GERMANY: Entering into force of new measures on Germany short selling

Monday August 2 2010

On 27 July 2010, the Act on the Prevention of Improper Securities and Derivatives Transactions entered into force, which regulates Germany short selling. In general, naked Germany short-selling transactions in shares and certain debt securities as well as certain naked credit derivatives are no longer permitted. Exemptions apply to investment services enterprises engaging in such transactions as market makers, lead brokers, designated sponsors or in comparable functions; however, the investment services enterprises are required to report this activity to BaFin, providing details of all financial instruments concerned.

As a result of the entering into force of the Act, with effect from 27 July 2010, the Federal Financial Supervisory Authority (BaFin) revokes its General Decrees of 18 May 2010 banning short-selling transactions in certain shares, naked short-selling transactions in debt securities issued by EU Member States whose legal currency is the euro as well as Credit Default Swaps (CDS) to the extent that at least one reference liability is a liability of a euro zone country and to the extent that they do not serve as hedging instruments against credit default risks (naked CDS). This is due to the entering into force of the Act on the Prevention of Improper Securities and Derivatives Transactions on 27 July 2010 which contains prohibitory regulations in this regard.

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