I p. 1842)


Table of Contents

Part 1 Scope and definitions

Section 1 Scope
Section 2 Definitions
Section 2a Exceptions

Part 2 Federal Securities Supervisory Office

Section 3 Organisation
Section 4 Functions
Section 5 Securities Council
Section 6 Cooperation with domestic supervisory authorities
Section 7 Cooperation with competent authorities in other countries
Section 8 Obligation to observe secrecy
Section 9 Reporting requirements
Section 10 Means of enforcement
Section 11 Allocation of costs and costs

Part 3 Insider surveillance

Section 12 Insider securities
Section 13 Insiders
Section 14 Prohibition of insider dealing
Section 15 Publication and disclosure of price-sensitive information
Section 16 Regular monitoring
Section 16a Monitoring of the transactions effected by the persons employed in the Federal Supervisory Office
Section 17 Processing and use of personal data
Section 18 Criminal proceedings in respect of insider offences
Section 19 International cooperation
Section 20 Exceptions

Part 4 Notification and disclosure requirements in the event of changes in the percentage of voting rights in listed companies

Section 21 Notification requirements applicable to the notifying party
Section 22 Additional counting of voting rights
Section 23 Discounting voting rights
Section 24 Notification by group member undertakings
Section 25 Disclosure obligations of the listed company
Section 26 Disclosure obligations of companies domiciled abroad
Section 27 Proof of notified holdings
Section 28 Loss of rights
Section 29 Powers of the Federal Supervisory Office
Section 30 Cooperation with competent authorities in other countries

Part 5 Rules of conduct for investment services enterprises; limitation of the right of action in respect of claims for compensation

Section 31 General rules of conduct
Section 32 Special rules of conduct
Section 33 Organisational requirements
Section 34 Requirements to keep and retain records
Section 34a Separate asset management
Section 35 Monitoring of the reporting requirements and the rules of conduct
Section 36 Examination of reporting requirements and rules of conduct
Section 36a Enterprises domiciled in another Member State of the European Union or in another Contracting State to the Agreement on the European Economic Area
Section 36b Advertising by investment services enterprises
Section 36c Cooperation with competent authorities in other countries
Section 37 Exceptions
Section 37a Limitation of the right of action in respect of claims for compensation

Part 6 Provisions on offences and fines

Section 38 Provisions on offences
Section 39 Provisions on fines
Section 40 Competent administrative authority
Section 40a Information in criminal cases

Part 7 Transitional provisions

Section 41 Initial notification and disclosure requirement
Section 42 Transitional provision concerning the obligation to reimburse costs pursuant to Section 11
Section 43 Transitional provision concerning the limitation of the right of action in respect of claims for compensation pursuant to section 37a


Part 1 Scope and definitions

Section 1 Scope

This Act shall apply to providing investment services and non-core investment services, to trading in securities, money-market instruments and derivatives on and off stock exchanges and to changes in the percentage of voting rights held by shareholders of listed companies.

Section 2 Definitions

(1) Securities within the meaning of this Act, whether or not represented by an instrument, are

1. shares, certificates representing shares, bonds, participation certificates, warrants and

2. other securities which are comparable to shares or bonds,

if they can be traded on a market.

Securities are also units which are issued by a German investment company or a foreign investment company.

(1a) Money-market instruments within the meaning of this Act are receivables which do not come under the provisions of paragraph (1) above and are usually traded in the money market.

(2) Derivatives within the meaning of this Act are

1. forward transactions in the form of firm transactions or options transactions whose price directly or indirectly depends on

a) the exchange or market price of securities,

b) the exchange or market price of money-market instruments,

c) interest rates or other returns, or

d) the exchange or market price of goods or precious metals,

2. forward exchange transactions (Devisentermingeschäfte) which are effected on an organised market (foreign exchange futures transactions/Devisenfuturegeschäfte), foreign exchange option transactions (Devisenoptionsgeschäfte), currency swap transactions (Währungsswapgeschäfte), foreign exchange swap option transactions (Devisenswapoptionsgeschäfte), or foreign exchange futures option transactions (Devisenfutureoptionsgeschäfte).

(3) Investment services within the meaning of this Act are

1. the purchase and sale of securities, money-market instruments or derivatives in one’s own name for the account of a third party,

2. the purchase and sale of securities, money-market instruments or derivatives by way of own trading on behalf of a third party,

3. the purchase and sale of securities, money-market instruments or derivatives in the name and for the account of a third party,

4. the arrangement of or information on transactions on the purchase and sale of securities, money-market instruments or derivatives,

5. the underwriting (firm commitment) of securities, money-market instruments or derivatives or the granting of similar guarantees,

6. the management of individual assets invested in securities, money-market instruments or derivatives on behalf of third parties with scope for decision.

(3a) Non-core investment services within the meaning of this Act are

1. the safekeeping and management of securities on behalf of third parties, provided the German Safe Custody Act does not apply,

2. the granting of credits or loans to others for the purpose of carrying out investment services by the enterprise that grants or has granted the credit or loan,

3. the giving of advice with respect to investments in securities, money-market instruments or derivatives,

4. the activities referred to in paragraph (3) numbers 1. to 4. in so far as they are concerned with foreign exchange transactions or forward exchange transactions that do not come under the provisions of paragraph 2 number 2. and are related to investment services.

(4) Investment services enterprises within the meaning of this Act are credit institutions, financial services institutions and enterprises operating under Section 53 paragraph (1) sentence 1 of the German Banking Act which provide investment services alone or in connection with non-core investment services on a commercial basis or to an extent that requires their provision on a commercial basis.

(5) An organised market within the meaning of this Act is a market which is regulated and supervised by state-approved bodies, is held on a regular basis and is directly or indirectly accessible to the public.

Section 2a Exceptions

(1) The following shall not be regarded as investment services enterprises:

1. enterprises which provide investment services solely for their parent enterprise or their subsidiaries or affiliated enterprises within the meaning of Section 1 paragraphs (6) and (7) of the German Banking Act,

2. enterprises which provide investment services that only involve the administration of employee-participation schemes of their own enterprises or enterprises associated with them,

3. enterprises which provide only investment services within the meaning of both numbers 1. and 2. above,

4. insurance undertakings under public or private law,

5. the public debt management of the Federation, one of its special funds, a Land, another Member State of the European Union or another Contracting State to the Agreement on the European Economic Area, the Deutsche Bundesbank or the central banks of the other Member States or Contracting States,

6. Members of independent professions who provide investment services only occasionally in the course of their professional activities and who are members of a professional organisation in the form of a corporate body under public law the professional rules and regulations of which do not exclude the provision of investment services,

7. enterprises which provide investment services that only consist in transmitting orders to purchase or to sell units of investment companies or foreign investment units which may be distributed under the Foreign Investment Act to

(a) credit institutions or financial services institutions,

(b) enterprises operating under Section 53 paragraph (1) sentence 1 or paragraph (7) of the German Banking Act,

(c) enterprises which by virtue of a regulation pursuant to Section 53 c of the German Banking Act are subjected to or exempted from the provisions of that Act,

(d) foreign investment companies,

provided they are not authorised to acquire ownership or obtain possession of money, units or shares of customers when providing such investment services,

8. enterprises which provide investment services solely on an organised market where only derivatives are traded on behalf of other members of such market and whose liabilities are covered by a system ensuring the settlement of the transactions effected on such market,

9. enterprises whose main business consists in effecting transactions in commodities with enterprises of the same kind or with the producers or professional users of such commodities and which provide investment services only to such counterparties and only in so far as this is necessary for their main business.

(2) If an enterprise provides investment services within the meaning of Section 2 paragraph (3) numbers 3. and 4. solely for the account and under the liability of a credit institution or financial services institution or of an enterprise operating under Section 53b paragraph (1) sentence 1 and paragraph (7) of the German Banking Act, or under the joint and several liability of such institutions or enterprises without providing any other investment services, it shall not be regarded as an investment services enterprise. Its business activities are attributed to the institutions or enterprises for the account and under the liability of which it provides its services.

Part 2 Federal Securities Supervisory Office

Section 3 Organisation

(1) The Federal Securities Supervisory Office (Federal Supervisory Office) is hereby established as an independent superior federal authority within the ambit of the Federal Ministry of Finance.

(2) The President of the Federal Supervisory Office shall be nominated by the Federal Government and appointed by the Federal President. In making its nomination the Federal Government shall consult the Länder ministries with responsibility for stock exchange matters.

Section 4 Functions

(1) The Federal Supervisory Office shall exercise supervision over securities trading in accordance with the provisions of this Act. The Federal Supervisory Office, as part of the functions assigned to it, shall counteract undesirable developments in securities trading which may adversely affect the orderly conduct of securities trading or provision of investment services or non-core investment services or which may result in serious disadvantages for the securities market. The Federal Supervisory Office may issue orders designed and necessary to eliminate or to prevent such undesirable developments.

(2) The Federal Supervisory Office shall perform the functions and exercise the powers assigned to it under this Act solely in the public interest.

Section 5 Securities Council

(1) A Securities Council comprising representatives of the Länder is hereby established within the Federal Supervisory Office. Membership shall not be held in a personal capacity. Each Land shall appoint one representative. Representatives of the Federal Ministries of Finance, Justice and Economics, the Deutsche Bundesbank and the Federal Banking Supervisory Office shall be entitled to attend meetings of the Securities Council. The Securities Council may consult experts, particularly from the stock exchanges, from among market participants, from business and from the academic world. The Securities Council shall draw up its own standing orders.

(2) The Securities Council shall assist with supervision. It shall advise the Federal Supervisory Office, in particular

1. on issuing regulations and establishing guidelines for the supervisory activity of the Federal Supervisory Office;

2. on the effects of supervisory issues on stock exchange and market structures and on competition in securities trading;

3. on the demarcation of responsibilities between the Federal Supervisory Office and the stock exchange supervisory authorities.

The Securities Council may submit proposals to the Federal Supervisory Office concerning the general development of supervisory practice. The Federal Supervisory Office shall report to the Securities Council at least once a year on its supervisory activities, on the development of supervisory practice and on international cooperation.

(3) The Securities Council shall be convened at least once a year by the President of the Federal Supervisory Office. It shall also be convened at the request of one third of its members. Any member shall be entitled to put forward proposals for consultation.

Section 6 Cooperation with domestic supervisory authorities

(1) The Federal Supervisory Office may enlist the services of other persons and institutions for the performance of its functions.

(2) The stock exchange supervisory authorities shall act on behalf of the Federal Supervisory Office in implementing urgent measures for monitoring the ban on insider dealing pursuant to Section 14 on the stock exchanges subject to their supervision. The details shall be regulated in an administrative agreement between the Federation and the Länder conducting stock exchange supervision.

(3) The Federal Banking Supervisory Office, the Federal Insurance Supervisory Office, the Deutsche Bundesbank, in so far as it makes any observations and findings, including personal data, in the course of its activities pursuant to the German Banking Act, the stock exchange supervisory authorities and the Federal Supervisory Office shall communicate to each other any observations and findings which may be of significance for the performance of their functions.

(4) The Deutsche Bundesbank shall inform the Federal Supervisory Office on request of any data communicated to it under Section 14 paragraph (1) of the German Banking Act in so far as this is necessary for the prosecution of prohibited insider dealing.

(5) For the performance of its functions the Federal Supervisory Office may, in an automated procedure, retrieve data stored with the Deutsche Bundesbank or the Federal Banking Supervisory Office pursuant to Sections 2 (b) and 14 paragraph (3) in connection with Section 19 paragraph (2), Section 24 paragraph (1) numbers 1. to 3., 6., 8. and 11. and paragraph (3), Section 32 paragraph (1) sentences 1 and 2 number 2. and 6. a) and b) of the German Banking Act. If data is retrieved from the Deutsche Bundesbank by the Federal Supervisory Office, the Deutsche Bundesbank shall, for the purpose of data protection control, record in every tenth case the time, the information that makes it possible to establish the data records retrieved as well as the person who is responsible for the retrieval. The recorded data may only be used for the purpose of data protection control, data security or for ensuring the proper functioning of the data processing equipment. The records shall be deleted at the end of the calendar year following the year in which they have been stored. If data is retrieved from the Federal Banking Supervisory Office sentences 2 and 4 above shall apply accordingly.

Section 7 Cooperation with competent authorities in other countries

(1) The Federal Supervisory Office shall handle cooperation with the competent authorities responsible for supervising stock exchanges or other securities or derivatives markets and for trading in securities, money-market instruments, derivatives or foreign exchange in other countries. This shall be without prejudice to the provisions of the Stock Exchange Act and the Prospectus Act relating to cooperation between stock exchange listing boards and similar bodies in other countries.

(2) Within the framework of cooperation with the authorities referred to in the first sentence of paragraph (1) above, the Federal Supervisory Office may communicate facts required for the supervision of stock exchanges or other securities or derivatives markets, of trading in securities, money-market instruments, derivatives or foreign exchange, of credit institutions, financial services institutions, investment companies, financial undertakings or insurance undertakings or for administrative or court proceedings connected with such supervision. In communicating facts, the Federal Supervisory Office shall specify the purpose for which such facts may be used. It shall be indicated to the recipient that the facts communicated, including personal data, may be processed or used only for the purpose for which they were communicated. No personal data shall be communicated if there is reason to assume that such communication is in contravention of the intent of a German statute. Moreover, no communication shall be made if it would be detrimental to interests of the person concerned which warrant protection, especially if the recipient country failed to guarantee an adequate standard of data protection.

(3) If facts are communicated to the Federal Supervisory Office by an authority in another country, such facts may be disclosed or used only in compliance with the purpose specified by that authority. The Federal Supervisory Office may communicate such facts to the stock exchange supervisory authorities and the market supervision units of the stock exchanges in compliance with the purpose specified.

(4) The above shall be without prejudice to provisions on international assistance in criminal matters.

Section 8 Obligation to observe secrecy

(1) Persons employed in the Federal Supervisory Office and persons commissioned in accordance with Section 6 paragraph (1) may not without authority disclose or use facts which have come to their knowledge in the course of their activities and which should be kept secret in the interests of a party subject to this Act or a third party, especially business and trade secrets and personal data, even if such persons have left such employment or their activities have ended. This shall also apply to other persons who learn of the facts referred to in the first sentence of this paragraph from official reports. It shall not constitute unauthorised disclosure or use within the meaning of the first sentence of this paragraph, in particular, if facts are communicated to

1. criminal prosecution authorities or courts responsible for cases involving criminal and administrative fines,

2. bodies entrusted by law or by order of public authorities with the supervision of stock exchanges, other securities or derivatives markets and for trading in securities, money-market instruments, derivatives or foreign exchange, of credit institutions, financial services institutions, investment companies, financial undertakings or insurance undertakings and persons commissioned by such bodies,

in so far as such bodies require the information for the performance of their functions. The secrecy requirements specified in the first sentence of this paragraph shall apply accordingly to persons employed by such bodies. If the body is located in another country, the facts may be communicated only if that body and the persons commissioned by it are subject to secrecy requirements comparable to those specified in the first sentence of this paragraph.

(2) The provisions of Sections 93, 97, 105 paragraph (1), 111 paragraph (5) in conjunction with Section 105 paragraph (1) and Section 116 paragraph (1) of the German Fiscal Code shall not apply to the persons referred to in the first or second sentence of paragraph (1) above in so far as they are acting to implement this Act. This shall not apply if the fiscal authorities require the information for implementing tax evasion proceedings and the taxation proceedings associated therewith, in the prosecution of which there is a pressing public interest. The foregoing sentence shall not apply if the facts in question were communicated to persons referred to in the first or second sentence of paragraph (1) above by a body in another country within the meaning of paragraph (1) sentence 3 number 2. above or by persons commissioned by that body.

Section 9 Reporting requirements

(1) Credit institutions, financial services institutions authorised to conduct trading for own account, enterprises domiciled in a state which is neither a member of the European Union nor a Contracting State to the Agreement on the European Economic Area operating under Section 53 paragraph (1) sentence 1 of the German Banking Act, and enterprises domiciled in Germany and admitted to trading on a German stock exchange shall be required to report to the Federal Supervisory Office not later than the next working day (other than a Saturday) after the conclusion of the transaction any transaction in securities or derivatives which are admitted to trading on an organised market in a Member State of the European Union or in another of the Contracting States to the Agreement on the European Economic Area or are traded on the free market (Freiverkehr) of a German stock exchange, if the transaction is concluded in connection with a securities service or for own account. The requirement pursuant to the first sentence of this paragraph shall also apply to the purchase or sale of rights to subscribe securities, in so far as these securities are to be traded on an organised market, and to transactions in shares and warrants in respect of which an application for admission to trading on an organised market or for admission to trading on the free market (Freiverkehr) has been made or publicly announced. The requirement pursuant to the first two sentences of this paragraph shall also apply to domestic entities which operate a system ensuring the settlement of transactions effected on an organised market in respect of their transactions. The requirements pursuant to the first two sentences of this paragraph shall also apply to undertakings domiciled abroad and authorised to trade on a German stock exchange in respect of transactions concluded by them on a German stock exchange or on the free market (Freiverkehr) in connection with a securities service or for own account.

(1a) Exempt from the requirement pursuant to paragraph 1 above are [German] building societies (Bausparkassen) within the meaning of Section 1 paragraph (1) of the Law on German Building Societies (Gesetz über Bausparkassen) and undertakings within the meaning of Section 2 paragraphs (1), (4) and (5) of the German Banking Act, if they are not admitted to trading on a German stock exchange, as well as housing cooperatives with a savings facility (Wohnungsgenossenschaften mit Spareinrichtung). The requirement pursuant to paragraph (1) above shall also not apply to transactions in units of German investment companies or foreign investment companies in respect of which a repurchase commitment of the companies exists, and to transactions in derivatives within the meaning of section 2 paragraph (2) number 1. b) and d).

(2) The report must be made on data media or by means of remote electronic data transmission. It must include the following information on each transaction:

1. Description of the security or derivative and securities identification number;

2. date and time of the transaction or the relevant price determination;

3. price, number and face value of the securities or derivatives;

4. the institutions and enterprises within the meaning of paragraph (1) above which were involved in the transaction;

5. the stock exchange or the stock exchange’s electronic trading system, if the transaction is concluded on a stock exchange;

6. a marker to identify the transaction.

Transactions for own account shall be identified separately.

(3) The Federal Ministry of Finance may, by ordinance not requiring the consent of the Bundesrat,

1. issue more detailed regulations on the content, nature, scope and form of the report and on permitted data media and means of transmission;

2. prescribe additional information in so far as this is needed for the performance of the supervisory functions of the Federal Supervisory Office;

3. permit reports by those subject to these requirements to be made, at their expense, by the stock exchange or by a suitable third party, and set out the relevant details;

4. in the case of transactions relating to bonds or certain types of derivatives permit the information specified in paragraph (2) above to be reported in summary form;

5. exempt institutions and enterprises within the meaning of paragraph (1) above from the reporting requirement pursuant to paragraph (1) above in the case of transactions concluded on an organised market in another Member State of the European Union or in another of the Contracting States to the Agreement on the European Economic Area, provided that there are equivalent reporting requirements in that State;

6. in the case of savings banks or credit cooperatives conducting transactions through a central giro institution, a cooperative central bank or a central credit institution permit the report required pursuant to paragraph (1) above to be made by such central giro institution, cooperative central bank or central credit institution, provided and to the extent that this does not detract from the intended purpose of the information requirement.

(4) The Federal Ministry of Finance may by ordinance delegate the authority pursuant to paragraph (3) above to the Federal Supervisory Office.

Section 10 Means of enforcement

The Federal Supervisory Office may ensure compliance with the orders which it issues within its legal powers by means of enforcement in accordance with the Law on the Enforcement of Administrative Decisions. It may also apply means of enforcement to public corporations. In derogation of Section 11 of the Law on the Enforcement of Administrative Decisions, the administrative fine may be imposed in an amount up to DM 100,000.

Section 11 Allocation of Costs and Costs1

(1) The costs of the Federal Supervisory Office shall be reimbursed to the Federation

1. in the amount of 68 per cent by credit institutions and enterprises operating under Section 53 paragraph (1) sentence 1 of the German Banking Act, provided that such credit institutions or enterprises are authorised to provide in Germany investment services within the meaning of Section 2 paragraph (3) numbers 1., 2., or 5. above;

2. in the amount of 4 per cent by official exchange brokers and other enterprises admitted to trading on a German stock exchange and which do not come under the provisions of number 1. above;

3. in the amount of 9 per cent by financial services institutions and enterprises operating under Section 53 paragraph (1) sentence 1 of the German Banking Act, provided that such financial services institutions or enterprises are authorised to provide in Germany investment services within the meaning of Section 2 paragraph (3) numbers 3., 4., or 6. above and do not come under the provisions of number 1. or 2. above;

4. in the amount of 9 per cent by issuers domiciled in Germany whose securities are admitted to trading on a German stock exchange or traded on the free market (Freiverkehr) with their consent.

In the case of numbers 1. and 2. of the first sentence above, the costs shall be allocated in proportion to the volume of transactions reported under Section 9 paragraph (1) above; here the number of transactions is relevant, whereas in case of bonds only a third of the transactions shall be taken into account. In the case of number 3. of the first sentence above, the costs shall be allocated in proportion to the result from ordinary business operations or, if proof is provided, in proportion to the gross proceeds from investment services or own account transactions. In the case of number 4. of the first sentence above, the costs shall be allocated to the issuers in proportion to the stock exchange turnover of their securities admitted to stock exchange trading or traded on the free market (Freiverkehr).

(2) The parties subject to the first sentence of paragraph (1) above and the German stock exchanges shall be obliged to furnish the Federal Supervisory Office on request with information on the volume of transactions, the result from ordinary business operations or the gross proceeds and the stock exchange turnover. The claims for reimbursement of costs shall be enforced by the Federal Supervisory Office in accordance with the provisions of the Law on the Enforcement of Administrative Decisions.

(3) Details of the imposition of cost allocations pursuant to paragraph (1) above and of their enforcement shall be set out by the Federal Ministry of Finance in ordinances not requiring the consent of the Bundesrat; the Federal Ministry of Finance may stipulate minimum amounts in such ordinances. The Federal Ministry of Finance may by ordinance delegate this authority to the Federal Supervisory Office.

(4) The costs incurred by the Federation from the audit pursuant to Section 35 paragraph (1) and Section 36 paragraph (4) shall be reimbursed separately by the enterprises concerned and shall be paid in advance if so requested by the Federal Supervisory Office.

Part 3 Insider surveillance

Section 12 Insider securities

(1) Insider securities are securities which are

1. admitted to official trading on a German stock exchange or traded on the free market (Freiverkehr), or

2. admitted to trading on an organised market in another Member State of the European Union or in another of the Contracting States to the Agreement on the European Economic Area.

Securities shall be deemed to be admitted to trading on an organised market or to be traded on the free market (Freiverkehr) if the application for such admission or such trading has been made or publicly announced.

(2) The following shall also be regarded as insider securities:

1. rights to subscribe for, acquire or dispose of securities;

2. rights to the payment of a differential amount calculated on changes in the value of securities;

3. forward contracts on a share or fixed-interest security index or forward interest-rate contracts (financial futures) and rights to subscribe for, acquire or dispose of financial futures in so far as such financial futures are concerned with securities or relate to an index which includes securities;

4. other forward contracts entailing a commitment to acquire or dispose of securities;

if the rights or forward contracts are admitted to trading on an organised market or are traded on the unofficial market in a Member State of the European Union or in another of the Contracting States to the Agreement on the European Economic Area and the securities referred to in numbers 1. to 4. above are admitted to trading on an organised market or are traded on the unofficial market in a Contracting State to the Agreement on the European Economic Area. The rights or forward contracts shall be deemed to be admitted to trading on an organised market or to be traded on the free market (Freiverkehr) if the application for such admission or such trading has been made or publicly announced.

Section 13 Insiders

(1) An insider is any person who

1. by virtue of his membership of the management or supervisory body of the issuer, or as a personally liable partner in the issuer or in an undertaking associated with the issuer,

2. by virtue of his holding in the capital of the issuer or of an undertaking associated with the issuer, or

3. by virtue of his profession, employment or duties in accordance with the regulations

possesses information which has not been made public relating to one or more issuers of insider securities, or to insider securities, which, if it were made public, would be likely to have a significant effect on the price of the insider security (inside information).

(2) An analysis based entirely on publicly-known information shall not be regarded as inside information, even if it may have a significant effect on the price of insider securities.

Section 14 Prohibition of insider dealing

(1) Insiders shall be prohibited from

1. taking advantage of their knowledge of inside information to acquire or dispose of insider securities for their own account or for the account or on behalf of a third party;

2. disclosing or making available inside information to a third party without authority to do so;

3. recommending a third party, on the basis of their knowledge of inside information, to acquire or dispose of insider securities.

(2) A third party who has knowledge of inside information shall be prohibited from taking advantage of that knowledge to acquire or dispose of insider securities for his own account or for the account or on behalf of others.

Section 15 Publication and disclosure of price-sensitive information

(1) An issuer of securities admitted to trading on a German stock exchange must immediately publish any information which comes within his sphere of activity and which is not publicly known if such information is likely because of the effect on the assets or financial position or the general trading position of the issuer to exert significant influence on the stock exchange price of the admitted securities or, in the case of listed bonds, might impair the issuer’s ability to meet his liabilities. The Federal Supervisory Office may on application by the issuer exempt the issuer from the publication requirement if publication of the information is likely to damage the legitimate interests of the issuer.

(2) Before publishing the information referred to in paragraph (1) above, the issuer shall notify

1. the management of the stock exchanges on which the securities are admitted to trading,

2. the management of the stock exchanges on which only derivatives within the meaning of Section 2 paragraph (2) are traded, in so far as the securities are the subject of such derivatives, and

3. the Federal Supervisory Office

of such information. The stock exchange management may use the information of which it has been notified before publication only for the purpose of deciding whether to suspend or to cancel the determination of stock exchange prices. The Federal Supervisory Office may permit issuers domiciled abroad to effect the notification pursuant to the first sentence of this paragraph together with the publication, provided this does not adversely affect the decision of the management on whether to suspend or cancel the determination of stock exchange prices.

(3) Publication pursuant to the first sentence of paragraph (1) above shall be effected in the German language

1. in at least one supra-regional official stock exchange gazette, or

2. by way of an electronic system for the dissemination of information which is broadly accessible to credit institutions, enterprises operating under Section 53 paragraph (1) sentence 1 of the German Banking Act, other enterprises domiciled in Germany which are admitted to trading on a German stock exchange and insurance undertakings.

The Federal Supervisory Office may permit issuers domiciled abroad to effect the publication in another language provided that sufficient information of the public does not seem to be endangered thereby. Publication in any other form may not be effected before publication pursuant to the first sentence of this paragraph. In the case of extensive information the Federal Supervisory Office may permit the publication of a summary in accordance with the first sentence of this paragraph if the complete information is available free of charge from the issuer’s paying agents and if this is indicated in the announcement.

(4) The issuer shall immediately forward the publication pursuant to the first sentence of paragraph (3) above to the management of the stock exchanges covered by paragraph (2) sentence 1 numbers 1. and 2. above and to the Federal Supervisory Office, provided the Federal Supervisory Office has not permitted pursuant to paragraph (2) sentence 3 above to make the notification under paragraph (2) sentence 1 above together with the publication.

(5) The Federal Supervisory Office may require the issuer to submit information and documents in so far as this is necessary to monitor compliance with the requirements set out in paragraphs (1) to (4) above. During normal business hours, employees of the Federal Supervisory Office and persons commissioned by it shall be permitted to enter the property and business premises of the issuer in so far as this is necessary for the fulfilment of the functions of the Federal Supervisory Office. Section 16 paragraphs (6) and (7) shall apply accordingly.

(6) If the issuer fails to comply with the requirements pursuant to paragraphs (1), (2) or (3) above it shall not be liable to compensate any third party for damage resulting from such non-compliance. Claims for compensation having other legal bases shall not be affected.

Section 16 Regular monitoring

(1) The Federal Supervisory Office shall monitor trading in insider securities on and off stock exchanges in order to prevent contraventions of the prohibitions specified in Section 14.

(2) If the Federal Supervisory Office has evidence indicating contravention of a prohibition specified in Section 14 it may require the investment services enterprises and enterprises domiciled in Germany and admitted to trading on a German stock exchange to furnish information on transactions in insider securities which they have concluded or arranged for their own account or for the account of others. The first sentence above shall apply accordingly to requests for information addressed to enterprises domiciled abroad and admitted to trading on a German stock exchange in respect of transaction concluded by them on a German stock exchange or on the free market (Freiverkehr). If so required by the Federal Supervisory Office, the party obliged to furnish information must identify the principal and the persons benefiting or incurring a liability from the transactions and indicate changes in the stock of insider securities, in so far as the transactions concern insider securities for which the evidence exists or whose price depends on such insider securities. If, on the basis of sentence 3 above, there is further evidence indicating contravention of a prohibition pursuant to Section 14, the Federal Supervisory Office may require the party obliged to furnish information to do so in respect of changes in the stock of insider securities of the principals, in so far as these changes occurred within the six months preceding the execution of the transaction in respect of which there is evidence indicating contravention of a prohibition pursuant to Section 14. Before executing orders relating to insider securities within the meaning of Section 12, enterprises referred to in the first sentence above are required to establish and record in the case of natural persons the name, the date of birth and the address and in the case of undertakings the firm and address of the principals and the persons or undertakings benefiting or incurring a liability form the transactions.

(3) As part of the requirement to furnish information in accordance with paragraph (2) above, the Federal Supervisory Office may require the submission of documents by the persons obliged to furnish information. During normal business hours, employees of the Federal Supervisory Office and persons commissioned by it shall be permitted to enter the property and business premises of the enterprises referred to in the first sentence of paragraph (2) above, in so far as this is necessary for the fulfilment of the functions of the Federal Supervisory Office. Outside normal business hours or if the business premises are located in residential property, entry shall be allowed without permission only to prevent substantial danger to public safety and order and in such case must be consented to. The inviolability of the home (Article 13 of the Basic Law) shall be restricted accordingly.

(4) If the Federal Supervisory Office has evidence indicating contravention of a prohibition specified in Section 14 it may require the issuers of insider securities and undertakings associated with the issuer which are domiciled in Germany or whose securities are admitted to trading on a German stock exchange and persons having knowledge of inside information to furnish details of and submit documents relating to inside information and of other persons who have knowledge of such information.

(5) Persons whose identity has been communicated pursuant to the third sentence of paragraph (2) above may be required by the Federal Supervisory Office to furnish information on such transactions.

(6) A person obliged to furnish information may refuse to do so in respect of any questions the answers to which would place himself or one of his relatives as designated in Section 383 paragraph (1) numbers 1 to 3 of the Code of Civil Procedure at risk of criminal prosecution or proceedings under the Law on Administrative Offences. Such person shall be informed of his right to refuse to furnish information.

(7) Objections to and actions to set aside measures in accordance with paragraphs (2) to (5) above shall have no suspensory effect.

(8) Enterprises referred to in the first sentence of paragraph (2) above may not inform the principals or the persons or undertakings benefiting or incurring a liability from the transactions of a request for information made by the Federal Supervisory Office pursuant to the first sentence of paragraph (2) above or of investigative proceedings instituted in consequence thereof.

(9) The records taken pursuant to the fourth sentence of paragraph (2) shall be retained for a period of at least six years. As regards the records to be retained, the provisions of Section 257 paragraphs (3) and (5) of the German Commercial Code shall apply accordingly.

Section 16a Monitoring of the transactions effected by the persons employed in the Federal Supervisory Office

(1) The Federal Supervisory Office must have adequate control procedures which are capable of countering any contravention of the prohibitions as set out in Section 14 by persons employed in the Federal Supervisory Office.

(2) The superior or the person commissioned by him may require the persons employed in the Federal Supervisory Office to furnish information and submit documents relating to transactions in insider securities which they have concluded for their own account or for the account or on behalf of a third party. The provisions of Section 16 paragraph (6) shall apply. Employees who in carrying out their official duties possess or may possess inside information in accordance with the regulations shall be obliged to immediately notify the superior or the person commissioned by him in writing of any transactions in insider securities which they have concluded for their own account or for the account or on behalf of a third party. The superior or the person commissioned by him shall name the employees designated in sentence 3 above.

Section 17 Processing and use of personal data

(1) The Federal Supervisory Office may store, alter and use personal data communicated to it pursuant to Section 16 paragraph (2) sentence 3 or Section 16a paragraph (2) sentence 1 or 3 only for the purpose of verifying whether a contravention of a prohibition pursuant to Section 14 has been committed and for the purpose of international cooperation in accordance with Section 19.

(2) Personal data which are no longer required for verification purposes or for complying with a request for information from a competent authority in another country in accordance with paragraph (1) above shall be deleted immediately.

Section 18 Criminal proceedings in respect of insider offences

The Federal Supervisory Office must report facts giving reason to suspect a criminal offence pursuant to Section 38 to the competent public prosecutor’s office. It may communicate to the public prosecutor’s office the personal data of persons suspected of the offence or persons who may be required to act as witnesses.

Section 19 International cooperation

(1) The Federal Supervisory Office shall communicate to the competent authorities of other Member States of the European Union or other Contracting States to the Agreement on the European Economic Area any information needed to monitor the prohibitions on insider dealing. It shall make use of the powers specified in Section 16 paragraphs (2) to (5) in so far as this is necessary to comply with requests for information from the competent authorities referred to in the first sentence of this paragraph.

(2) When information is communicated, the competent authorities within the meaning of the first sentence of paragraph (1) above shall be advised that, without prejudice to their obligations in judicial proceedings under criminal law concerned with contraventions of prohibitions of insider dealing, they may use the information received solely to monitor the prohibition of insider dealing or in the context of administrative or judicial proceedings relating thereto. The use of such information for other supervision purposes pursuant to the first sentence of Section 7 paragraph (2) or for related criminal prosecution matters or its forwarding to competent authorities of other countries for the purposes designated in the first sentence of this paragraph shall require the consent of the Federal Supervisory Office.

(3) The Federal Supervisory Office may refuse to communicate information

1. if communicating the information might adversely affect the sovereignty, security or public policy of the Federal Republic of Germany, or

2. if judicial proceedings have already been initiated in respect of the same facts or against the persons in question or if a final judgement has been passed.

(4) The Federal Supervisory Office, without prejudice to its obligations in judicial proceedings under criminal law concerned with contraventions of prohibitions of insider dealing, may use information received from the competent authorities within the meaning of the first sentence of paragraph (1) above solely to monitor the prohibition of insider dealing or in the context of administrative or judicial proceedings relating thereto. The use of such information for other supervision purposes pursuant to the first sentence of Section 7 paragraph (2) or for related criminal prosecution matters or its forwarding to competent authorities of other countries for the purposes designated in the first sentence of this paragraph shall require the consent of the authorities communicating the information.

(5) The Federal Supervisory Office may cooperate with the competent authorities of countries other than those referred to in the first sentence of paragraph (1) above to monitor the prohibitions of insider dealing pursuant to Section 14 and the respective prohibitions of other countries and may communicate information to those authorities in accordance with Section 7 paragraph (2). The second sentence of paragraph (1) above shall be applied accordingly.

Section 20 Exceptions

The provisions of this Part shall not apply to transactions carried out in pursuit of monetary, exchange rate or public debt management policies by the Federation, one of its special funds, a Land, the Deutsche Bundesbank, a foreign State or its central bank or other body commissioned to conduct such transactions or with any person acting for their account.

Part 4 Notification and disclosure requirements in the event of changes in the percentage of voting rights in listed companies

Section 21 Notification requirements applicable to the notifying party

(1) Any person (the notifying party) whose shareholding in a listed company reaches, exceeds or falls short of 5 per cent, 10 per cent, 25 per cent, 50 per cent or 75 per cent of the voting rights by purchase, sale or by any other means shall immediately, and at the latest within seven calendar days, notify the company and the Federal Supervisory Office in writing of having reached, exceeded or fallen short of the above-mentioned thresholds and of the size of his percentage of the voting rights, by indicating his address and the day on which he has reached, exceeded or fallen short of the respective threshold. The notification period shall begin at the time when the notifying party learns or in consideration of the circumstances must have learnt that his percentage of the voting rights has reached, exceeded or fallen short of the above-mentioned thresholds.

(1a) Any person who, at the time when the shares of a company domiciled in Germany are admitted for the first time to trading on a stock exchange in a Member State of the European Union or in another of the Contracting States to the Agreement on the European Economic Area, holds 5 per cent or more of the voting rights in such company, shall notify the company and the Federal Supervisory Office pursuant to the first sentence of paragraph (1) above.

(2) Listed companies within the meaning of this Part are companies domiciled in Germany whose shares are admitted to trading on a stock exchange in a Member State of the European Union or in another Contracting State to the Agreement on the European Economic Area.

Section 22 Additional counting of voting rights

(1) For the notification requirements under Section 21 paragraphs (1) and (1a) there shall be deemed equivalent to the voting rights of the notifying party those voting rights arising from shares in the listed company

1. which belong to a third party and are held by that party for the account of the notifying party or an undertaking controlled by him;

2. which belong to an undertaking controlled by the notifying party;

3. which belong to a third party with whom the notifying party or an undertaking controlled by him has concluded an agreement committing both parties to pursue in the long term common objectives in respect of the management of the listed company by exercising their voting rights in concert;

4. which the notifying party has assigned as security to a third party, unless such third party is authorised to exercise the voting rights arising from those shares and states his intention of so doing;

5. in which a usufruct is created in favour of the notifying party;

6. in respect of which the notifying party or an undertaking controlled by him may demand a transfer of title;

7. which are entrusted to the notifying party for safekeeping in so far as he may exercise the voting rights arising therefrom at his own discretion in the absence of special instructions from the shareholder.

(2) The voting rights to be counted additionally shall be indicated separately in the notifications pursuant to Section 21 paragraphs (1) and (1a) for each of the numbers in paragraph (1) above.

(3) A controlled undertaking is an undertaking in which the notifying party directly or indirectly

1. holds a majority of the voting rights of the shareholders or partners;

2. by virtue of being a shareholder or partner is entitled to appoint or dismiss a majority of the members of the administrative, management or supervisory bodies, or

3. by virtue of being a shareholder or partner alone holds a majority of the voting rights on the basis of an agreement with other shareholders or partners of that undertaking.

Section 23 Discounting voting rights

(1) The Federal Supervisory Office may, on receipt of an application in writing to do so, permit the notifying party to discount voting rights arising from shares in the listed company when calculating the percentage of voting rights if the applicant

1. is an undertaking providing investment services which is authorised to trade on a stock exchange in a Member State of the European Union or in another Contracting State to the Agreement on the European Economic Area;

2. holds or intends to hold the shares in question in its trading portfolio, and

3. can show that the intention in purchasing the shares is not to exercise influence over the management of the company.

(2) On receipt of an application in writing from an undertaking domiciled in a Member State of the European Union or in another Contracting State to the Agreement on the European Economic Area which fails to meet the requirements of paragraph (1) number 1. above, the Federal Supervisory Office may permit voting rights arising from shares in the listed company to be discounted for the notifying threshold of 5 per cent if the applicant

1. holds or intends to hold the shares in question in order to realise short-term gain from existing or expected differences between the purchase and the sale price, and

2. can show that the intention in purchasing the shares is not to exercise influence over the management of the company.

(3) When auditing the annual financial statements of an undertaking which has been granted an exemption pursuant to paragraph (1) or (2) above, the auditor shall be obliged to note in a separate certificate whether the undertaking has complied with the provisions of paragraph (1) number 2. or paragraph (2) number 1 above and to submit this certificate together with the annual financial statements to the statutory representatives of the undertaking. The undertaking shall be obliged to submit the auditor’s certificate without delay to the Federal Supervisory Office. If the obligations pursuant to the first or second sentence of this paragraph are not complied with, the Federal Supervisory Office may, in addition to the possibility of revocation under the provisions of the Law on Administrative Procedures, revoke an exemption granted pursuant to paragraph (1) or (2) above. If the exemption is cancelled or revoked, the undertaking may make renewed application for exemption at the earliest three years after such cancellation or revocation has taken effect.

(4) Voting rights which are discounted on the basis of an exemption in accordance with paragraph (1) or (2) above may not be exercised if, were they to be taken into account, a notification requirement pursuant to Section 21 paragraph (1) or (1a) would exist.

Section 24 Notification by group member undertakings

If the notifying party belongs to a group for which consolidated accounts must be drawn up in accordance with Sections 290 and 340i of the German Commercial Code, the notification requirements specified in Section 21 paragraphs (1) and (1a) may be met by the parent undertaking or, if the parent undertaking is itself a subsidiary, by its parent undertaking.

Section 25 Disclosure obligations of the listed company

(1) The listed company must publish a notification made in accordance with Section 21 paragraphs (1) and (1a) immediately, at the latest within nine calendar days of its receipt, in the German language in at least one supra-regional official stock exchange gazette. The notifying party shall be identified in the announcement by name or business name and state in which the registered office is situated or registered office. In respect of companies which purchase or sell their own shares sentences 1 and 2 shall apply accordingly provided that, in derogation of sentence 1, a statement is published the content of which shall be determined by Section 21 and the publication is made not later than nine calendar days after the thresholds designated in Section 21 paragraph (1) sentence 1 have been reached, exceeded or fallen short of.

(2) If the shares of the listed company are admitted to official trading on a stock exchange in another Member State of the European Union or another Contracting State to the Agreement on the European Economic Area, the company must also publish the announcement pursuant to the first and second sentences of paragraph (1) above immediately, at the latest nine calendar days after receipt of the notification, in an official stock exchange gazette in that State or, where the law in that State provides for the public to be notified in another form, in that other form. The announcement must be worded in a language authorised in that State for use in such announcements.

(3) The listed company shall immediately forward to the Federal Supervisory Office documentary evidence of the announcement pursuant to paragraphs (1) and (2) above. The Federal Supervisory Office shall inform the stock exchanges referred to in paragraph (2) above of the announcement.

(4) The Federal Supervisory Office may, in response to a written request, release the listed company from the disclosure requirements under paragraphs (1) and (2) above if, after considering the circumstances, it takes the view that disclosure would be contrary to the public interest or would cause the company considerable damage, unless in the latter case non-disclosure may result in the public being misled about facts and circumstances which are essential for assessing the securities in question.

Section 26 Disclosure obligations of companies domiciled abroad

(1) If the percentage of voting rights held by a shareholder of a company domiciled abroad whose shares are admitted to trading on a German stock exchange reaches, exceeds or falls short of the thresholds referred to in the first sentence of Section 21 paragraph (1), the company shall be obliged, unless the requirements of paragraph (3) below are met, to publish this fact, together with the size of the shareholder’s percentage of voting rights, without delay and at the latest within nine calendar days in a supra-regional official stock exchange gazette. The period shall begin at the time when the company learns that the shareholder’s percentage of voting rights has reached, exceeded or fallen short of the thresholds referred to in the first sentence of Section 21 paragraph (1).

(2) Section 25 paragraph (1) sentence 2, paragraphs (3) and (4) shall apply accordingly to the announcements pursuant to paragraph (1) above.

(3) Companies domiciled in a Member State of the European Union or in another Contracting State to the Agreement on the European Economic Area whose shares are admitted to official trading on both a stock exchange in the State of domicile and a German stock exchange must publish announcements prescribed by the law of the State of domicile on the basis of Article 10 of Council Directive 88/627/EEC of 12 December 1988 on the information to be published when a major holding in a listed company is acquired or disposed of (OJ EC No L 348, p. 62) in Germany in the German language in a supra-regional official stock exchange gazette.

Section 27 Proof of notified holdings

Any person having made a notification pursuant to Section 21 paragraph (1) or (1a) must prove the existence of the notified holding if requested to do so by the Federal Supervisory Office or the listed company.

Section 28 Loss of rights

Voting rights arising from shares which are held by or counted for a notifying party pursuant to Section 22 paragraph (1) number 1. or 2. may not be exercised in the period during which the notification requirements pursuant to Section 21 paragraph (1) or (1a) are not met. This shall not apply to claims under Section 58 paragraph (4) and Section 271 of the German Companies Act provided the notification was not been deliberately omitted and has been made afterwards.

Section 29 Powers of the Federal Supervisory Office

(1) The Federal Supervisory Office may require the listed company and its shareholders and former shareholders as well as investment services enterprises to furnish information and submit documents, in so far as this is necessary for monitoring compliance with the requirements set out in this Part. The powers conferred pursuant to the foregoing sentence shall also apply in respect of persons and undertakings whose voting rights are to be counted additionally in accordance with Section 22 paragraph (1). The provisions of Section 16 paragraph (6) shall apply.

(2) The Federal Supervisory Office may establish guidelines which it shall use, in normal cases, to judge whether the conditions for a notification procedure or an exemption from the notification requirements pursuant to Section 21 paragraph (1) have been met. The guidelines shall be published in the Federal Official Gazette.

(3) The Federal Supervisory Office may make the notifications pursuant to Section 25 paragraphs (1) and (2) at the expense of the listed company if that company fails to comply with the disclosure requirement or complies with it incorrectly, incompletely or not in the prescribed form.

Section 30 Cooperation with competent authorities in other countries

(1) The Federal Supervisory Office shall cooperate with the competent authorities of the other Member States of the European Union, the other Contracting States to the Agreement on the European Economic Area and also, in the cases specified in numbers 1. to 4. below, the corresponding authorities of other States in order to ensure, in particular, that

1. notifying parties who are resident, domiciled or ordinarily resident in one of those States duly comply with the notification requirements;

2. listed companies duly comply with the disclosure requirement pursuant to Section 25 paragraph (2);

3. parties who are required by the regulations of another Member State of the European Union or another Contracting State to the Agreement on the European Economic Area to make notifications in that State and who are resident, domiciled or ordinarily resident in Germany duly comply with the notification requirements;

4. companies domiciled abroad whose shares are admitted to official trading on a German stock exchange duly comply with the disclosure requirements in Germany.

(2) The Federal Supervisory Office may communicate facts including personal data to the competent authorities of the other Member States or Contracting States, in so far as this is necessary for monitoring compliance with the notification and disclosure requirements. When information is communicated, the competent authorities shall be advised that, without prejudice to their obligations in judicial proceedings under criminal law concerned with contraventions of notification or disclosure requirements, they may use the facts including personal data received solely to monitor compliance with these requirements or in the context of administrative or judicial proceedings relating thereto.

(3) In the case of paragraph (1) number 3. above, the Federal Supervisory Office shall have the powers conferred under Section 29 paragraph (1).

Part 5 Rules of conduct for investment services enterprises; limitation of the right of action in respect of claims for compensation

Section 31 General rules of conduct

(1) Investment services enterprises shall be required

1. to provide investment services and non-core investment services with the requisite degree of expertise, care and conscientiousness in the interests of their customers;

2. to endeavour to avoid conflicts of interest and to ensure that in the event of unavoidable conflicts of interest customers’ orders are executed with due regard to customers’ interests.

(2) They shall further be required

1. to demand from their customers particulars of their experience or knowledge of transactions intended to be the subject of investment services or non-core investment services, of the aims they pursue with those transactions and of their financial situation;

2. to furnish their customers with all pertinent information,

in so far as this is necessary to protect their customers’ interests and with regard to the type and scope of the intended transactions. The customers are not obliged to furnish information if so requested pursuant to sentence 1 number 1 above.

(3) Paragraphs (1) and (2) above shall also apply to enterprises domiciled abroad which provide investment services or non-core investment services for customers having their habitual place of residence or registered office in Germany, provided that the investment services or non-core investment services and related ancillary services are not provided exclusively abroad.

Section 32 Special rules of conduct

(1) Investment services enterprises or related enterprises may not

1. advise customers of the investment services enterprise to purchase or sell securities, money-market instruments or derivatives if and to the extent that such advice is not in conformity with the customers’ interests;

2. advise customers of the investment services enterprise to purchase or sell securities, money-market instruments or derivatives in order to cause prices to move in a specific direction for the purpose of transactions for own account of the investment services enterprise or a related enterprise;

3. in cognisance of an order of a customer of the investment services enterprise to purchase or sell securities, money-market instruments or derivatives, conclude transactions for own account which could place that customer at a disadvantage.

(2) The proprietors of an investment services enterprise carried on in the form of a sole proprietorship, in the case of other investment services enterprises the persons empowered by law or by the articles of partnership to conduct the business of and to represent the enterprise, and the employees of an investment services enterprise who are entrusted with concluding transactions in securities, money-market instruments or derivatives, conducting securities analysis or giving investment advice, may not

1. advise customers of the investment services enterprise to purchase or sell securities, money-market instruments or derivatives under the conditions of paragraph (1) number 1. above or in order to cause the prices of securities, money-market instruments or derivatives to move in a specific direction for the purpose of transactions for own account or on behalf of third parties;

2. in cognisance of an order of a customer of the investment services enterprise to purchase or sell securities, money-market instruments or derivatives, conclude transactions for own account or on behalf of a third party which could place that customer at a disadvantage.

(3) Subject to the conditions set out in Section 31 paragraph (3), paragraphs (1) and (2) above shall also apply to enterprises domiciled abroad.

Section 33 Organisational requirements

(1) Investment services enterprises

1. shall be obliged to maintain and use effectively the resources and procedures required for the proper conduct of the investment service and non-core investment service;

2. must be organised in such a way that in providing the investment service and non-core investment service conflicts of interest between the investment services enterprise and its customers or between different customers of the investment services enterprise are kept to the unavoidable minimum;

3. must have adequate internal control procedures which are capable of countering any infringement of the requirements set out in this Act.

(2) Areas which are important for the provision of investment services or non-core investment services may only be outsourced to another undertaking if this does neither adversely affect the proper conduct of such services, nor the fulfilment of the duties pursuant to paragraph (1) above, nor the respective examination rights and control powers of the Federal Supervisory Office. In particular, the investment services enterprise is required to secure for itself by way of contract the necessary discretionary powers and to include the outsourced areas in its internal control mechanisms.

Section 34 Requirements to keep and retain records

(1) In carrying out investment services investment services enterprises shall be obliged to keep a record of

1. the order and pertinent instructions of the customer as well as the execution of the order, and

2. the name of the employee who accepted the customer’s order and the time at which the order was given and executed,

3. the commissions and fees the customer is charged for the order,

4. the instructions of the customer as well as the placement of the order with another investment services enterprise, in so far as asset management within the meaning of Section 2 paragraph (3) number 6. is concerned,

5. the placement of an order for own account with another investment services enterprise, in so far as the transaction is not subject to the reporting requirement pursuant to Section 9 above; orders for own account shall be indicated separately.

(2) The Federal Ministry of Finance may, by ordinance not requiring the consent of the Bundesrat and after consulting the Deutsche Bundesbank, require investment services enterprises to keep additional records in so far as such records are necessary for the monitoring by the Federal Supervisory Office of compliance with the requirements imposed on investment services enterprises. The Federal Ministry of Finance may by ordinance delegate this authority to the Federal Supervisory Office.

(3) The records specified in paragraphs (1) and (2) above shall be retained for a minimum period of six years. Section 257 paragraphs (3) and (5) of the German Commercial Code shall apply accordingly to the retention of the records.

Section 34a Separate asset management

(1) Investment services enterprises which are no deposit-taking credit institutions within the meaning of the first sentence of Section 1 paragraph (3d) of the German Banking Act shall immediately hold in safe custody client money which they accept in connection with an investment service or non-core investment service and which they use in their own name and for the account of their customers, keeping it separately from the money of the enterprise and from other clients’ money in a trustee account with a credit institution authorised to conduct deposit-taking business in Germany or a suitable credit institution domiciled abroad and authorised to conduct deposit-taking business. Before taking the money in safe custody the investment services enterprise shall disclose to the credit institution that the money is deposited for the account of a third party. It shall immediately inform the customer of the account in which the client money is deposited and of whether the credit institution with which the client money is held belongs to an institution designed to protect the claims of depositors and investors as well as of the extent to which the client money is protected by such institution.

(2) Investment services enterprises which are not authorised to conduct deposit-taking business within the meaning of Section 1 paragraph (1) sentence 2 number 5 of the German Banking Act shall immediately pass on for safe custody securities which it accepts in connection with an investment service or non-core investment service to a credit institution authorised to conduct deposit-taking business in Germany or to a credit institution domiciled abroad which is authorised to conduct deposit-taking business and with which the customer is granted a legal status equivalent to that under the German Safe Custody Act. The third sentence of paragraph (1) shall apply accordingly.

(3) The Federal Ministry of Finance may, by ordinance not requiring the consent of the Bundesrat, issue more detailed provisions on the extent of the obligations pursuant to paragraphs (1) and (2) above in order to protect the customers’ money or securities entrusted to an investment services enterprise. The Federal Ministry of Finance may by ordinance delegate this authority to the Federal Supervisory Office.

Section 35 Monitoring of the reporting requirements and the rules of conduct

(1) The Federal Supervisory Office may require the investment services enterprises, the related enterprises and the persons designated in Section 32 paragraph (2) before number 1 above to furnish information and submit documents and also conduct examinations without immediate cause, in order to monitor compliance with the requirements set out in this Part. The provisions of Section 16 paragraph (6) shall apply. During normal business hours, employees of the Federal Supervisory Office and the persons commissioned by it shall be permitted to enter the property and business premises of the investment services enterprises and related enterprises in so far as this is necessary for the fulfilment of the functions of the Federal Supervisory Office set out in this Part.

(2) The Federal Supervisory Office may also require enterprises domiciled abroad which provide investment services for customers having their habitual place of residence or registered office in Germany, provided that the investment services and related non-core investment services are not provided exclusively abroad, to furnish information and submit documents, in order to monitor compliance with the requirements set out in this Part.

(3) The Federal Supervisory Office may also require any credit institutions, financial services institutions and enterprises operating under Section 53 paragraph (1) sentence 1 of the German Banking Act which can be assumed to provide investment services to furnish information on business matters, in particular on the nature and scope of their business, and to submit documents, in order to monitor compliance with the requirements set out in this Part. The first and third sentences of paragraph (1) above shall apply accordingly.

(4) The powers pursuant to paragraph (1) above shall also be conferred to the Federal Supervisory Office for the purpose of monitoring the reporting requirements pursuant to Section 9 above in respect of the enterprises designated in the first, third and fourth sentences of Section 9 paragraph (1) above. The provisions of Section 16 paragraph (6) shall apply.

(5) Objections to and actions to set aside measures in accordance with paragraphs (1), (3) and (4) above shall have no suspensory effect.

(6) The Federal Supervisory Office may establish guidelines which it shall use, in normal cases, to judge whether the requirements pursuant to Sections 31 to 33 have been met. The Deutsche Bundesbank, the Federal Banking Supervisory Office and the central associations of the economic sectors concerned shall be consulted before the guidelines are issued. Guidelines relating to Section 33 shall be issued in consultation with the Federal Banking Supervisory Office. The guidelines shall be published in the Federal Official Gazette.

Section 36 Examination of reporting requirements and rules of conduct

(1) Without prejudice to Section 35 above, compliance with the reporting requirements pursuant to Section 9 above and with the requirements set out in this Part shall be examined once a year by a suitable auditor. The investment services enterprise shall appoint the auditor not later than by the end of the business year to which the examination relates. In the case of credit institutions which are members of a cooperative auditing association (genossenschaftlicher Prüfungsverband) or which are audited by the auditing body (Prüfungsstelle) of a savings banks and giro association (Sparkassen- und Giroverband), the examination shall be carried out by the competent auditing association or auditing body, in so far as this is provided for by the law of the respective Land in the latter case. Suitable auditors are also German certified accountants (Wirtschaftsprüfer), German sworn auditors (vereidigte Buchprüfer) as well as German accounting and auditing firms (Wirtschaftsprüfungs- und Buchprüfungsgesellschaften) which have sufficient knowledge in respect of the subject matter to be examined. After conclusion of the examination, the auditor shall immediately file an examination report with the Federal Supervisory Office, the Federal Banking Supervisory Office and the Deutsche Bundesbank. In so far as the examinations are conducted by cooperative auditing associations or auditing bodies of savings banks and giro associations, the auditing associations or auditing bodies shall be required to file the examination report only upon request of the Federal Supervisory Office, the Federal Banking Supervisory Office or the Deutsche Bundesbank.

(2) Before appointing an auditor, the investment services enterprise shall notify the Federal Supervisory Office of the auditor. The Federal Supervisory Office may require to appoint another auditor within a month after having received the notification if this is deemed necessary to achieve the purpose of the examination; objections to and actions to set aside this measure shall have no suspensory effect. The Federal Supervisory Office shall inform the Federal Banking Supervisory Office of its decision. Sentences 1 to 3 above shall not apply to credit institutions which are members of a cooperative auditing association or are audited by an auditing body of a savings banks or giro association.

(3) The Federal Supervisory Office may make provisions in respect of the investment services enterprise relating to the content of the examination which the auditor is required to observe. In particular, it may determine main points of emphasis of the examination. The auditor shall immediately inform the Federal Supervisory Office of any serious contraventions of the reporting requirements pursuant to Section 9 above or of the requirements set out in this Part. The Federal Supervisory Office may participate in the examinations. To this purpose, the Federal Supervisory Office shall be notified in time of the start of the examination.

(4) In individual cases, the Federal Supervisory Office may conduct the examination pursuant to paragraph (1) above itself or through a person commissioned by it instead of the auditor. The investment services enterprise shall be notified thereof in time.

(5) The Federal Ministry of Finance may, by ordinance not requiring the consent of the Bundesrat, issue more detailed provisions on the nature, scope and timing of the examination pursuant to paragraph (1) above, in so far as this is necessary for the performance of the functions of the Federal Supervisory Office, and especially to counteract undesirable developments in securities, money-market instruments and derivatives business, to ensure compliance with the notification requirements pursuant to Section 9 and with the requirements set out in this Part and to obtain consistent records for this purpose. The Federal Ministry of Finance may by ordinance delegate this authority to the Federal Supervisory Office.

Section 36a Enterprises domiciled in another Member State of the European Union or in another of the Contracting States to the Agreement on the European Economic Area

(1) Enterprises domiciled in another Member State of the European Union or in another of the Contracting States to the Agreement on the European Economic Area, which provides investment services alone or in connection with non-core investment services and which intends to establish a branch in Germany or to provide investment services and non-core investment services to customers having their habitual place of residence or registered office in Germany, shall be notified by the Federal Supervisory Office within the period specified in Section 53b paragraph (2) sentence 1 of the German Banking Act of the reporting requirements pursuant to Section 9 above and of the obligations set out in this Part.

(2) If the Federal Supervisory Office finds that an enterprise within the meaning of paragraph (1) above which has a branch in Germany or which provides investment services or non-core investment services to customers designated in paragraph (1) above fails to comply with the reporting requirements pursuant to Section 9 or with the obligations set out in this Part, it shall require the enterprise to comply with its obligations within a period of time to be specified by the Federal Supervisory Office. If the company fails to comply with the request, the Federal Supervisory Office shall inform the competent authorities of the home Member State. The Federal Supervisory Office shall inform the Federal Banking Supervisory Office if the home Member State fails to take any measures or if the measures prove to be insufficient.

Section 36b Advertising by investment services enterprises

(1) In order to avoid irregularities in respect of the advertising of investment services and non-core investment services, the Federal Supervisory Office may prohibit certain types of advertising.

(2) Before general measures pursuant to paragraph (1) above are taken, the head associations of the industry concerned shall be heard.

Section 36c Cooperation with competent authorities in other countries

(1) The Federal Supervisory Office shall communicate to the competent authorities of the other Member States of the European Union or the other Contracting States to the Agreement on the European Economic Area any information which these authorities require for the supervision of compliance with the rules of conduct according to the provisions in force in such other Member State or Contracting State. It shall make use of the powers specified in Section 35 paragraph (1) above, in so far as this is necessary to comply with requests for information from the competent authorities referred to in the first sentence of this paragraph.

(2) When information is communicated, the competent authorities within the meaning of the first sentence of paragraph (1) above shall be advised that, without prejudice to their obligations in judicial proceedings under criminal law concerned with contraventions of rules of conduct, they may use the information received solely to monitor compliance with the rules of conduct or in the context of administrative or judicial proceedings relating thereto.

(3) The Federal Supervisory Office, without prejudice to its obligations in judicial proceedings under criminal law concerned with contraventions of rules of conduct, may use information received from the competent authorities within the meaning of the first sentence of paragraph (1) above solely to monitor compliance with the rules of conduct or in the context of administrative or judicial proceedings relating thereto. The use of such information for other supervision purposes pursuant to the first sentence of Section 7 paragraph (2) or for related criminal prosecution matters or its forwarding to competent authorities of other countries for the purposes designated in the first sentence of this paragraph shall require the consent of the authority communicating the information.

(4) The Federal Supervisory Office may cooperate with the competent authorities of countries other than those referred to in the first sentence of paragraph (1) above to monitor compliance with the rules of conduct pursuant to Sections 31 and 32 and the respective rules of conduct of other countries and may communicate information to those authorities in accordance with Section 7 paragraph (2). The second sentence of paragraph (1) above shall be applied accordingly.

Section 37 Exceptions

(1) The provisions of Sections 31, 32 and 34 shall not apply to transactions concluded on a stock exchange between two investment services enterprises and resulting in stock exchange prices. Investment services enterprises which conclude on a stock exchange a transaction acting as commission agents shall to that extent be subject to the requirements pursuant to Section 34.

(2) The provisions of Section 33 shall not apply to an investment services enterprise which concludes solely the transactions referred to in the first sentence of paragraph (1).

(3) Section 33 paragraph (1) numbers 2. and 3. and paragraph (2) as well as Sections 34 and 34a shall not apply to branches of enterprises within the meaning of Section 53b paragraph (1) sentence 1 of the German Banking Act.

Section 37a Limitation of the right of action in respect of claims for compensation

The claim for compensation of a customer against an investment services enterprise for having failed to comply with the requirement to furnish information and for having given false advice in connection with an investment service or non-core investment service is subject to a period of limitation of three years as of the time when the claim arose.

Part 6 Provisions on offences and fines

Section 38

Provisions on offences

(1) Any person who

1. acquires or disposes of an insider security in contravention of a prohibition pursuant to Section 14 paragraph (1) number 1. or Section 14 paragraph (2);

2. discloses or makes available inside information in contravention of a prohibition pursuant to Section 14 paragraph (1) number 2., or

3. recommends the acquisition or disposal of an insider security in contravention of a prohibition pursuant to Section 14 paragraph (1) number 3.

shall be liable to imprisonment for a term not exceeding five years or to a fine.

(2) In the cases referred to in paragraph (1) above a foreign prohibition shall also be deemed a prohibition.

Section 39 Provisions on fines

(1) An administrative offence is committed by any person who wilfully or carelessly

1. in contravention of

a) Section 9 paragraph (1) sentences 1, 2 and 3, individually in conjunction with paragraph (2) and in conjunction with an ordinance pursuant to paragraph (3);

b) Section 15 paragraph (2), sentence 1;

c) Section 21 paragraph (1) sentence 1 or paragraph (1a), individually also in conjunction with Section 22 paragraph (1) or (2);

fails to make a report or notification, fails to do so within the prescribed period or makes such report or notification incorrectly, incompletely or not in the prescribed form;

2. in contravention of

a) Section 15 paragraph (1) sentence 1, in conjunction with paragraph (3) sentence 1, or

b) Section 25 paragraph (1) sentence 1, in conjunction with sentences 2 and 3, Section 25 paragraph (2) sentence 1 in conjunction with sentence 2 or Section 26 paragraph (1) sentence 1;

fails to make a notification, fails to do so within the prescribed period or makes such notification incorrectly, incompletely or not in the prescribed form;

3. effects publication in contravention of Section 15 paragraph (3) sentence 2;

4. (repealed)

5. fails to forward a publication or documentary evidence or fails to do so within the prescribed period in contravention of Section 15 paragraph (4) or Section 25 paragraph (3) sentence 1, also in conjunction with Section 26 paragraph (2);

6. fails to keep a record or keeps such record incorrectly or incompletely or fails to do so within the prescribed period in contravention of Section 16 paragraph (2) sentence 5 or Section 34 paragraph (1), also in conjunction with an ordinance pursuant to Section 34 paragraph 2 sentence 1;

7. informs the principals or the persons or undertakings benefiting or incurring a liability from the transactions in contravention of Section 16 paragraph (8);

8. fails to retain a record or fails to do so for a minimum period of six years in contravention of Section 34 paragraph (3) sentence 1;

9. fails to comply with a provision on separate asset management under Section 34a paragraph (1) or (2), individually also in conjunction with an ordinance pursuant to paragraph (3) sentence 1, or

10. fails to appoint an auditor or fails to do so within the prescribed period in contravention of Section 36 paragraph (1) sentence 2.

(2) An administrative offence is committed by any person who wilfully or negligently

1. fails to comply with an enforceable requirement pursuant to Section 15 paragraph (5) sentence 1, Section 16 paragraphs (2), (3) sentence 1, (4) or (5), Section 29 paragraph (1), also in conjunction with Section 30 paragraph (3) or Section 35 paragraph (1) sentence 1, also in conjunction with paragraph (4) sentence 1;

2. fails to permit entry in contravention of Section 15 paragraph (5) sentence 2, Section 16 paragraph (3) sentence 2, or Section 35 paragraph (1) sentence 3, or fails to consent to such entry in contravention of Section 16 paragraph (3) sentence 3, or

3. fails to comply with an enforceable requirement pursuant Section 36 paragraph (1).

(3) The administrative offence is punishable by a fine not exceeding three million Deutsche Mark in the cases referred to in paragraph 1 number 2. a) and number 3. above, by a fine not exceeding five hundred thousand Deutsche Mark in the cases referred to in paragraph (1) numbers 1. b) and c) above, by a fine not exceeding two hundred thousand Deutsche Mark in the cases referred to in paragraph (1) number 9. and paragraph (2) number 3. above, and by a fine not exceeding one hundred thousand Deutsche Mark in all other cases.

Section 40 Competent administrative authority

The administrative authority within the meaning of Section 36 paragraph (1) number 1 of the Law on Administrative Offences shall be the Federal Securities Supervisory Office.

Section 40a Information in criminal cases

(1) When taking public legal action the court, the prosecuting or the enforcement authority shall forward to the Federal Supervisory Office in the case of criminal proceedings instituted against the owners or managers of investment services enterprises or their legal representatives or personally liable partners because of criminal offences to the disadvantage of customers in respect of or in connection with operating the investment services enterprise, furthermore in criminal proceedings concerned with criminal offences pursuant to Section 38 above,

1. the indictment or a motion replacing it,

2. the application for an order imposing punishment and

3. the decision concluding the proceedings, including the statement of reasons;

if an appeal has been filed against the decision, such decision shall be forwarded indicating the appeal which has been filed. In the case of proceedings in respect of criminal offences that have been committed negligently the communications set out in numbers 1 and 2 above shall only be made if in the view of the authority making the communication immediate decisions or other measures of the Federal Supervisory Office are deemed necessary.

If in criminal proceedings other facts indicating irregularities in the business operations of an investment services enterprise become known and if in the view of the authority making the communication the knowledge thereof makes it necessary for the Federal Supervisory Office to take measures pursuant to this Act, the court, the prosecuting or the enforcement authority shall also communicate such facts, if it is not obvious to the authority making the communication that interests of the persons concerned which warrant protection prevail. In this case it must be taken into consideration to which extent the information to be communicated is secure.

Part 7 Transitional provisions

Section 41 Initial notification and disclosure requirement

(1) Enterprises within the meaning of Section 9 paragraph (1) sentence 1 which exist on 1 August 1997 and have not been subject to the notification requirement pursuant to Section 9 paragraph (1) above before this date, shall make notifications pursuant to this provision for the first time on 1 February 1998.

(2) Any person who, taking account of Section 22 paragraph (1), holds on 1 January 1995 five per cent or more of the voting rights of a listed company must notify the company and the Federal Supervisory Office in writing, stating his address, of the size of his percentage of the voting capital at the latest on the day of the company’s first general meeting held after 1 April 1995, in so far as a notification pursuant to Section 21 paragraph (1) has not already been made on that date.

(3) The company must publish any notifications pursuant to paragraph (2) above within one month after receipt pursuant to Section 25 paragraph (1) sentence 1 and paragraph (2) and must immediately send the Federal Supervisory Office documentary evidence of such publication.

(4) The provisions of Sections 23, 24, 25 paragraph (1) sentence 3, paragraph (3) sentence 2, paragraph (4) and Sections 27 to 30 shall apply accordingly to the obligations pursuant to paragraphs (2) and (3) above.

(5) An administrative offence is committed by any person who wilfully or carelessly

1. fails to make a notification, fails to do so within the prescribed period or makes such notification incorrectly, incompletely or not in the prescribed form in contravention of paragraph (2) above, or

2. fails to effect publication, fails to do so within the prescribed period, or effects such publication incorrectly, incompletely or not in the prescribed form, fails to forward documentary evidence or fails to do so within the prescribed period in contravention of paragraph (3) in conjunction with Section 25 paragraph (1) sentence 1 or paragraph (2) above.

(6) The administrative offence is punishable by a fine not exceeding five hundred thousand Deutsche Mark in the cases referred to in paragraph (5) number 1. above and by a fine not exceeding one hundred thousand Deutsche Mark in the cases referred to in paragraph (5) number 2. above.

Section 42 Transitional provision for the obligation to reimburse costs pursuant to Section 11

The parties obliged to reimburse the costs to the Federal Supervisory Office pursuant to Section 11 paragraph (1) sentence 1 of the Act of 26 July 1994 (Federal Law Gazette Part I p. 1749) may also prove the volume of the transactions in securities and derivatives for the time up until the end of 1996 and for the year 1997 on the basis of the number of transactions notified pursuant to Section 9 in 1996 and 1997 respectively.

Section 43 Transitional provision for the limitation of the right of action in respect of claims for compensation pursuant to section 37a

Section 37a shall not apply to claims for compensation against investment services enterprises for having failed to comply with the requirement to furnish information and for having given false advice in connection with an investment service or non-core investment service which came into existence before 1 April 1998.


Footnote

Section 11 WpHG in the old version of 26 July 1994 (Federal Law Gazette I p. 1749) reads as follows:

“(1) The costs of the Federal Supervisory Office shall be reimbursed to the Federation

1. in the amount of 75 per cent by credit institutions domiciled in Germany, branches of enterprises within the meaning of Section 53 paragraph (1) sentence 1 and Section 53 b paragraph (1) sentence 1 of the German Banking Act, or by enterprises which by virtue of a regulation pursuant to Section 53 c of the German Banking Act are subjected to or exempted from the provisions of that Act, provided that such credit institutions or branches are authorised to conduct securities business in Germany;

2. in the amount of 5 per cent by official exchange brokers, unofficial brokers and other enterprises admitted to stock exchange trading which do not come under the provisions of sub-paragraph 1. above;

3. in the amount of 10 per cent by issuers domiciled in Germany whose securities are admitted to trading on a German stock exchange or traded on the free market (Freiverkehr) with their consent.

In the case of sub-paragraphs 1. and 2. above, the costs shall be allocated in proportion to the volume of transactions in securities and derivatives. In the case of sub-paragraph 3. above, the costs shall be allocated to the issuers in proportion to the stock exchange turnover of their securities admitted to stock exchange trading or traded on the free market (Freiverkehr).

(2) The parties subject to the first sentence of paragraph (1) above and the German stock exchanges shall be obliged to furnish the Federal Supervisory Office on request with information on the volume of transactions and the stock exchange turnover. The claims for reimbursement of costs shall be enforced by the Federal Supervisory Office in accordance with the provisions of the Law on the Enforcement of Administrative Decisions.

(3) Details of the imposition of cost allocations pursuant to paragraph (1) above and of their enforcement shall be set out by the Federal Ministry of Finance in ordinances not requiring the consent of the Bundesrat; the Federal Ministry of Finance may stipulate minimum amounts in such ordinances. The Federal Ministry of Finance may by ordinance delegate this authority to the Federal Supervisory Office.

(4) The costs incurred by the Federation from the audit pursuant to Section 36 paragraph (1) shall be reimbursed separately by the enterprises concerned and shall be paid in advance if so requested by the Federal Supervisory Office.”


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