Background

By decree dated 21 September 2008, the German Federal Financial Supervisory Authority (BaFin) banned short sales in certain German banks and insurance companies. The BaFin extended the ban several times; however, it expired on 31 January 2010. The ban only prohibited uncovered (naked) short sales of shares. Investors could therefore still hold economic short positions, for instance by investing in put options, contract for differences or other derivative instruments.

Notification requirement as of 25 March 2010

By decree dated 4 March 2010, the BAFin introduced a notification requirement for economic net short positions above 0.2% of the issued shares in one of the following German banks and insurance companies:

  • Aareal Bank AG
  • Allianz SE
  • Generali Deutschland Holding AG
  • Commerzbank AG
  • Deutsche Bank AG
  • Deutsche Börse AG
  • Deutsche Postbank AG
  • Hannover Rückversicherung AG
  • MLP AG
  • Münchener Rückversicherungs-Gesellschaft AG

Thresholds

Notifications to the BAFin need to be made for economic net short-selling positions which reach, exceed or fall below 0.2 % and any further 0.1 % (e.g. 0.3 %, 0.4 %, 0.5 %, 0.6 % etc.).

If the economic net short-selling positions reach, exceed or fall below a threshold of 0.5 % or above, the notifications have to be published in anonymous form. Although the decree provides that such publication needs to be made by the holder, in practice, the notification is published by the BaFin on its website.

Economic net short positions

Unlike the previous ban of the BAFin, the notification requirement captures not only naked short sales but the aggregate net sum of all positions held in a company through any financial instruments. An economic net short position is held when a netting of all financial instruments results in an aggregate economic interest in a company’s shares corresponding to a short-selling position in such company’s shares.

Notification period and form of notifications

The holder has to file the notification by the end of the next trading day. The notifications have to be made on the form available at the BaFin-website.

Entry into force - Notification of existing positions

The decree enters into force on 25 March 2010. As of 25 March 2010 existing economic short positions are subject to the notification requirements; i.e. existing positions are not exempted from the decree.

Exemptions

There is an exemption available for market makers. The BAFin clarified that this is the only exemption available to investors.

Who has to file the notification - Aggregation of short positions?

The “holder” of the economic net short position has to file the notification. The holder of the net short-selling position is the individual or legal person or fund that holds the netted financial instruments. As regards funds, the notification has to be made by the respective investment management company.

In contrast to the notification requirements for voting rights in listed companies pursuant to Section 21 et seq. of the German Securities Trading Act (WpHG), there is no attribution and aggregation at the level of the parent company or the level of the investment management company. If a group of companies holds, in aggregate, an economic net short position that exceeds one of the thresholds, then no notification needs to be made by the ultimate parent of such group. Only if the holdings of an individual company of the group exceed a threshold such company then has to file a notification. The same applies in regard to investment funds, even of the contractual type – the economic net short position needs to be calculated for each fund; the positions held in different funds are not netted or aggregated at the level of the investment management company.

What should you do before 25 March 2010?

  • Review your net economic short position in the companies subject to the decree.
  • Implement a process that constantly monitors the net economic short position in the companies subject to the decree.
  • Familiarise yourself with the notification process and the formalities.