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The German Approach

- Prevention of Market Abuse after Implementation of the European Market Abuse Directive -. The German Approach. Three Parts. Law on market abuse, especially insider dealing Investigation executed by the BaFin System of sanctions. European Market Abuse Directive.

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The German Approach

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  1. - Prevention of Market Abuse after Implementation of the European Market Abuse Directive - The German Approach Prevention of Market Abuse in Germany | 13.10.2014 | Seite 1

  2. Three Parts • Law on market abuse, especially insider dealing • Investigation executed by the BaFin • System of sanctions Prevention of Market Abuse in Germany | 13.10.2014 | Seite 2

  3. European Market Abuse Directive • Germany implemented the Market Abuse Directive by enancting the „Act on the Improvement of Investor Protection“ (Anlegerschutzverbesserungsgesetz – AnSVG) on 30th October 2004. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 3

  4. Insider surveillance / market manipulation • Part 3 Insider surveillance • - Section 12 Insider securities • - Section 13 Inside information • - Section 14 Prohibition of insider dealing • Part 4 Monitoring of compliance with the prohibition against stock exchange and market price manipulation • - Section 20a Prohibition against market manipulation Prevention of Market Abuse in Germany | 13.10.2014 | Seite 4

  5. Section 12 Insider Securities • (1) Insider securities are financial instruments • 1. admitted to trading on a German stock exchange or included on the regulated market (Geregelter Markt) or the regulated unofficial market (Freiverkehr); • 2. admitted to trading on an organised market in another member state of the European Union or signatory to the Agreement on the European Economic Area and • 3. the prices of which depend directly or indirectly on financial instruments within the meaning of nos. 1 or 2. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 5

  6. Section 13 – Inside information • Inside information is any specific information …, which, if it became publicly known, would likely have a significant effect on the stock exchange … price of the insider security. • Such a likelihood is deemed to exist if a knowledgeable investor would take the information into account for investment decisions. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 6

  7. specific Information • „precise Information“ • = any Information which enables a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of financial instruments. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 7

  8. would likely have • The knowledgeable investor has to give a Prognosis on the development of the price of the insider security. • The Prognosis has to be made in the very moment the Insider orders, on the same Information level the Insider has at this point of time. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 8

  9. significant effect • = if the deal appears profitable in the eyes of the knowledgeable investor. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 9

  10. Section 14 – Prohibition of insider dealing • It is prohibited, • to make use of inside information to acquire or dispose of insider securities for own account … Prevention of Market Abuse in Germany | 13.10.2014 | Seite 10

  11. to make use of • = trading with knowledge of inside information. The inside information has to „flow in“ to the decision. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 11

  12. Investigation executed by the BaFin • Part 2 Federal Financial Supervisory Authority • - Section 4 Functions and powers • Part 12 Regualtions regarding criminal penalties and administrative fines • - Section 40a Involvement of the Supervisory Authority and information in criminal cases Prevention of Market Abuse in Germany | 13.10.2014 | Seite 12

  13. Section 4 – Functions and powers • (3) … may require the provision of information, submission of documentation and surrender of copies from anyone, as well as summon and question persons, to the extent that these measures are necessary … • (4) … employees of the Supervisory Authority … shall be permitted to enter the property and business premises … • (5) … must immediately report facts giving rise to suspicion of a criminal offence … to the competent public prosecutor`s office. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 13

  14. Section 40a – Involvement of the Supervisory Authority and information in criminal cases • … If experts are required for these investigative proceedings, competent staff members of the Supervisory Authority may be called upon… • (3) The Supervisory Authority shall be granted access to the files at its request … Prevention of Market Abuse in Germany | 13.10.2014 | Seite 14

  15. System of sanctions • Section 38 – Provisions on criminal penalties • Section 39 – Provisions on administrative fines Prevention of Market Abuse in Germany | 13.10.2014 | Seite 15

  16. Section 38 – Provisions on criminal penalties • Any person who • 1. acquires or disposes … in contravention of a prohibition 2. a.-c. limited group of insiders • who disclose or make available • who recommend or influence • shall be liable to imprisonment for a term not exceeding five years or to a criminal fine • (3) …(acquires or disposes)… the attempt is punishable • (4) …(acquires or disposes)… is committed through negligence, the punishment shall be a term of imprisonment not exceeding one year or a criminal fine. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 16

  17. Section 39 – Provisions on administrative fines • (2) An administrative offence is committed by any person who willfully or negligently, • 3. discloses or makes available • 4. recommends, disposes, or otherwise influence • (4) The administrative offence is punishable by a fine … not exceeding 200.000,- € … Prevention of Market Abuse in Germany | 13.10.2014 | Seite 17

  18. Section 38 – Provisions on criminal penalties • (2) Any person who commits intentional tort … and thereby exerts an influence on the domestic stock exchange or market price of a financial instrument … shall also be subject to punishment Prevention of Market Abuse in Germany | 13.10.2014 | Seite 18

  19. Section 39 – Provisions on administrative fines • (1) An administrative offence is deemed to be committed by a person who • 1. in contravention of Section 20a … enters into a transaction or issues a buy or sell order; • 2. in contravention of Section 20a … carries out an action aimed at deception; • 11. in contravention of section 20a … makes statements or withholds information; • (4) The administrative offence is punishable … in the cases referred to in nos. 1, 2, by a fine not exceeding 1 Mio. € … in the cases referred to in no. 11, by a fine not exceeding 200.000,- €. Prevention of Market Abuse in Germany | 13.10.2014 | Seite 19

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