Europe: Germany

A development affecting all of the EU jurisdictions is the coming into effect of the EU Regulation 596/2014 on insider dealing and market manipulation (the Market Abuse Regulation or MAR) on 3 July. MAR broadens the scope of the European civil market abuse regime to cover a wider range of financial instruments and trading venues, introduces procedures for market soundings and introduces a minimum set of investigatory and sanctioning powers for national regulators.

Many items in the Europe sections relate to MAR or implementation of the related EU Directive no. 2014/57 on criminal sanctions (CSMAD). We have described the key features of MAR and CSMAD in more detail in previous issues of this newsletter (see Autumn 2013 and Winter 2013), so will not repeat that in this issue.

Implementation of MAR and CSMAD in Germany

The Market Abuse Regulation (MAR) is directly applicable to all EU member states. However, some rules concerning the supervisory and sanctioning powers of the Federal Financial Supervisory Authority (BaFin) and all provisions for criminal offences (based on Directive 2014/57/EU on criminal sanctions regarding market abuse (CSMAD)) were transposed into national law. This transition has been facilitated by amendments to the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG). The amended WpHG rules also apply from 3 July 2016.

There are two other changes to German law:

  • the new European market abuse laws apply to the Open Market segment of the Frankfurt Stock Exchange (Freiverkehr); and
  • the amended WpHG significantly increases administrative fines and criminal penalties for market abuse.

German market abuse law is extended to the Open Market

Until 3 July 2016, the Open Market segment of the Frankfurt Stock Exchange (Freiverkehr) was only partially governed by German market abuse laws, prohibiting insider trading and market manipulation.

This changed on 3 July 2016 in relation to reporting and transmission requirements, for example for inside information, insider lists and transactions by persons discharging managerial responsibility. From 3 July these requirements apply to issuers whose financial instruments are traded in the Open Market segment of the Frankfurt Stock Exchange (Freiverkehr) alone, if the financial instruments are admitted to trading on or included in the Open Market or an application has been made.

Criminal and administrative penalties increase under German law

Administrative fines imposed under the WpHG will significantly increase from 3 July 2016, when the WpHG is amended to transpose CSMAD into German law.

Not only primary insiders but also secondary insiders will now be subject to criminal penalties for all forms of insider trading. Attempted (as well as actual) market manipulation will also be a criminal offence.

This table provides an overview of the changes.

WpHG
(currently
in force)

Administrative Fines

Criminal Sanctions

MAR / WpHG
3 July 2016

CRIM-MAD

Legal Person

Natural Person

WpHG
3 July 2016

Insider dealing

Up to
EUR 200.000
Imprisonment of up to 5 years2

Up to the higher of EUR 15 million and 15 per cent of the total turnover

Up to
EUR 5 million

Imprisonment of up to 4 years or fine

Imprisonment of up to
5 years or fine

Unlawful disclosure of
inside information

Up to
EUR 200.000
Imprisonment of up to 5 years

Up to the higher of EUR 15 million and 15 per cent of the total turnover1

Up to
EUR 5 million

Imprisonment of up to 2 years or fine

Imprisonment of up to 5 years or fine2

Market Manipulation

Up to
EUR 1 million
Imprisonment of up to 5 years

Up to the higher of EUR 15 million and 15 per cent of the total annual turnover1

Up to
EUR 5 million

Imprisonment of up to 4 years or fine 2

Imprisonment of up to 5 years or fine 2
In qualified cases imprisonment of not less than 1 year and up to 10 years

Failure to publicly disclose
Inside Information

Up to
EUR 1 million

Up to the higher of EUR 2.5 million and 2 per cent of the total annual turnover1

Up to
EUR 1 million

Breach of insider list requirements

Up to
EUR 50.000

Up to
EUR 1 million

Up to
EUR 500.000

Breach of
directors’
dealings requirements

Up to
EUR 100.000

Up to
EUR 1 million

Up to
EUR 500.000

In addition, those committing market abuse face administrative penalties of up to three times the economic benefit (an estimate of gains realised and losses avoided).