Announcement of 2nd FiMaNoG in the Federal Law Gazette
On 3 January 2018, most parts of the 2nd Act on the Amendment of Financial Markets(Finanzmarktnovellierungsgesetz, “FiMaNoG”) will come into force in Germany. It will implement most of the provisions of the Markets in Financial Instruments Directive II ("MiFID II") and the Markets in Financial Instruments Regulation ("MiFIR").
Key Aspects of 2nd FiMaNoG
The key aspects of the 2nd FiMaNoG will be the implementation of MiFID II and the adjustment of German law to MiFIR. MiFIR is a regulation and, as such, is directly applicable law in Germany. However, if there are any already existing German laws conflicting with the provisions set out in MiFIR, the German law has to be adapted to this regulation.
Changes of the German Securities Trading Act and the German Banking Act
Due to the 2nd FiMaNoG, adjustments have been made to the German Securities Trading Act (Wertpapierhandelsgesetz, "WpHG") and the German Banking Act (Kreditwesengesetz, "KWG"). The sections of the Securities Trading Act will be expanded remarkably. The Act will have a completely new system.
Other laws will be amended in light of the new legal requirements as well, including, inter alia, the Stock Exchange Act (Börsengesetz, "BörsG").
Additional type of trading facility: three instead of two
In future, there will be three kinds regulated trading facilities (previously there were only two types). In addition to the existing two trading facilities, the regulated markets and the multilateral trading systems ("MTF"), there will be so-called organized trading facilities ("OTF"). The key distinction between an MTF and an OFT is that the operator of an OTF has the right to use discretion. The operator may, at his own discretion, decide whether to match two orders and, if he decides to do so, he still has the right to decide whether he matches the orders in full or just partly. An OTF will be subject to the regulations pursuant to the KWG, which means that an OTF will also be subject to licensing and prudential duties as to organization and procedure, similar to an MTF.
An additional substantial change will occur for Data Provision Services. Data Provision Services are divided into three categories:
Consolidated Tape Provider – CTP's: Provider of consolidated data-ticker;
Approved Publication Arrangements – APA's: releasing information regarding transactions by investment companies and ensuring the post-trade-transparency of such investment companies;
Approved Reporting Mechanisms – ARM's: approved reporting mechanisms.
The provider of these services will also be subject to license requirements according to KWG and will therefore also be subject to respective additional regulations pursuant to KWG.
High-Frequency Trading Firms
Only small adjustments have been made in German law to meet European regulations regarding high-frequency trading firms, since such rules are already regulated in the German High Frequency Trading Act.
The supervision will be extended to so-called commodity derivatives. The purpose of the respective provisions is to limit and control the positions in commodity derivatives in order to ensure a stable commodity market. Determined position limits are controlled by the trading centers. These trading centers are required to convey the positions in commodity derivatives on a daily basis to each responsible authority.
Duties of Good Conduct and Organisational Duties
The duties of good conduct and organizational duties are revised and moved from part 6 to part 11 of the WpHG. The aim is to tighten the duties of the financial services institutions with respect towards their clients. In particular the information and transparency duties will be more specific.
Besides that, the question for when an inducement might improve the quality of the service for the client will be adjusted. The detailed provisions with respect of inducements are subject to the so-called German Regulation regarding securities-related services, behavioural and organizational duties (Wertpapierdienstleistungs-Verhaltens- und Organisationsverordnung, „WpDVerOV“).
A product control duty has to be implemented into the product development process. This means that the issuer of a product has to determine the client target market before he issues a product. In addition, an internal product release process has to be adopted by the financial investment undertakings for new financial instruments.
In cases of infringements of the duties resulting out of the WpHG or the KWG, fines will be higher and also might be orientated towards the total annuall turnover of the respective company. Decisions by the competent authorities might be published.
The implementation of MiFID II and MiFIR according to the 2nd FiMaNoG implies significant changes for financial services companies, as well as for the issuers of financial instruments. We highly recommend the possibly affected companies should seek legal advice with regard to the implementation of the 2nd FIMaNoG and the accompanied changes of the respective laws.