German Capital Markets Law

The Regulatory Architecture: WpHG and BaFin

German capital markets law is centred on the Wertpapierhandelsgesetz (WpHG), which transposes EU financial market directives including MiFID II (Directive 2014/65/EU) and the Market Abuse Regulation (Regulation 596/2014). The WpHG governs the conduct of investment firms, market transparency, insider trading prohibitions, and the supervision of securities markets. The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin), established in 2002 and headquartered in Bonn and Frankfurt, is the integrated financial regulator responsible for securities markets, credit institutions, and insurance undertakings. BaFin’s powers under the WpHG include the authority to conduct investigations, require information, suspend trading, issue cease-and-desist orders, and impose administrative fines of up to €15 million or 15 percent of annual turnover for serious violations. The Börsengesetz (BörsG) governs stock exchanges, of which the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) is the most significant, operated by Deutsche Börse AG. BaFin supervises exchanges, approves exchange rules, and appoints the Trading Surveillance Office (Handelsüberwachungsstelle), which monitors trading in real time and reports suspicious transactions.

Market Abuse Regulation and Ad-Hoc Disclosure

The EU Market Abuse Regulation (MAR, 596/2014) is directly applicable in Germany and complemented by the WpHG for matters left to member state discretion. MAR prohibits insider dealing (Article 14), unlawful disclosure of inside information (Article 14(c)), and market manipulation (Article 15). Inside information is defined under Article 7 MAR as precise information that has not been made public, relating to financial instruments, and which, if made public, would likely have a significant effect on prices — the reasonable investor test. The WpHG supplements MAR with detailed provisions on ad-hoc disclosure (Ad-hoc-Publizität): issuers whose financial instruments are admitted to trading on a regulated market must disclose any inside information that directly concerns the issuer as soon as possible (§ 26 WpHG). The BaFin maintains a list of all ad-hoc disclosures, and the BGH has held in numerous cases (including the Infomatec decision, BGHSt 48, 373) that delayed or incorrect ad-hoc disclosure can give rise to civil liability under § 37b WpHG. The issuer may delay disclosure under Article 17(4) MAR to protect legitimate interests, provided BaFin is notified and confidentiality is maintained. The managers’ transactions regime (Directors’ Dealings) under Art. 19 MAR requires persons discharging managerial responsibilities to notify the issuer and BaFin within three business days of any transaction in the issuer’s shares above €5,000 per calendar year.

Prospectus Regulation and the WpPG

The Wertpapierprospektgesetz (WpPG) implements the EU Prospectus Regulation (2017/1129) and governs the requirement to publish a prospectus when securities are offered to the public or admitted to trading on a regulated market. The WpPG applies to all securities other than those exempted (offers to qualified investors, offers below €8 million, offers to fewer than 150 persons). The prospectus must contain all information necessary for investors to make an informed assessment of the issuer’s assets, liabilities, financial position, profits and losses, and prospects — the essential information test. BaFin reviews and approves prospectuses and maintains the central electronic prospectus register (Elektronischer Bundesanzeiger). Liability for defective prospectuses under § 9 WpPG and general tort law (§ 823(2) BGB in conjunction with § 264a StGB — capital investment fraud) gives investors a right to claim damages for losses caused by misleading or omitted information. The BGH in the WpHG-Prospekthaftung decisions established that the burden of proof for prospectus defects lies initially with the investor, but once a material misstatement is shown, the issuer bears the burden of proving that the investor did not rely on the prospectus.

Takeover Law: The WpÜG

The Wertpapiererwerbs- und Übernahmegesetz (WpÜG) governs public takeovers of German listed companies and implements the EU Takeover Directive (2004/25/EC). The WpÜG establishes the mandatory offer rule (§ 35): any person who acquires control — defined as holding 30 percent or more of the voting rights in a target company — must make a public takeover offer to all shareholders at a consideration no less than the highest price paid by the offeror in the preceding three months (the best price rule). The target company’s board must maintain neutrality (Neutralitätspflicht, § 33 WpÜG): the board may not take actions that could frustrate the bid without shareholder approval. BaFin supervises takeovers, reviews the offer document, and may prohibit the offer if it violates the WpÜG. The Bundeskartellamt (Federal Cartel Office) also reviews takeovers for competition law issues under the Gesetz gegen Wettbewerbsbeschränkungen (GWB). Defensive measures require prior authorisation by the supervisory board (Aufsichtsrat) or the general meeting, and the poison pill (awarding options or selling crown jewels) is effectively prohibited during the offer period. The Volkswagen case (BVerfGE 134, 242) confirmed the constitutionality of the WpÜG, though the VW Act’s special provisions on state holdings were found to violate EU free movement of capital.

Investment Firm Regulation

The regulation of investment firms under the WpHG reflects the MiFID II framework’s three-tier approach: organisational requirements (including risk management, compliance, and internal controls under §§ 80–83 WpHG), conduct of business rules (including suitability and appropriateness assessments, best execution, client categorisation, and inducements under §§ 63–70 WpHG), and transparency requirements (including pre-trade and post-trade transparency for non-equity instruments). The Kreditwesengesetz (KWG) governs the authorisation of credit institutions, while the Zahlungsdiensteaufsichtsgesetz (ZAG) regulates payment services. The Finanzkonglomerateaufsichtsgesetz (FKAG) provides supplementary supervision of financial conglomerates. Investment firms must hold capital in accordance with the Capital Requirements Regulation (575/2013) and the Solvabilitätsverordnung (SolvV), and the Mindestanforderungen an Risikomanagement (MaRisk) prescribe detailed risk management standards. BaFin’s supervision is supplemented by the European Securities and Markets Authority (ESMA), which coordinates national regulators under the European System of Financial Supervision. The Finanzanlagenvermittlungsverordnung (FinVermV) regulates independent financial advisers and imposes additional disclosure and qualification requirements.