On September 5, the German Federal Government published a proposal relating to a draft law implementing Regulation (EU) 2019/834 (EMIR REFIT), which also clarifies the licensing requirements for non-EU firms (which would include UK firms after Brexit) that conduct cross-border proprietary trading with German counterparties or on German trading venues.

The proposal provides for an “Own Account Exemption”, which will be available to non-EU firms trading on own account in Germany in financial instruments other than commodity derivatives, emission allowances or derivatives thereof. In order to benefit from such exemption, relevant firms must not be market makers have direct electronic access to a German trading venue, apply a high frequency algorithmic trading technique (when dealing on German trading venues) or deal on own account when executing client orders.

The exemption therefore formalizes the so-called “inter-dealer” exemption, whereby transactions in financial instruments with counterparties or persons in Germany do not trigger licensing requirements as long as both parties are trading on own account without executing client orders.

It also provides potential relief for post-Brexit UK and other non-EU firms that trade for own account, while acting as members or participants of German exchanges (e.g. Eurex), as long as the other requirements of the Own Account Exemption are still met.

The Own Account Exemption will be available for a firm in a given jurisdiction until the European Securities and Markets Authority (ESMA) issues an equivalence decision in respect of such jurisdiction and records the firm in its related third country firm register pursuant to Articles 46 to 48 of the Markets in Financial Instruments Regulation.

The proposed law is expected to become effective in early 2020. It is also expected that, should the UK leave the EU without a deal before the proposal becomes effective, the German regulator, BaFin, would apply the draft law in anticipation of its effectiveness.

The proposal (in German) is available here.