New German draft regulations on Cross-border Own Account Trading

On 05 September 2019, the German Federal Government passed a draft Act on the introduction of special regulation on the recovery and resolution of CCPs (the Act).

The Act also comprises clarifications on the licence requirements regarding entities domiciled outside the EEA conducting cross-border proprietary trading with counterparties or on trading venues in Germany.

It should be noted the that the understanding of the term for proprietary trading (Eigengeschäft), as defined in the German Banking Act, is narrow. In contrast to trading on own account for others (Eigenhandel), proprietary trading may not be triggered or motivated by services provided to clients (eg back-to-back client-related trades on a German trading venue would not, therefore, be allowed).

The clarification relates in particular to two scenarios:

• transactions in financial instruments with counterparties or persons in Germany do not trigger licensing requirements provided that these transactions constitute proprietary trading (Eigengeschäft). So-called 'inter-dealer transactions' do not trigger licensing requirements as soon as the law comes into force

• transactions on own account in financial instruments on German trading venues which are entered into by an undertaking domiciled in a non-EEA state as a member of an exchange or participant of a venue will not be subject to licensing requirements until ESMA issues a decision pursuant to Article 48 of MiFIR. The trading must again qualify as 'proprietary trading' and may not be carried out in the context of a service provided to a client

Furthermore, it is worth mentioning that the new provision does not apply to high-frequency trading. It would, however, capture algorithmic trading.

The new exemption is likely to come into force begin of next year. It is worth though pointing out that the new provision is regarded as clarification of the MiFID regime and not as reaction to the current Brexit discussion. However, it is also clarified in the reasoning that in case the UK should leave on a no-deal basis BaFin will apply the above-mentioned regime already as of the Brexit date.