BaFin Guidance Notice on Notification of Market Making and Primary Market Operations under Article 17 of the EU Short Selling Regulation

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Guidance Notice regarding the form of notification of market making activities and primary market operations under Article 17 of Regulation ( EU ) No 236/2012 with effect from 2 September 2012

Business sign: WA 25-Wp 5700-2012/0006

31.08.2012 | modified on: 15.08.2013

Regulation (
EU
) No 236/2012 of the European Parliament and of the Council on short selling and certain aspects of credit default swaps ( EU Short Selling Regulation) has been applicable since 1 November 2012. 1) .

Article 17 of the
EU
Short Selling Regulation provides for an exemption for market making activities and primary market operations from the restrictions on uncovered short sales and the transparency requirements regarding net short positions. The relevant entities must notify the competent authority (see Section A.II. below) of their activity and may in principle avail themselves of the exemption 30 calendar days after receipt of the correct and complete notification, unless the competent authority objects within this period (on the shortening of this period, see Section A.V.).

The notification procedure does not lead to a licence being granted by the competent authority. However, the competent authority may prohibit use of the exemption at any time, either during the 30-day period of the notification process or subsequently if changes have occurred as a result of which the conditions of the exemption regime are no longer satisfied. This may be due to an assessment carried out by BaFin on its own initiative or to a later notification given by the notifying entity, pursuant to Article 17(9) or (10) of the EU Short Selling Regulation, in which these changes are notified.

On 2 April 2013 the European Securities and Markets Authority ( ESMA ) published guidelines (the ESMA Guidelines) on the exemption pursuant to Article 17 of the EU Short Selling Regulation 2) Regarding the ESMA Guidelines, BaFin informed ESMA in June 2013 that it intends to comply with the guidelines except for the provisions regarding the requirement of membership at each of the trading venues where the respective financial instruments are traded as well as the requirements for reportable financial instruments other than shares, sovereign debt and sovereign credit default swaps (“Partial Compliance”). 3 ) Below you will find information on who falls under the scope of the exemption and how utilisation of the exemption is to be notified which takes account of the ESMA Guidelines published on 2 April 2013 and BaFin’s “Partial Compliance Declaration” in the updated version of the Guidance Notice of 31 August 2012.

Up to 24:00 on 14 August 2013 market makers and primary dealers must submit notifications in accordance with the existing rules of the Guidance Notice in the version of 31 August 2012, using the forms appended thereto.

From 00:00 on 15 August 2013 market makers and primary dealers must submit notifications in accordance with the rules of this updated Guidance Notice, using the new forms appended hereto.

Obligation to renew notifications of financial instruments already notified

There is no grandfathering clause for previous notifications given under national law – i.e. under the German rules governing the notification of market maker activities pursuant to section 30h (2) sentence 3 (previous version), section 30j (3) sentence 1 (previous version) and section 30i (4) sentence 2 (previous version) of the German Securities Trading Act (Wertpapier¬handels¬gesetz –WpHG) in conjunction with the provisions of the German Short Selling Notification Regulation (Leerverkaufs-Anzeigen¬verordnung – LAnzV ). Nor is there any grandfathering clause for market making activity and primary market operations notifications already given under Article 17(1) of the EU Short Selling Regulation since 2 September 2012. 4) In he implementation of the transitional measures prescribed by the ESMA Guidelines, the notifications of intent given on the basis of the version of the Guidance Notice of 31 August 2012 (which was in turn based on one of the first drafts of the ESMA Guidelines for market making activities and primary market operations) are to be examined to determine whether they meet the requirements of the ESMA Guidelines published on 2 April 2013 to the extent that BaFin has announced the implementation of the ESMA Guidelines and whether they will have to be notified again in aggregate in a new notification of intent. Nevertheless, for financial instruments that have already been notified under Article 17 of the EU Short Selling Regulation, the exemption may be used without awaiting expiry of the 30-day period again:

if the financial instruments that have already been notified and the activity that has already been notified in accordance with the current version of the ESMA Guidelines to the extent that BaFin has announced the implementation are eligible for exemption; and provided that up to 31 August 2013 all financial instruments notified by 14 August 2013 in accordance with the rules of the previous version of the Guidance Notice are notified again as of the cut-off time of 24:00 on 14 August 2013 as a collective notification in accordance with the rules of the updated Guidance Notice, using the new forms appended thereto; and the notifying entity expressly confirms that the financial instruments in question are financial instruments that have already been notified (express written declaration required).

Ongoing submission of inventory lists

With effect from 15 August 2013 every notification of a new or discontinued financial instrument is to be accompanied by an Excel file containing details of the current holding, using the Excel file pages provided for the listing of financial instruments. The items to be recorded are the financial instruments that have already been notified in earlier notifications and are still current, as well as any newly added financial instruments; the latter must be highlighted. For each financial instrument, the respective date on which BaFin is/was notified of the market marking activity or primary market operations shall be stated.

Please note that in the case of shares it is the share in question itself, in the case of sovereign debt and sovereign CDS it is the issuer of the debt instrument and in the case of financial instruments that are not shares, sovereign debt and sovereign CDS it is the basic instrument that has to be stated in the Excel file provided for this purpose and, in addition, also the category pursuant to Section C of Annex I of MiFID , naming the specific element of the category. Changes and newly added financial instruments are to be recorded in the respective Excel file page provided for this purpose and the whole Excel file is to be submitted as an inventory list.

Inventory lists are to be sent to
BaFin by e–mail. Sending inventory lists by fax or post is not necessary, but where data are submitted in writing, the newly added financial instruments must be mentioned by name.

A. Content of the regulations

I. Transitional period

From 15 August 2013
BaFin must be notified of market making activities and primary market operations only by using the new forms appended to this updated Guidance Notice and the regulations contained herein.

Up to 24:00 on 14 August 2013, notifications still have to be submitted in accordance with the rules of the previous Guidance Notice in the version of 31 August 2012, using the forms appended thereto.

Prior notifications submitted up to 14 August 2013 must be aggregated and notified again in a new notification in accordance with the rules of this Guidance Notice, using the new forms appended hereto, by 31 August 2013 as of the cut-off time of 24:00 on 14 August 2013. This notification must be accompanied by express confirmation that the financial instruments in question are financial instruments that have already been notified (express written declaration required). 5)

II. Competent authority for the notification of intent

Competence is determined by the domicile of the entity that wishes to make use of the exemption.

1. Entity from the
   EU
   :

For the notification of market making activities, pursuant to Article 2(1)(i) of the EU Short Selling Regulation, the competent authority is the authority of the entity’s home Member State. For investment firms within the meaning of Article 4(1)(1) of Directive 2004/39/EC 6) , the home Member State is the one in which the head office or registered office is situated. For credit institutions within the meaning of Article 4(7) of Directive 2006/48/EG 7) it is the State in which the credit institution is authorised.

For the notification of primary dealer activities, jurisdiction lies with the authority of the country in respect of whose sovereign debt the operations are conducted. In the case of primary dealer activities in German sovereign debt BaFin is the competent authority.

2. Entity from a third country

For the notification of market making activities and primary market operations, jurisdiction lies with the authority of the country in which the greatest volume of trading activities on a trading venue is carried out 8) (with reference to the totality of all financial instruments) 9) The volume of trading activity with reference to market making is calculated on the basis of turnover as defined by Article 2(9) of Regulation ( EU ) No 1287/2006 on a particular trading venue in the European Union during the preceding year.

If the greatest volume of trading activity of an undertaking domiciled outside the EU is carried out on a trading venue in Germany, BaFin is the competent authority. This also applies if trading activity in another Member State is carried out on a number of trading venues and is in aggregate higher but the highest turnover on a single trading venue, compared to the individual trading venues in the other Member State, is in Germany.

III.
Market m aking activities

1. Legal definition of the activities

Article 2(1)(k) of the
EU
Short Selling Regulation defines what is meant by market making activities as follows:

“‘Market making activities’ means the activities of an investment firm, a credit institution, a third-country entity, or a firm as referred to in point (l) of Article 2(1) of Directive 2004/39/EC, which is a member of a trading venue or of a market in a third country, the legal and supervisory framework of which has been declared equivalent by the Commission pursuant to Article 17(2) where it deals as principal in a financial instrument, whether traded on or outside a trading venue, in any of the following capacities:

(i) by posting firm, simultaneous two-way quotes of comparable size and at competitive prices, with the result of providing liquidity on a regular and ongoing basis to the market;

(ii) as part of its usual business, by fulfilling orders initiated by clients or in response to clients’ requests to trade;

(iii) by hedging positions arising from the fulfilment of tasks under points (i) and (ii)."

The exemption applies only to those transactions that are essential in order to perform market making activities as defined in Article 2(1)(k) of the EU Short Selling Regulation. All other trading activities conducted by the “market maker” are subject in their entirety to the prohibitions and transparency requirements of the EU Short Selling Regulation.

2. Financial instruments covered by the exemption regime

In the first place, the exemption may be used for market making activities in the three “basic instruments” to which both the prohibitions and transparency requirements directly refer, i.e. shares, debt instruments issued by a sovereign issuer and sovereign CDS . When submitting notifications of shares, their names and ISINs should be specified. For sovereign debt and sovereign CDS , only the name of the sovereign issuer of the debt instrument ( e.g. “Germany” or “Lower Saxony”) needs to be provided (for further details on the practical implementation of notification, see Section B.I.1.).

Secondly, the exemption can also be applied for other financial instruments. The exemption can also be used if market making activities are carried out in financial instruments that are not shares, sovereign debt and sovereign CDS . These include, for example, market making in options, futures, convertible bonds, corporate bonds and subscription rights. When submitting notifications of these financial instruments, the basic instrument must be stated and, in addition, also the category according to Section C of Annex I of MiFID , naming the specific element of the category ( e.g. for category 4: options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash. 10) Especially in the case of corporate bonds, the entity will have to demonstrate that any hedging is part of a normal trading strategy and an explanation will have to be given of why this was necessary in the case in question (for further details on the practical implementation of notification, see Section B.I.1.).

3. Requirement of membership of a trading venue

a. Entities domiciled in the
EU

If entities domiciled in the
EU wish to make use of the exemption, they must be a member of a trading venue in the EU . The trading venue of which the entity is a member need not be the same as the trading venue on which the financial instrument concerned is traded. In the case of market making in OTC instruments, too, the market maker must be a member of a trading venue. For example, a market maker engaging in OTC market making in options can be a member of a trading venue on which only sovereign debt are traded.

b. Entities domiciled outside the
EU

Entities domiciled outside the
EU
(third-country entity or local company pursuant to Article (2)(l) of Directive 2004/39/EC) that intend to make use of the exemption must be a member either of an EU trading venue or of a third-country market whose legal and supervisory framework has been declared equivalent by the Commission pursuant to Article 17(2) of the EU Short Selling Regulation. The remarks made in Section A.III.3.a. apply as well.

4. Activities covered

In addition to activities on a trading venue,
OTC activities and anticipatory trading are also covered by the exemption.

a.
OTC market making

If the market maker fulfils the condition of membership of a trading venue as prescribed under Section A.III.3., OTC market making is also covered by the exemption regime.

b. Anticipatory trading

Use can also be made of the exemption for the purposes of anticipatory trading in expectation of orders initiated by clients or clients’ requests to trade where this is necessary within the framework of market making activities, but not for any other reasons, such as for speculative reasons. If the expected clients’ offers to trade or clients’ requests regarding the submitting of offers fail to materialise, the positions created by anticipatory trading must be unwound in due form at the earliest opportunity and promptly.

Since arbitrage activities are not considered market making activities, they are not covered by the exemption.
11)

5. General principles of market making activities

The entity must comply with the general principles and special requirements for market making activities applicable on the trading venue or third-country market. In addition, the entity must:

Keep records of orders and transactions in connection with the market making activities for which it requests exemption, so that they can be readily distinguished from its proprietary trading; Introduce internal procedures for the market making activities for which the exemption regime is being used which make it possible to identify those activities immediately and to readily provide the competent authority with the documentation upon request; Have effective compliance and audit resources and a framework that makes it possible to monitor the market making activities for which exemption is requested; Be able to demonstrate to the competent authority at any time that its market making activities comply with the principles and criteria of the ESMA Guidelines to the extent that BaFin has announced the implementation of the ESMA Guidelines.

6. General principles and qualitative criteria of market making activities

a. “Posting firm, simultaneous, two-way quotes of comparable size and at competitive prices” (Article 2(1)(k)(i) of the EU Short Selling Regulation)

An entity that wishes to make use of this exemption must fulfil the following three criteria with regard to the financial instruments concerned:

A regular and ongoing presence on the respective market Competitive prices The posting of two-way quotes of comparable size

The
ESMA
Guidelines have set out these criteria in greater detail for shares and share-based derivatives: a distinction is drawn between shares qualifying as liquid shares under MiFID and shares that are not considered liquid shares under MiFID as well as equity derivatives.

Recording obligations

The notifying entity must be able to provide
BaFin at any time, upon request, with information and evidence regarding the fulfilment of the following requirements.

aa. Regular and ongoing presence on the market in question in general

For all financial instruments (liquid shares/non-liquid shares pursuant to MiFID/equity derivatives) equally, regular and ongoing presence on the market in question requires that the entity be present on the order book or be posting prices on a trading venue for the relevant financial instrument for a sufficient proportion of the mandatory trading period. An uninterrupted presence is not required, but the eligible activity must be carried out each day and may not be interrupted for a significant period of time during a single trading day.. 12)

bb. Liquid shares

(1) Regular and ongoing presence on the market in question

For shares qualifying as liquid shares under
MiFID
, a distinction is drawn between shares whose price is determined on a continuous basis and shares whose price is determined by auction.
In continuous trading market making activities should as a matter of principle be undertaken on a daily or monthly basis for at least 80% of the overall trading time in order to satisfy the requirement for a regular and ongoing presence of the market. This market presence may reduced in cases of abnormal market situations.

For shares whose price is determined solely by auction, the criterion of regular and ongoing presence should be assessed at least against the standards defined for recognised market makers/liquidity providers by the rules of the trading venue on which the financial instrument is admitted to trading and on which the market making activities are conducted. Market makers should issue competitive buy and sell orders during the pre-opening auction call phase such that their quotes are present when the auction concludes and the closing price for the financial instrument is determined. 13)

(2) Competitive prices

Competitive prices should be within the maximum bid/offer spreads. This margin may be asymmetrical, that is to say, it can move away from the central point of the market bid/offer spread. The deciding factor in determining the maximum bid/offer spread should be the rules of the trading venue on which quotes for the financial instrument concerned are posted. In cases where that trading venue does not provide for such rules, reference may be made to the rules of another trading venue on which the financial instrument concerned is also traded. Where this alternative is not possible either, the competitive price should be determined as a proportion of the average spread observed on the instrument concerned in the venue on which the financial instrument is traded 14)

(3) Posting two-way quotes of comparable size

Posting two-way quotes of comparable size means that the size of orders in the order or quote book is not smaller than is required from recognised market makers/liquidity providers under the rules of the trading venue on which the shares concerned are traded. In cases where that trading venue does not provide for such rules, reference may be made to the rules of another trading venue on which the financial instrument concerned is also actively traded. Where this alternative is not possible either, the size of the orders or the quotes posted in the market making capacity should be assessed in relation to the average trading size for the financial instrument concerned. 15)

cc
. IIliquid shares/equity derivatives

(1) Regular and ongoing presence on the market in question

For shares that are not considered liquid shares under MiFID and equity derivatives that are each traded on a trading venue, the regular and ongoing market presence requirement should be assessed against the standards defined by the rules of the trading venue on which the financial instrument is admitted to trading for recognised market makers/liquidity providers in these financial instruments 16)

For equity derivatives, reference may be made to the corresponding requirements in the rules for recognised market makers/liquidity providers of another trading venue on which a similar derivative contract is actively traded if the trading venue originally mentioned provides for no such rules 17)

(2) Competitive prices

Competitive prices should be within the maximum bid/offer spreads for market makers/liquidity providers according to the rules of the trading venue on which the financial instrument is admitted to trading. 18) In cases where that trading venue provides for no rules regarding the maximum bid/offer spread, a distinction should first of all be drawn between illiquid shares and equity derivatives.

For illiquid shares, reference may be made to the requirements in the rules of another trading venue on which the financial instrument concerned is also actively traded. Where this alternative is not possible either, competitive prices should be determined as a proportion of the average spread observed on the financial instrument concerned on the trading venue on which the financial instrument is traded or be within the maximum bid/offer spreads laid down by the trading venue. 19)

For equity derivatives, reference may be made to the corresponding requirements in the rules for recognised market makers/liquidity providers of another trading venue on which a similar derivative contract is actively traded if the trading venue originally mentioned provides for no such rules. 20)

(3) Posting of two-way quotes of comparable size

In order to post two-way quotes of comparable size, the size of orders should not be significantly less than is required of recognised market makers/liquidity providers under the rules of the trading venue on which the financial instruments concerned are traded. In cases where that trading venue provides for no rules regarding the size of orders, a distinction should first be drawn between illiquid shares and equity derivatives. For illiquid shares, reference may be made to the requirements in the rules of another trading venue on which the financial instrument concerned is actively traded. Where this alternative is not available, the size of orders or the quotes posted in the market maker capacity should be determined on the basis of the average trading size for the financial instrument concerned on the trading venue on which it is traded. 21)

For equity derivatives, reference may be made to the corresponding requirements in the rules for recognised market makers/liquidity providers of another trading venue on which a similar derivative contract is actively traded if the above-mentioned trading venue provides for no such rules. 22)

b. “Fulfilling orders initiated by clients or in response to clients’ requests to trade” (Article 2(1)(k)(ii) of the EU Short Selling Regulation) 23)

An entity that wishes to make use of this exemption must demonstrate to the competent authority that the activity is or will be part of its usual business. To make use of the exemption regime the following criteria must be met:

Regular provision of prices for clients or continuous ability to provide buy and sell prices at the instigation of a client; and The market maker must as matter of principle stand ready at all times to trade with the client upon request.

In this respect
BaFin takes into account issues such as whether, and to what extent, the market maker has already traded or is already trading in the financial instrument in question on a frequent and systematic basis when fulfilling client orders or responding to clients’ requests.

If the market making activity is performed in instruments that are traded on an ad hoc and infrequent basis, the crucial point is whether the market maker is at all business times ready and prepared to provide clients with prices and stands ready to trade in response to requests from clients who reasonably expect to trade in a financial instrument at their instigation. As a matter of principle, these have to be financial instruments defined in advance. It is, however, also possible to specify an index ( e.g. the DAX ).

Presentation of the underlying business strategy could be used as relevant evidence to support eligibility for exemption of a one-time activity under Article 2(1)(k)(ii). 24)

Also taken into account will be the scale of the activity (for which the exemption is notified) in comparison with the entity’s overall proprietary trading.

Where the entity does not yet deal on a frequent and systematic basis in the financial instrument concerned in order to fulfil client orders or respond to clients' requests, it has to demonstrate whether it has a reasonable expectation that it will do so in the future and set out the basis for that expectation and the business assumptions that justify it (including in relation to its dealing for clients in other financial instruments).

Recording obligations

The notifying entity must be able to provide
BaFin at any time, upon request, with information and evidence regarding the fulfilment of the requirements under b.

IV. Activity as an authorised primary dealer

Article 2(1)(n) of the
EU
Short Selling Regulation defines what is meant by primary dealer activities as follows:

“Authorised primary dealer means a natural or legal person who has signed an agreement with a sovereign issuer or who has been formally recognised as a primary dealer by or on behalf of a sovereign issuer and who, in accordance with that agreement or recognition, has committed to dealing as principal in connection with primary and secondary market operations relating to debt issued by that issuer.”

Only transactions that are necessary for the performance of activities as an authorised primary dealer within the meaning of Article(2)(1)(n) of the EU Short Selling Regulation fall under the scope of the exemption. On the basis of their notification, primary dealers may also make use of the exemption for market making in sovereign CDS of the issuer for whom they are authorised to act as primary dealers. All other trading activities fall entirely under the scope of the general provisions of the EU Short Selling Regulation.

V. Notification 30 calendar days in advance
25)

The regulation (Article 17(1) and 17(3) in conjunction with 17(5) of the EU Short Selling Regulation) requires that notifications of intent, enclosing all relevant documentation, should be submitted to the competent authority in writing at least 30 calendar days before the exemption is first intended to be used. 26)

In principle, the exemption can be used for the first time when the 30 calendar day period has expired This period does not begin to run until all the necessary information and documentation has been submitted.

Upon receipt of the notification
BaFin examines whether the conditions for making use of the exemption are met. It is planned that BaFin will give a positive response if the conditions are met and BaFin does not intend to prohibit use of the exemption regime. The market maker/primary dealer may then use the exemption from the time that it is advised by BaFin . This may also be before the end of the 30 calendar day period.

Use of the exemption may be prohibited by
BaFin if the conditions laid down for exemption status are not satisfied. In such cases BaFin’s written and reasoned prohibition may be delivered within the aforementioned period.

In addition,
BaFin may oppose use of the exemption at any time if the circumstances of the notifying entity have changed or it transpires that the conditions laid down for exemption status are not (or are no longer) satisfied. This may occur either because of a change in the market maker/liquidity provider’s circumstances or as a result of findings from BaFin’s investigations.

B. Practical implementation of the notification requirements

I. Content of the notification of intent

Depending on the type of exemption (market making activities or primary market operations), the application, when submitted, must contain the following information and documentation (where applicable). For this purpose BaFin provides German and English forms on its website. These forms differ from the previous forms and their use is mandatory.

Market making

For market making (Article 17(5) in conjunction with Article 2(1)(k) of the EU Short Selling Regulation):

Details of the notifying entity;Angaben zum anzeigenden Unternehmen; Details of the contact person within the notifying entity;Angaben zum Ansprechpartner des anzeigenden Unternehmens; Status of the notifying entity:Status des anzeigenden Unternehmens:

Credit institution;
Investment firm;
Third-country entity; or
Entity within the meaning of Article 2(1)(l) of Directive 2004/39/EC.

Trading venue of which the notifying entity is a member; A detailed description of the activities, specifying whether and how:

The activity under Article 2(1)(k)(i) of the
EU
Short Selling Regulation is carried out;
The activity under Article 2(1)(k)(ii) of the
EU
Short Selling Regulation is carried out and what type of client business is involved.

Designation of the respective basic instrument/instruments. In the case of shares, the notification should mention these by name and ISIN ; in the case of sovereign debt and sovereign CDS , only the sovereign issuer of the debt instrument ( e.g. “Germany” or “Lower Saxony”) needs to be stated. If it is not possible to list the individual financial instruments ( e.g. in the case of indices), a clear specification ( e.g. FTSE 100 on a particular date) of the financial instruments concerned must be supplied, provided this results in a closed list of specific financial instruments and enables BaFin to clearly identify all individual financial instruments for which the exemption is notified. Where the market making is carried out in a financial instrument which is not a share, a sovereign debt or a sovereign CDS ( e.g. market making in options, futures, convertible bonds, corporate bonds and subscription rights), the basic instrument to which this financial instrument relates must be stated and, in addition, also the category pursuant to Section C of Annex I of MiFID , naming the specific element of the category ( e.g. for category 4: options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash). Especially in the case of corporate bonds, the entity has to demonstrate that any hedging is part of a normal trading strategy and an explanation will have to be given of why this was necessary in the case in question. This is done by way of corroboration on an additional page to the notification. In case of existing contractual agreement for provision of market making services: as a matter of principle, the filing of a copy of the contract and/or a description of the main duties and activities under the contract. Where no previous market making activity in a particular financial instrument can be demonstrated (intention to start a new market making business in a new financial instrument, e.g. in connection with an IPO), it has to be shown that there is a legitimate expectation of conducting the activity in this financial instrument in the future. To this end, for market making activities under Article 2(1)(k)(i) capacity, indication of expected daily volumes of market making activities in a financial instrument; and for market making activities under Article 2(1)(k)(ii) capacity, indication of expected weekly volumes of market making activities. 27)

Where a market making activity in sovereign
CDS regarding which a primary dealer activity has been notified is carried out, the market making activity in sovereign CDS must be notified without using any particular form, mentioning the sovereign issuer by name. The standard primary dealer activity notification is not sufficient.

2. Primary dealer activities

For authorised primary dealers (Article 17(6) in conjunction with Article 2(1)(n) of the EU Short Selling Regulation):

Details of the notifying entity;
Details of the contact person within the notifying entity; Copy of the signed agreement with the signed recognition of a sovereign issuer.

Please note that there is a separate form and a separate spreadsheet page for primary dealers.

II. Notification channel

The complete, dated and signed notification (excluding the inventory lists – see under Section B.III.) is to be sent in writing, specifically mentioning by naming the financial instruments (and ISINs)/sovereign issuers/categories 28) , in which the market making/primary dealer activities are to be carried out, using the forms and annexes,

by fax to
+49 (0)228/4108-3479

or

by post to

BaFin

Section

WA
25/ Short Selling Monitoring

Marie-Curie-Straße 24-28

60439 Frankfurt am Main

and additionally

by e-mail with the inventory list (see under SEction B.III.) to:
anzeige-leerverkaeufe@bafin.de

If additional documents ( e.g. a contract) are submitted together with the notification of intent, such documents must be attached in German or English.

III. Ongoing submission of inventory lists

With effect from 15 August 2013 every notification of a new or discontinued financial instrument must be accompanied by an Excel file containing details of the current holding, using the Excel file pages provided for the listing of financial instruments. The items to be recorded are the financial instruments that have already been notified in earlier notifications and are still current, as well as any newly added financial instruments; the latter must be highlighted. For each financial instrument, the respective date on which BaFin is/was notified of the market marking activity or primary market operations shall be stated.

Please note that in the case of shares it is the share in question itself, in the case of sovereign debt and sovereign CDS it is the issuer of the debt instrument and in the case of financial instruments that are not shares, sovereign debt and sovereign CDS it is the basic instrument that has to be stated in the Excel file provided for this purpose and in addition, also the category pursuant to Section C of Annex I of MiFID , naming the specific element of the category. Changes and newly added financial instruments are to be recorded in the respective Excel file page provided for this purpose and the whole Excel file is to be submitted as an inventory list.

Inventory lists are to be sent to
BaFin by e–mail. Sending inventory lists by fax or post is not necessary, but where data are submitted in writing, the newly added financial instruments must be mentioned by name.

IV. Notification of changes under Article 17(9) and (10) of the
EU
Short Selling Regulation

BaFin is to be notified of changes under Article 17(9) and (10) of the EU Short Selling Regulation by e-mail, without using any forms. In the case of changes arising from the discontinuation of a financial instrument in which no further market making is to take place, an inventory list is to be submitted (see under Section B.III.).

V. Changes to previous practice and interim notification period

Unlike national law (in Germany: sections 30h (2) sentence 2, 30j (3) sentence 1 and 30i (4) sentence 2 of the WpHG in conjunction with the provisions of the LAnzV ), Article 17 of the EU Short Selling Regulation makes no provision for quarterly (collective) notifications at the end of each quarter.

For any new share to be added, a (further) notification of intent at least 30 calendar days before the first intended use of the exemption is necessary. 29) In a change from the previous practice for sovereign debt and sovereign CDS , a further notification of intent will be necessary only if debt instruments of an additional sovereign issuer ( e.g. another Land of the Federal Republic) are being added. For market making in financial instruments other than the basic instruments, a further notification of intent will be required only if a further category related to a particular basic instrument is being added ( e.g. options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash of share x (category 4) are being added to transferable securities regarding share x (category 1)) or if a further underlying is being added to a category that has already been notified ( e.g. options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash of share Y are being added to options, futures, swaps, forward rate agreements and any other derivative contracts relating to securities, currencies, interest rates or yields, or other derivatives instruments, financial indices or financial measures which may be settled physically or in cash of share X that have already been notified).

Up to 24:00 on 14 August 2013 market makers and primary dealers must submit their notifications in accordance with the existing rules of the Guidance Notice of 31 August 2012, using the forms appended thereto.

From 15 August 2013
BaFin must be notified of market making activities using only the appended forms in accordance with the rules of this updated Guidance Notice.

VI. Obligation to renew notifications of financial instruments already notified

There is no grandfathering clause for previous notifications given under national law – i.e. under the German rules governing the notification of market maker activities pursuant to section 30h (2) sentence 3 (previous version), section 30j (3) sentence 1 (previous version) and section 30i (4) sentence 2 (previous version) of the WpHG ) in conjunction with the provisions of LAnzV . Nor is there any grandfathering clause for market making activity and primary market operations notifications already given under Article 17(1) of the EU Short Selling Regulation since 2 September 2012. In the implementation of the transitional measures prescribed by the ESMA Guidelines, the notifications of intent given on the basis of the version of the Guidance Notice of 31 August 2012 (which was in turn based on one of the first drafts of the ESMA Guidelines for market making activities and primary market operations) are to be examined to determine whether they meet the requirements of the ESMA Guidelines published on 2 April 2013 to the extent that BaFin has announced the implementation of the ESMA Guidelines and whether they will have to be notified again in aggregate in a new notification of intent. Nevertheless, for financial instruments that have already been notified under Article 17 of the EU Short Selling Regulation, the exemption may be used without awaiting expiry of the 30-day period again:

if the financial instruments that have already been notified and the activity that has already been notified in accordance with the current version of the ESMA Guidelines to the extent that BaFin has announced the implementation are eligible for exemption; and provided that up to 31 August 2013 all financial instruments notified by 14 August 2013 in accordance with the rules of the previous version of the Guidance Notice are notified again as of the cut-off time of 24:00 on 14 August 2013 as a collective notification in accordance with the rules of the updated Guidance Notice, using the new forms appended hereto; and the notifying entity expressly confirms that the financial instruments are financial instruments that have already been notified (express written declaration required).

Please direct any queries by telephone by e-mail to

E

Mail
: anzeige-leerverkaeufe@bafin.de

Footnotes

Regulation (
EU
) No 236/2012 of the European Parliament and of the Council of 14 March 2012 on short selling and certain aspects of credit default swaps ( OJ

EU

No.

L
86/1 of 24 March 2012).

ESMA
Guidelines: “Exemption for market making activities and primary market operations under Regulation ( EU ) 236/2012 of the European Parliament and the Council on short selling and certain aspects of Credit Default Swaps”.

ESMA
Guidelines paragraphs 19-22, 30, 32, 35-36, 43 first and last bullet points insofar as these relate to the sections mentioned; “Guidelines compliance table” p. 5 et seqq., downloadable under http://www.esma.europa.eu/system/files/2013-765_guidelines_compliance_table_-_market_making_guidelines.pdf.

ESMA
-Guidelines paragraph 75 75Leitlinien „Ausnahme für Market - Making -Tätigkeiten und Primärhändlertätigkeiten gemäß der Verordnung ( EU ) Nr. 236/2012 des Europäischen Parlaments und des Rates über Leerverkäufe und bestimmte Aspekte von Credit Default Swaps“( ESMA -Leitlinien)

Implementation of
ESMA
-Guidelines paragraph 75.

Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC.

Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions.

Regulated market or
MTF within the meaning of Article 2(l) of the
EU
Short Selling Regulation.

ESMA
Guidelines paragraph 9, 39-40.

Effect of BaFin’s Partial Compliance Declaration, see Footnote 3.

ESMA
Guidelines paragraph 24

ESMA
Guidelines paragraph 46.

ESMA
Guidelines paragraph 48 a.

ESMA
Guidelines paragraph 48 b.

ESMA
Guidelines paragraph 48 c.

ESMA
Guidelines paragraph9 a.

ESMA
Guidelines paragraph 49 c.

ESMA
Guidelines paragraph 49 b.

ESMA
Guidelines paragraph 49 c.

ESMA
Guidelines paragraph 49 c.

ESMA
Guidelines paragraph 49 c.

ESMA
Guidelines paragraph 49 c.

ESMA
Guidelines paragraph 53-55.

ESMA
Guidelines paragraph 55.

ESMA
Guidelines paragraph 15-18.

Only the latest inventory list is to be filed only by e-mail.

ESMA
Guidelines paragraph 65 xii.

See, however, for sovereign debt under B.I.1. bullet point 6, for sovereign CDS under B.I.1.bullet point 6 and for financial instruments other than shares, sovereign debt and sovereign CDS under B.I.1. bullet point 7.

For the possibility of this period being reduced, see under Section A.V.

ESMA
Guidelines paragraph 75.

Additional information

EU Short Selling Regulation

Notification of intent to make use of exemption under Article 17(1) of EU-Short Selling Regulation (Market-Making)

Notification of intent to make use of exemption under Article 17(3) of EU-Short Selling Regulation (primary market operations)

Annex to notification form for market making and primary market operations under Article 17(1) of EU-Short Selling Regulation

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