German Exchange Law

German Exchange Law

German Legislation and European Harmonization

With the foundation of the German Empire (Deutsches Reich) came the
fulfillment of the constitutional requirements, with the abandonment of liberal
views the political requirements, and with the bad outcomes of the former
regulatory approaches the legislative requirements to create an Exchange Act:
the Börsengesetz (1896).

Creation of the German Exchange Act

The Exchange Act follows one of the most thorough legislative preparations
in the history of German commercial law: the work of the Exchange
Commission (Börsen-Enquete-Kommission).

The public took great interest in the work of the Commission, and none other than Max Weber (1864-1920),
who later became a celebrated sociologist and political economist, discussed
the Exchange Commission’s main results at great length in a series of articles
(1895/1896).142 The Exchange Act that was finally enacted, though, made
little use of the opportunities that the long deliberations of the Commission
had offered, mainly due to the careless preparation of the first draft and the
many conflicts that occurred in the legislative process.

It is therefore not without justification that Arthur Nußbaum (1877-1964), the legendary commercial
lawyer,144 wrote in his influential commentary on the Exchange Act
that the Act was “in formal respects . . . to such an extent failed as perhaps no
other of the newer federal laws” (1910).

Julius von Gierke (1875-1960) considered the Act a “total monstrosity” even decades later (1958). After all, the Exchange Act is at least properly labeled: The Act consists
almost completely of provisions that are stock exchange law in the technical
sense.147 Its focus is on the exchange as an institution and the direct users of
the exchange—that is, brokers and dealers as well as issuers. Investor protection
is only a secondary objective; the first goal is to strengthen the functioning
of the exchange and of the trading process. This already becomes perceptible
just from the titles of the Act’s six sections: (I) General Provisions on
Exchanges and Their Organs (sections 1-28); (II) Price Fixing and BrokerDealer
Activities (sections 29-35); (III) Admission of Securities to Trading
(sections 36-47); (IV) Derivatives Trading (sections 48-69); (V) Brokerage
Services (sections 70-74); and (VI) Criminal Sanctions and Final Provisions
(sections 75-82).

Evolution of the Exchange Act

Since its adoption, the Exchange Act has been amended roughly thirty
times.148 This is a higher rate of change than in many other fields of law, but
lower, for instance, than for the German stock corporation (Aktiengesellschaft),
whose code, the Aktiengesetz, has been changed some seventy times within the
last five decades.149 The legislature twice completely repealed the Exchange
Act and replaced it with a new Exchange Act: the first time with the Fourth
Financial Market Promotion Act (2002), the second time with the MiFID
Implementation Act (2007). In addition, the text of the Exchange Act has
been newly promulgated four times (1908, 1961, 1996, 1998). Over all, the Exchange Act has been published seven times in its entirety in the Official Journal, a rarity in German business and commercial law.

All changes and amendments pose a number of questions that could be
discussed under the general heading “exchange regulation and legislation”:
What were the causes and reasons to enact certain rules? Who were the people
who drafted the bills? What were their sources of knowledge? What influence
did the parliamentary process have? What were the fundamental factors
that shaped the law? Questions of this type require a thorough investigation
into the parliamentary proceedings and the governmental archives, a task too
broad for this article. But it is good to have these questions in mind for the
survey of the main amendments in the following subsection.

A factor that has become increasingly important in the evolution of
German stock exchange law is the harmonization on the European level. In
the broader area of securities law, European legal harmonization is already
well advanced for many regulatory issues. There is almost no securities law in
Germany that is not based on or at least influenced by European law.158 Exchange
law belongs to the few exceptions because only some regulatory aspects
are governed by European law.159 Therefore, the survey in the following
subsection will reveal a mix of reforms, some of which were prompted by
European requirements and others by purely national motives.

Main Amendments to the Exchange Act

In the nearly twelve decades since the enactment of the German Exchange
Act (1896), the world as such and the exchanges in particular have
witnessed major changes in the economic, social, and political environment. It
is no surprise, then, that the German Exchange Act has been subject to
changes, too. The following overview presents the most important amendments:

Reform of 1908

The reform of 1908 overhauled, most notably, the
law of derivatives trading after the original concept had proved to be a complete

Although the economic and political crises of the decades following the
1908 reform (including the two world wars) led to a great number of individual
measures, the Exchange Act and its regulatory approach remained largely
unchanged. This is probably not a testament to the quality of the revised Act
and the isolated interventions on the financial markets, but rather an indication
of the fact that the Act’s content mattered little in the context of the
problems that the exchanges and their surroundings faced in that period.

Exchange Listing Act of 1986

The first fundamental revision of the Exchange Act brought the Exchange Listing Act of 1986. The Act had two
objectives: First, it implemented into German law the requirements of the
Listing Directive (1979), the Prospectus Directive (1980),163 and the Interim
Report Directive (1982). Second, the Act introduced a new market segment
(Geregelter Markt) to facilitate the access of small businesses to the capital markets.
This reform also brought an Exchange Admission Regulation (Börsenzulassungs-Verordnung)
into force that specifies the requirements of the Exchange
Act for the admission of securities to exchange trading.

Reform of 1989

The most important change that came with the reform of 1989 was the introduction of the “derivatives trading capacity by virtue of information” (Termingeschäftsfähigkeit kraft Information). In addition, the Exchange Act was brought in line with changes in daily life, specifically the
ongoing automation and the increase in cross-border trading. Last but not
least, European law again demanded some changes to meet the requirements
of the amendments to the Prospectus Directive (1987).

Second Financial Market Promotion Act of 1994

The Second Financial Market Promotion Act of 1994 established a central act for the regulation of
the capital markets, the Securities Trading Act (Wertpapierhandelsgesetz),
and a national regulatory authority, the Federal Supervisory Office for Securities
Trading (Bundesaufsichtsamt für den Wertpapierhandel), now the Federal Financial
Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht).

The Second Financial Market Promotion Act implemented the Transparency Directive
(1988)171 and the Insider Trading Directive (1989).172 A decade ago,
the Transparency Directive and the three Directives mentioned at the beginning
(of 1979, 1980, and 1982) were consolidated in a new directive (2001)
that, in turn, has been overhauled in the meantime (2004). The Insider
Trading Directive has been replaced by the Market Abuse Directive (2003).

The creation of a Securities Trading Act and a regulatory agency on the
federal level had a major impact on the relevance of the Exchange Act and its
application by the states in which the exchanges are located. It is true that the Exchange Act was never supposed to settle all questions arising in the context of stock exchanges in one single codification. Therefore, policymakers had no reservations about removing regulatory matters from the Exchange Act as
early as eleven months after its adoption.176 The Second Financial Market
Promotion Act of 1994, though, was a major blow to the Exchange Act’s
weight when it implemented the new European requirements by virtue of the
newly created Securities Trading Act and not as part of the already existing
Exchange Act. Admittedly, the Second Financial Market Promotion Act also
added regulatory issues to the Exchange Act, such as the establishment of a
market surveillance unit at the exchanges. But at the same time, it transferred
important matters from the Exchange Act to the Securities Trading Act, for
instance concerning the duties to immediately disclose relevant new information
to the public (Ad hoc-Publizität).

Third Financial Market Promotion Act of 1998

The Third Financial Market Promotion Act of 1998 provided for a revision of the prospectus regime,
among other matters.

Fourth Financial Market Promotion Act of 2002

As already mentioned,
the Fourth Financial Market Promotion Act of 2002 replaced the old Exchange
Act of 1896 with a revised new version. The most visible change in
the regime was the abolition of the official exchange brokers (amtliche
Kursmakler). The law of derivative trading was once again put on a new conceptual
basis and, on this occasion, transferred to the Securities Trading Act.
A remarkable oddity was the regulation of alternative trading systems within
the Exchange Act.

MiFID Implementation Act of 2007

The last fundamental reform came with the MiFID Implementation Act of 2007; this Act led, once again, to a
new Exchange Act that replaced the one of 2002. The most striking changes
are the unification of the formerly two market segments at the exchanges and,
in the Securities Trading Act, the revision of the rules for alternative trading

Authors: Andreas M. Fleckner, Klaus J. Hopt

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