BaFin General Administrative Act on Turbo Certificates for German Retail Clients

This translation is furnished for information purposes only. The original German text is binding in all respects. BaFin | Postfach 50 01 54 | 60391 Frankfurt Ref. no.: WA 35-Wp 5427/00001#00554 (please always quote) 15 October 2025 Notice serving to announce BaFin’s General Administrative Act in accordance with Article 42 of MiFIR and section 15 (1) sentence 2 of the WpHG in conjunction with Article 42 of MiFIR in relation to turbo certificates The following General Administrative Act is adopted:

1. BaFin is ordering a restriction on the marketing, distribution and sale
   of turbo certificates to retail clients within the meaning of
   Article 4(1)(11) of Directive 2014/65/EU of the European Parliament
   and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II) who are domiciled in Germany. Turbo certificates may only be marketed, distributed and sold to retail clients domiciled in Germany where the following conditions are met:
   a. All communications by intermediaries, issuers and providers regarding the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany must contain the risk warning reproduced in Appendix I to this General Administrative Act. The risk warning must be displayed in a clearly visible manner to retail clients immediately before any purchase of a turbo certificate. Securities Supervision | Asset Management Bundesanstalt für Finanzdienstleistungsaufsicht Marie-Curie-Str. 24-28 60439 Frankfurt | Germany Contact:
   Referat WA 35
   WA35@bafin.de www.bafin.de
   Central Office:
   Fon +49 228 4108 0
   Fax +49 228 4108 1550

Intermediaries, issuers and providers must ensure that third parties promoting trading in turbo certificates on their behalf also provide the risk warning reproduced in Appendix I to this General Administrative Act in their communications regarding turbo certificates. b. Retail clients domiciled in Germany may not be granted any monetary or non-monetary benefits, including volume discounts, in specific connection with the acquisition of turbo certificates.
c. Investment firms as defined by Article 1(1) of MiFID II in
conjunction with Article 4(1)(1) of MiFID II must implement a test of basic knowledge about turbo certificates in accordance with Appendix II to this General Administrative Act before retail clients domiciled in Germany acquire turbo certificates. Once passed, the test of basic knowledge about turbo certificates is valid for a maximum of six months. The measures specified in subparagraphs 2(a) to (c) of point (1) must be implemented within eight months of the General Administrative Act being announced.
2. “Turbo certificates“ within the meaning of point (1) are defined as
follows, regardless of the concrete names used for them:
Financial instruments within the meaning of Article 4(1)(15) of MiFID II in conjunction with Section C(1) of Annex I to MiFID II (transferable securities) taking the form of debt securities that use leverage to replicate the performance of an underlying, and that immediately expire when a defined knock-out threshold (a predefined price for the underlying) is reached.
3. The General Administrative Act is deemed to be published on the day
following its announcement.
4. BaFin reserves the right to withdraw this General Administrative Act.

1. Factual situation
   1.1 Definitions
   The term “issuers” in this General Administrative Act is used for entities, investment firms and credit institutions that manufacture, create, develop, issue or design financial instruments. Issuers are entities within the meaning of Article 2(h) of Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market and repealing Directive 2003/71/EC (EU Prospectus Regulation). “Providers“ within the meaning of this General Administrative Act are entities within the meaning of Article 2(i) of the EU Prospectus Regulation. Issuers of turbo certificates are normally also providers of turbo certificates. The term “intermediaries” is used in the following for investment firms within the meaning of Article 4(1)(1) of MiFID II that enable retail clients domiciled in Germany to purchase turbo certificates. “Investment firms” within the meaning of Article 4(1)(1) of MiFID II are investment services enterprises within the meaning of section 2 (10) of the WpHG. “Retail clients” as defined in Article 4(1)(11) of MiFID II are retail clients within the meaning of section 67 (3) no. 2 of the WpHG. In accordance with Article 4(1)(7) of MiFID II, “market makers” are persons who hold themselves out on the financial markets on a continuous basis as being willing to deal on own account by buying and selling financial instruments against those persons’ proprietary capital at prices defined by those persons. The term “finfluencers” is used in the following for persons who are active on social media and who can influence other people’s purchasing decisions due to their authority, knowledge, position or relationship with the public, and who have a fan base within a certain niche with whom they communicate.1 “Affiliate partners” within the meaning of this General Administrative Act are third parties that promote certain entities or services on the basis of an 1 See the ESMA Guidelines on MiFID II product governance requirements published on 3 August 2023, page 23.

affiliate or partner marketing agreement and that receive commission for passing on customers or leads. “Communications for the marketing, distribution and sale of turbo certificates” are communications measures that are addressed to actual and potential clients with the purposes of directly or indirectly promoting the sale of turbo certificates. This can take the form, for example, of advertisements (online, print, TV), newsletters containing product recommendations, or advertising/sales brochures. In addition, such communications include social media texts, mobile apps, promotional videos and audio media such as podcasts or audio advertising, plus training materials, webinars or editorial articles that also indirectly promote turbo certificates. ”Monetary benefits” within the meaning of this General Administrative Act are all monetary concessions or payments granted or made to retail clients in specific connection with the purchase of turbo certificates. Examples include reduced order fees, the waiver of order fees, new client bonuses, reimbursements of order fees and customer award credits. ”Non-monetary benefits” within the meaning of this General Administrative Act are all other benefits or services granted or rendered to customers in specific connection with the purchase of turbo certificates. Examples include preferential customer service, privileged access to new issues or expanded order types. However, analysis tools, tutorials, training, or supplying retail clients with market prices do not represent non-monetary benefits as defined here.
1.2 General description of how turbo certificates work
Turbo certificates enable clients to participate disproportionately in the price movements of an underlying (such as a share or an index) and their design makes them both highly risky and highly complex. They are leveraged products, since they permit clients to take comparatively large positions while only deploying only a small amount of capital. Their leverage is derived from the fact that the underlying is partly financed by the issuer, whereas the client only has to pay the difference between the price of the underlying and a predefined financing threshold. One fundamental feature of turbo certificates is their knock-out threshold (also known as the knock-out barrier). If the certificate reaches this defined price level, it expires immediately and is closed out for a minimal amount. Reaching the knock-out threshold results in the immediate and total loss of

the capital deployed, regardless of whether the underlying subsequently returns to performing in the manner expected by the client. This means that clients not only have to correctly assess the underlying’s future performance, but must also factor in short-term volatility that could lead to a knock-out event. Even where clients correctly assess the underlying’s long-term performance, briefly exceeding the knock-out threshold can lead to a total loss. The following simplified example shows how turbo certificates work in principle:
Assumption: An underlying (index) is trading at 20,000 points and a client buys a turbo long certificate with the following features:

• Financing threshold: 19,800 points (also the knock-out threshold)
• Subscription ratio: 0.01
  This means that the price of the turbo certificate is as follows:
  (20,000 – 19,800) × 0.01 = EUR 2
  If the underlying rises to 20,200 points, the new price is:
  (20,200 – 19,800) × 0.01 = EUR 4
  The client makes a profit of 100% although the underlying only rose by 1% (leverage effect). However, if the underlying falls to or below 19,800 points, it reaches the knock-out threshold and the turbo certificate immediately expires and is worthless. The client suffers a total loss (minus 100%) even if the price of the underlying subsequently exceeds 19,800 points again.
  Article 5 of Regulation (EU) No 1286/2014 of the European Parliament and of
  the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (the PRIIPs Regulation) requires a key information document to be created for turbo certificates. The statement that retail clients are the target group, and the information provided on the risk indicator and the recommended holding period are the same for all turbo certificates (regardless of their design) and all issuers. Issuers and providers specify a recommended holding period for turbo certificates of one day in the key information document. This short holding period is primarily due to the effect of the knock-out threshold: a knock-out event can occur at any time, especially in the case of highly

leveraged turbo certificates with a correspondingly small spread between the strike price and the knock-out threshold. This means that clients must constantly monitor the performance of their turbo certificate so as to be able to sell their product before the knock-out event occurs. Turbo certificates are traded on stock exchanges’ open market. Turbo certificate issuers or affiliated enterprises frequently act as market makers themselves and regularly provide bid and ask prices for the products that they themselves have issued. However, market makers are under no obligation to provide clients with price quotations, and price quotations for turbo certificates may be suspended, especially when market volatility is high. As a result, clients may not always be able to buy or sell turbo certificates even during exchange trading hours. Trading in turbo certificates entails additional costs that reduce the return for clients above and beyond the spread: since turbo certificates represent a leveraged position on an underlying, clients normally only have to pay a fraction of the price of the underlying. The remainder is effectively “financed” by the issuer. Consequently, turbo certificates result in financing costs that have to be borne by clients. In the final analysis this also means that, all other things being equal, the value of a turbo certificate declines over time since the financing costs are incurred on an ongoing basis. In addition, issuers of turbo certificates regularly reserve the right to terminate them ordinarily or extraordinarily. If issuers exercise this right, the current value of the turbo certificate, where one exists, will be paid out without the client being able to influence this. Clients trading in turbo certificates are exposed not just to price risk but also to issuer default risk, since they do not have a direct claim to the underlying. This means that clients could lose the capital they have invested or might only receive a low pro rata payment from the insolvency assets if the issuer of the certificate were to default. Consequently, clients do not have a claim to the repayment, or any increase in the value of the certificate should the issuer default, even if the underlying performs positively. Turbo certificates are distributed under a variety of names. For example, they are known in some cases as “knock-out warrants”, “turbo warrants”, “turbo knock-outs”, “mini futures”, “wave XXL certificates” or “X turbos”. In addition, there are different varieties of turbo certificates. For example, issuers offer not only long and short strategies and turbo certificates with

and without fixed terms, but also “smart turbo warrants”2 , “BEST turbo warrants”3 and “X turbo warrants”4 , among other things. According to the information provided by the issuers or providers in the key information documents, turbo certificates are aimed at highly knowledgeable and experienced retail clients who can weather financial losses up to and including a total loss and who are not interested in capital protection. They are aimed at retail clients whose objective is to participate to a disproportionate extent in the change in prices (for an underlying) and who have a short investment horizon.
1.3 Market survey of turbo certificates
In 2024, the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) conducted a comprehensive market survey of trading in turbo certificates in Germany. In the survey, BaFin evaluated reporting data collected in connection with Article 26 of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (MiFIR) in relation to turbo certificates, and also requested information from issuers and intermediaries domiciled in Germany. BaFin’s findings with respect to German retail clients’ investment performance in relation to turbo certificates are based on a comprehensive analysis of approximately 113 million transactions by German retail clients (German nationals) over a period of five years.5 BaFin published key findings from the market survey as a study on its website on 21 May 2025. Attention is drawn to this study in particular with respect to the dataset that was analysed and the methodology adopted when evaluating the reporting data in accordance with Article 26 of MiFIR.
1.3.1 The turbo certificates market in Germany
Based on the reporting data in accordance with Article 26 of MiFIR, German retail clients executed approximately 113 million transactions in turbo 2 Note: The knock-out threshold for these products is only relevant during the closing auction and does not play a role during the trading period. This allows brief price swings to be offset. 3 Note: The knock-out threshold for these turbo certificates corresponds to the strike price. 4 Note: X turbo warrants have longer knock-out periods, enabling greater leverage. 5 Note: In a certain context legal persons can be considered to be retail clients if they execute transactions that are not directly related to their professional or commercial activities.

certificates during the observation period (1 January 2019 to 31 December 2023). Roughly 543,000 different German retail clients traded turbo certificates during this period. Both the number of transactions involving turbo certificates executed by German retail clients and the number of German retail clients trading in turbo certificates more than doubled in the course of the observation period. In the last observation year of the market survey (2023) alone, approximately 237,000 German retail clients executed approximately 26.3 million transactions in turbo certificates. This number represents a rise of approximately 110% with respect to the number of retail clients compared to
2019. In 2023 alone, German retail clients traded approximately 3.7
million different turbo certificates. The issuers offered a wide variety of turbo certificates, which differed in particular in relation to the underlying concerned and how close the knock-out threshold was. On 18 November 2024, the issuers surveyed by BaFin alone offered retail clients more than 800,000 different turbo certificates. German retail clients invested an (arithmetic) average of EUR 3,103 per purchase transaction in turbo certificates in the observation period. Based on the number of purchase transactions for the entire observation period (62.9 million), the notional total purchase volume (trading volume of purchases of turbo certificates) made by German retail clients in turbo certificates in the observation period was approximately EUR 195 billion. German retail clients mainly invested in turbo certificates betting on price increases (long or call turbo certificates) in the observation period. Turbo certificates were traded by 20 different issuers in the observation period. Of these issuers, 18 are domiciled in Germany and two in Austria. The latter play only a subordinate role in terms of the transaction volume and the number of transactions executed by German retail clients.6 The market survey also reveals that German retail clients traded turbo certificates at 1,294 intermediaries domiciled in the European Union over the entire observation period. A total of 1,147 of these intermediaries are domiciled in Germany. 6 Note: These two issuers accounted for less than 0.1% of the transactions in turbo certificates executed by German retail clients in the observation period.

1.3.2 Client performance when trading in turbo certificates in Germany
Based on the reporting data in accordance with Article 26 of MiFIR, BaFin calculated the percentage of retail clients who lose money trading in turbo certificates (“loss ratio”), as follows:
Loss ratio =
Number of clients with losses
Total number of clients x100
The loss ratio was calculated using all approximately 113 million transactions in turbo certificates executed during the observation period by approximately 543,000 German retail clients. Retail clients were classified as “clients with losses” if their realised losses over the five-year observation period exceeded their realised gains overall. All transactions in turbo certificates executed by the retail client in question were included in all cases.7 The resulting loss ratio for German retail clients trading in turbo certificates over the five-year observation period was 74.2%. On average, German retail clients lost EUR 6,358 trading in turbo certificates over the entire observation period. Retail clients generating high loss ratios executed more transactions on average. Thus, the loss ratio for retail clients executing between one and 10 transactions in the observation period was roughly 70%. Retail clients executing between 10 and 100 transactions had a loss ratio of 76% and retail clients executing between 100 and 500 transactions had a ratio of approximately 83%. Retail clients executing between 500 and 1,000 transactions had a loss ratio of 88%, while the ratio for retail clients executing more than 1,000 transactions was 91%. Multiplying the average loss per retail client by the absolute number of German retail clients trading in turbo certificates in the observation period produces an absolute aggregate total loss for all German retail clients trading in turbo certificates of more than EUR 3.4 billion for the entire observation period.8 7 Note: See the study on turbo certificates published by BaFin on 21 May 2025 for information on the calculation methodology and the dataset used. 8 Note: See the study on turbo certificates published by BaFin on 21 May 2025 for information on the calculation methodology and the dataset used. Additional fees and costs such as securities account fees and order fees were not taken into account when calculating the aggregate total loss.

The market survey only examined transactions by German retail clients, who were defined as German nationals. The findings can be extrapolated to all retail clients regardless of their nationality. Based on these figures, it can be assumed with a view to all transactions by retail clients regardless of nationality that the number of retail clients who traded in turbo certificates in the observation period and hence also the aggregate loss, would be even higher than the figure determined in the market survey.
1.3.3 Trading in turbo certificates in Germany
In 2024, BaFin also addressed 22 requests for information in accordance with
section 6(3) of the WpHG to issuers of turbo certificates and key
intermediaries for the retail clients involved in Germany. The issuers surveyed account for more than 95% of the market for turbo certificates in Germany. Turbo certificates are basically self-directed products that are not distributed during the provision of investment advice (generally execution-only transactions). As part of BaFin’s request for information, intermediaries were asked among other things to provide information on the proportion of negative appropriateness assessments (second subparagraph of Article 25(3) of MiFID II9 ) in connection with the trading of turbo certificates. The intermediaries’ answers to this question were extremely heterogeneous. However, at least two of the intermediaries surveyed said that approximately 90% of the retail clients whose appropriateness assessments in relation to turbo certificates were negative traded in such certificates regardless. At the level of all intermediaries surveyed, appropriateness assessments were negative for an average of 21% of retail clients. The proportion of negative appropriateness assessments ranged between 4.5% and 47%, depending on the intermediary. The average leverage for turbo certificates at the time of issuance was 46. Approximately 29% of the turbo certificates issued in 2023 had a leverage at the time of issuance of less than 10, but roughly 12% had a leverage of more than 100. In some cases, the leverage of turbo certificates was more than 1,000; this applied in particular shortly before a knock-out event occurred or when the price was close to the knock-out threshold. 9 Note: Transposed into national law in section 63 (10) sentence 3 of the WpHG.

The average term for turbo certificates at the level of all issuers surveyed was approximately 75 days. Slightly less than 6% of the turbo certificates issued in 2023 had an actual term of a maximum of one calendar day. Roughly 77% of all turbo certificates issued in 2023 had a term of less than six months. By contrast, the evaluation of the reporting data performed in the course of BaFin's market survey revealed that German retail clients hold turbo certificates for an average of eight days. Approximately 70% of retail clients hold turbo certificates for less than 24 hours. However, another 12% of retail clients hold turbo certificates for more than 10 days, and 6% in fact hold them for longer than one month. In addition, BaFin asked issuers for information on price quotations for turbo certificates, especially with respect to suspensions of pricing, as part of its requests for information. All in all, pricing was suspended for 185,184 turbo certificates in July 2024. Suspensions for longer than five minutes occurred in the case of 159,747 products. This corresponds to approximately 31% of the turbo certificates from the issuers surveyed that were actively traded in July
2024. Suspensions for more than 30 minutes occurred in the case of 25,437
products (5% of all actively traded turbo certificates). On average, suspensions of pricing occurred for approximately 36.7% of all turbo certificates that were actively traded in July 2024. The average duration of suspensions of pricing at the issuers surveyed was 382 seconds. The reason given for the suspension in an average of 66.3% of the cases was the restricted tradability or insufficient liquidity of the underlying. As regards the costs for retail clients associated with turbo certificates, the issuers surveyed reported average total costs of 8.2%. The calculations were based on the cost breakdown given in the key information document, taking the assumptions given in that document into account. These total costs include in particular the spread, the premium and possible other financing costs, but not securities account fees and trading fees. Total costs were less than 5% for roughly 56.4% of the turbo certificates issued in 2023, between 6% and 10% for 15.3%, between 11% and 25% for 16.3%, between 26% and 50% for 7.7% and more than 50% for 4.2%.
1.3.4 Marketing of turbo certificates in Germany
Turbo certificates are actively promoted both by issuers or providers and by intermediaries. A total of 52% of the issuers polled in BaFin's market survey said that they actively promote turbo certificates. In addition, 43% of the

issuers surveyed stated that their promotions for turbo certificates contain a concrete ISIN, i.e. that that they advertise specific turbo certificates. Turbo certificates are promoted via a variety of channels. In addition to issuers’, providers’ and intermediaries’ own websites, search engine adverts and banners, a range of other websites and online portals and print media were mentioned. Turbo certificates are also marketed via social media. In this case, issuers and providers sometimes work together with third parties such as finfluencers and affiliate partners, or use agencies active in this area. Issuers and providers also promote turbo certificates at investor fairs and stock exchange events where, for example, brochures and sales documents are distributed to retail clients. Issuers also partner with intermediaries to organise road shows for marketing turbo certificates to retail clients. Intermediaries receive payments from issuers/providers for executing turbo certificate transactions. These “kick-backs” are regularly paid for trades with an order volume of EUR 1,000 or more. Intermediaries either receive a fixed amount ranging between EUR 3.50 and EUR 13.40 or a percentage (e.g. 0.25%) of the concrete order volume. In turn, intermediaries use a variety of (advertising) promotions to grant retail clients monetary or non-monetary benefits in connection with the acquisition of turbo certificates. These benefits or bonuses are generally linked to a minimum payment, minimum investment volume or minimum number of transactions. In some cases, reduced fees based on the transaction volume are also granted. In addition, intermediaries regularly grant reductions or pay bonuses in connection with client acquisition, for example using “refer a friend” promotions.
1.4 Existing voluntary protective mechanisms for turbo certificates
BaFin’s market survey reveals that, in isolated cases, intermediaries take voluntary investor protection measures in relation to trading in turbo certificate in addition to complying with existing statutory requirements. For example, at least two intermediaries rule out trading in turbo certificates in cases of negative appropriateness assessments. At least three other intermediaries already include a knowledge text/plausibility check questions about trading in turbo certificates as part of their appropriateness assessments.

1.5 Restriction on turbo certificates in the Netherlands
The product intervention measure taken by the Dutch Authority for the Financial Markets (NL-AFM) on 30 June 2021 restricted the marketing, distribution and sale of turbo certificates to retail clients in the Netherlands due to significant investor protection concerns.
1.6 Consultation on product intervention measure
On 21 May 2025, BaFin published the draft of this General Administrative Act and, in accordance with section 28 (1) of the German Administrative Procedure Act (Verwaltungsverfahrensgesetz – VwVfG), gave those affected the opportunity to comment on the proposed product intervention measure by 3 July 2025. BaFin received comments from a total of four affected parties within the meaning of section 13 (1) no. 2 of the VwVfG in the course of the consultation procedure. In addition, 22 replies were received from respondents that do not qualify as affected parties within the legal meaning of the term. These comprise submissions from banking industry interest groups, consumer protection organisation and citizens. Basically, the majority of the petitioners welcome BaFin’s efforts to strengthen client protection in relation to the trading of turbo certificates. They feel that it makes sense to clearly draw retail clients’ attention to the risks associated with turbo certificates and for them not to be distracted from these risks by being granted monetary or non-monetary benefits. The majority of petitioners also support a mandatory knowledge test. They feel that BaFin’s turbo certificate market survey shows that turbo certificates’ risk structure means they are not comparable with conventional investment products. In addition, a number of petitioners confirm BaFin’s description of turbo certificates as, by nature, gambling products and warn against potential addictive behaviour. Individual petitioners note that implementing the planned product intervention measure requires the addressees of this General Administrative Act to take elaborate IT measures, and say that this is disproportionate in the case of relatively small institutions in particular.

Two petitioners comment on the study conducted by BaFin and express the view that this references unusual market phases in which other products also sustained increased losses. In addition, individual petitioners state that they also use turbo certificates as part of their hedging strategies. Specific petitioners also call for comparable consumer protection measures to be taken in relation to other leveraged certificates. One petitioner advocates that a leverage limit should be introduced in addition. A complete prohibition on the marketing, distribution and sale of turbo certificates in Germany would also be supported.
1.6.1 Submissions relating to the risk warning (subparagraph 2(a) of point (1)
of the General Administrative Act)
With reference to the obligation to provide a standardised risk warning, individual petitioners state that blanket use and a high frequency of repetition would give it the character of a fixed element, which could substantially reduce awareness of the risk warning, and hence its effectiveness. Therefore, these petitioners are in favour of only displaying the risk warning during the order process, so as to avoid readers gradually becoming inured to it and to ensure a strong focus on, and full awareness of, the risk warning. Other petitioners do not consider a risk warning during the order process to be expedient, since this would not offer any additional protection, and would complicate and/or delay order placement. For this reason, they say that the risk warning should only be displayed directly before the first purchase of a turbo certificate. On the other hand, other petitioners say that the risk warning should be restricted to advertising material. One petitioner suggests that the risk warning should be expanded to include a statement that the loss ratio that was calculated does not take a portfolio perspective. Another petitioner proposes taking a more flexible approach to the font size used for the risk warning in app displays. Furthermore, several petitioners say that the mandatory risk should put greater emphasis on the fact that turbo certificates may result in the total loss of the money invested.
1.6.2 Submissions relating to the prohibition on granting monetary and non￾monetary benefits (subparagraph (b) of point (1) of the General
Administrative Act)

With regard to the prohibition on granting monetary and non-monetary benefits, one petitioner notes that it should be made clear that a specific relationship is needed between the benefit and the acquisition of turbo certificates, and that the prohibition does not apply to general or non￾product-dependent benefits. In addition, several petitioners make the point that such a prohibition could distort competition in favour of neobrokers and investment firms that charge very low order fees, since their lower prices mean that these are less affected than other market participants by the prohibition on monetary benefits. According to these petitioners, the prohibition interferes unjustifiably with established market mechanisms and would disadvantage retail clients, since benefits for them would no longer be permitted and the products would hence become more expensive for them. Two petitioners consider the prohibition on monetary and non-monetary benefits to be insufficient and call for tougher restrictions on advertising activities.
1.6.3 Submissions relating to the test of basic knowledge about turbo
certificates (subparagraph 2(c) of point (1) of the General Administrative Act) With regard to the mandatory test of basic knowledge about turbo certificates (originally referred to in the consultation version as the “enhanced appropriateness assessment”), several petitioners note that its implementation would mean significant additional effort for retail clients and institutions. In addition, they say that the existing regulatory requirements for the appropriateness assessment offer a robust foundation for client protection, and that therefore no more far-reaching regulatory requirements are required. Moreover, they say that the six-month validity period is not provided for in the legal framework. Two petitioners call for the idea of fixed validity periods to be abandoned and for an undertaking-specific approach to be adopted. One petitioner considers an 18-month validity period to be reasonable, while another favours a duty to repeat the test of basic knowledge about turbo certificates every two years. By contrast, another petitioner says the six-month validity period is too long and that repeating the test every three months would be more expedient. Moreover, they consider the ability to repeat the test of basic knowledge about turbo certificates an unlimited number of times to be inexpedient. They

say there is an obvious danger that retail clients will “simply click their way through” to the desired result without having grasped the risk actually entailed by the financial product. According to them, this danger is exacerbated by displaying the right answers for questions that were answered incorrectly at the end of the test. Furthermore, they call for there to be no leeway to make potential “linguistic adaptations” to the questions. By contrast, another petitioner suggests greater leeway, including at the content level, with respect to the questions used to test basic knowledge about turbo certificates. Furthermore, a number of petitioners say that the term that was originally envisaged (“enhanced appropriateness assessment”) should not be used so as to distinguish this from the statutory appropriateness assessment. One petitioner suggests that the statutory appropriateness assessment and the test of basic knowledge about turbo certificates could optionally be integrated with one another or combined. Several petitioners also favour supplementing the test of basic knowledge about turbo certificates with additional questions and consider the six questions envisaged to be insufficient.
1.6.4 Submissions relating to the implementation period (subparagraph 3 of
point (1) of the General Administrative Act) With regard to the three-month implementation period provided for in the draft General Administrative Act that was released for consultation, various petitioners note that a substantially longer implementation period of 12 to 18 months is necessary to make the necessary administrative and technical changes. Other petitioners call for an implementation period of at least six months. By contrast, one petitioner favours a reduced implementation period of one month with regard to the duty to provide a standardised risk warning.
2. Legal assessment
This General Administrative Act represents a restriction on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany within the meaning of Article 42(1)(a) alternative (2) of MiFIR and
section 15 (1) sentence 2 of the WpHG in conjunction with Article 42(1)(a)
alternative (2) of MiFIR. The marketing, distribution and sale of turbo

certificates to retail clients domiciled in Germany is not being banned completely. The marketing, distribution and sale of turbo certificates including to retail clients domiciled in Germany is still possible where the restrictions set out in the second subparagraph of point (1) of the operative part of this General Administrative Act are complied with. Since it takes the form of a restriction, this General Administrative Act is less restrictive that a complete prohibition on turbo certificates would be. According to the factual and legal situation in this case, this restriction on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany is lawful, appropriate and proportionate.
2.1 Criteria for the application of the enabling provision (Article 42 of
MiFIR/section 15 (1) sentence 2 of the WpHG in conjunction with
Article 42 of MiFIR)
To the extent that the present restriction is addressed to investment firms within the meaning of Article 4(1)(1) of MiFID II and securities trading companies within the meaning of section 2 (10) of the WpHG, it is based on
Article 42 of MiFIR.
In all other respects the order is based on section 15 (1) sentence 2 of the WpHG in conjunction with Article 42(1) of MiFIR. Under section 15 (1) sentence 2 of the WpHG, BaFin can take measures in accordance with
Article 42 of MiFIR in respect of any party, to the extent that the regulation
(MiFIR) is not directly applicable. This is the case where the addressees of the General Administrative Act are not investment firms within the meaning of point (1) of Article 4(1) of MiFID II or securities trading companies within the meaning of section 2 (10) of the WpHG. Pursuant to (section 15 (1) sentence 2 of the WpHG in conjunction with) the first sentence of Article 42(2) of MiFIR, BaFin may prohibit or restrict the marketing, distribution and sale of financial instruments with certain specified features if it has satisfied itself on reasonable grounds that a financial instrument gives rise to significant investor protection concerns, existing regulatory requirements under EU law applicable to the financial instrument do not sufficiently address the risks referred to in the first sentence of Article 42(2) of MiFIR and the issue would not be better addressed by improved supervision or enforcement of existing requirements, and the action is proportionate, taking into account the nature of the risks identified, the level

of sophistication of investors or market participants concerned and the likely effect of the action on investors and market participants. The criteria described above are met in the present case.
2.1.1 Financial instrument with certain specified features
Turbo certificates are “financial instruments with certain specified features”. They are defined as securities in Article 4(1)(15) of MiFID II and in Section C(1) of Annex I to MiFID II and as financial instruments in section 2 (1) no. 3 of the WpHG in conjunction with section 2 (4) of the WpHG, which transposes these MiFID provisions into German law. These financial instruments are bearer bonds that use leverage to replicate the performance of an underlying and that feature a knock-out threshold.
2.1.2 Significant investor protection concerns
The marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany gives rise to significant investor protection concerns within the meaning of Article 42 of MiFIR. The significant investor protection concerns arise in this present case from turbo certificates’ inherent properties and from the fact that the consequences of the short holding period, the risk of total loss and the distribution and sale practices associated with turbo certificates are particularly detrimental to the retail client group. MiFIR introduced a directly applicable right of product intervention in EU Member States with effect from 3 January 2018. Based on Article 42(7) of MiFIR, the European Commission set out criteria and factors in Article 21 of Delegated Regulation (EU) 2017/567 of 18 May 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions (Delegated Regulation) that must be taken into account by the competent authorities when exercising their product intervention powers. On the basis of Article 42 of MiFIR, BaFin is making use of this (non-exhaustive) list of criteria. Based on an analysis of the criteria and factors referred to in Article 21(2) of the Delegated Regulation, BaFin has satisfied itself on reasonable grounds that turbo certificates for retail clients give rise to significant investor protection concerns within the meaning of Article 42(2)(a)(i) of MiFIR.

In determining whether these financial instruments with certain specified features give rise to significant investor protection concerns, BaFin has in particular taken into account the following criteria and factors listed in Article 21(2) of the Delegated Regulation:

• the degree of complexity of the financial instrument in relation to the
  type of clients to whom the financial instrument is marketed or sold, taking into account, in particular, the nature and scale of any risks and the complexity of the terms and conditions (Article 21(2)(a) of the Delegated Regulation);

• the size of potential detrimental consequences, considering in
  particular the number of clients, investors or market participants involved, the relative share of the product in investors’ portfolios, the probability, scale and nature of any detriment, including the amount of loss potentially suffered and the volume of the issuance (Article 21(2)(b) of the Delegated Regulation);

• the type of clients to whom a financial instrument is marketed or sold,
  taking into account, in particular, whether the client is a retail client, a professional client or an eligible counterparty, the clients' skills and abilities, including the level of education, experience with similar financial instruments, the clients' economic situation, including their income, and wealth, the clients' core financial objectives, including pension saving and home ownership financing, and whether the product is being sold to clients outside the intended target market (Article 21(2)(c) of the Delegated Regulation).

• the degree of transparency of the financial instrument, taking into
  account, in particular, any hidden costs and charges, the use of techniques drawing clients' attention but not necessarily reflecting the suitability or overall quality of the product, the nature of risks and transparency of risks, and the use of product names or terminology or other information that is misleading by implying a greater level of security or return than those which are actually possible or likely, or which imply product features that do not exist (Article 21(2)d) of the Delegated Regulation).

• the particular features or components of the financial instrument,
  including any embedded leverage, taking into account in particular the leverage inherent in the product (Article 21(2)(e) of the Delegated Regulation).

• the existence and degree of disparity between the expected return or
  profit for investors and the risk of loss in relation to the financial instrument, taking into account, in particular, the risk-return profile (Article 21(2)(f) of the Delegated Regulation).

• the selling practices associated with the financial instrument, taking
  into account, in particular, the communication and distribution channels used and the information, marketing or other promotional material associated with the investment (Article 21(2)(j) of the Delegated Regulation). After taking into account the relevant criteria and factors, BaFin has come to the conclusion that turbo certificates give rise to significant investor protection concerns for retail clients domiciled in Germany for the reasons given below. The significant investor protection concerns in the present case result in particular from the high percentage of retail clients who were found to have suffered losses from trading in turbo certificates during the five-year observation period and the high total loss for all retail clients. Overall, these significant investor protection concerns are also reinforced by the large number of retail clients affected, the high complexity of the products, and current selling and distribution practices in connection with turbo certificates.
  2.1.2.1 Client behaviour and client losses from turbo certificates
  BaFin’s market survey documents that approximately 75% of all German retail clients suffer losses when trading in turbo certificates. In addition, the average loss sustained by retail clients over the entire observation period was roughly EUR 6,400 per retail client. This means that approximately 25% of retail clients who generate profits from trading in turbo certificates do not offset the losses sustained by the remaining 75 % of retail clients. BaFin's market survey proves that, in the case of turbo certificates, a majority of retail clients lose the money they have invested. Consequently, there is a large disparity in the case of trading in turbo certificates between the expected return and the risk of loss. In the aggregate, German retail clients lost more than EUR 3.4 billion with turbo certificates over the entire observation period. As a result, the market survey has shown that retail clients suffered significant financial losses when trading in turbo certificates in the past. Due in particular to the long (five-year) observation period – which

included different market phases, smoothing out volatility and extraordinary events, and revealing a clear trend – and the fact that all available transactions by German retail clients were included in this period, there are reasonable grounds for assuming that the market survey is generally valid. There are no indications of any changes following the end of the period under consideration. Rather, it can be assumed that retail clients will continue to suffer significant losses when trading in turbo certificates going forward if the overall situation does not change. Moreover, basically comparable findings were the reason why the NL-AFM identified significant investor protection concerns in accordance with Article 42 of MiFIR in relation to the Dutch market in 2021.10 To the extent that individual petitioners noted during the consultation that BaFin’s market study references unusual market phases and that it is therefore doubtful whether the study is representative, this cannot be accepted. The market study conducted by BaFin clearly shows that the negative investment results experienced by retail clients were not due to isolated short phases, but rather that retail clients have lost money continuously over the five-year observation period. Infographic 9 in BaFin’s market study (“Aggregated loss from turbo certificates suffered by German retail clients“) shows beyond doubt that retail clients sustained losses in a large majority of months during the observation period. BaFin's market survey also shows that those retail clients who execute an above-average number of transactions are particularly likely to sustain losses. Thus, the loss ratio for retail clients executing between one and 10 transactions is approximately 70%. The ratio for retail clients executing more than 1,000 transactions during the observation period is significantly higher (91%). This shows that transactions in turbo certificates have a poor risk￾return profile in general for retail clients. It also shows that there is no “learning curve effect” for retail clients in relation to generating profits from transactions in turbo certificates. Retail clients do not make a profit more frequently across all their transactions by gaining experience of trading in turbo certificates. Retail clients primarily trade in turbo certificates for the purposes of short￾term speculation. Turbo certificates are typically used as part of very short￾term trading strategies, in most cases within a single day (day trading). Thus, 10 See the NL-AFM study, which was published in February 2020:
https://www.afm.nl/~/profmedia/files/onderwerpen/turbo/afm-turbos-report-eng.pdf

BaFin’s market survey shows that approximately 70% of turbo certificates are held for less than 24 hours. This implies that client behaviour is aimed at making a quick profit and not sustainable, long-term asset accumulation. Individual petitioners say that they also use turbo certificates for hedging. The question of whether and to what extent turbo certificates are used for hedging was not included in BaFin’s market study, and the answer also cannot be determined on the basis of the data examined. Consequently, a situation in which retail clients use turbo certificates for hedging in individual cases cannot be ruled out. However, the fact remains that turbo certificates are not suitable for use as hedges as a matter of principle, due in particular to their recommended extremely short holding period and the knock-out threshold. Consequently, the high loss ratio cannot be relativised by gains realised in hedged underlyings. Even if retail clients use turbo certificates for hedging in individual cases, the large volume of datasets examined means that this would not change the evaluation of the result of the market study conducted by BaFin, especially with respect to the large losses sustained by retail clients. The trading behaviour identified shows that retail clients are typically unaware that the likelihood of generating a positive overall return across all transactions is relatively small. Issuers also contribute to this by regularly promoting turbo certificates as instruments that can be used to generate above-average profits without highlighting the risks associated with these products adequately and in an understandable manner. The occurrence of a knock-out event generally leads to retail clients losing all the capital they have invested (total loss). Thus, the breakdown of the return per transaction shows that although the majority of transactions generate a positive return (median return), a negative return is produced on average (arithmetic mean). The average negative return is due in particular to the fact that some turbo certificates lead to a total loss. These losses are so high that they clearly exceed the profits generated from the larger number of transactions with positive returns. Additionally, the short term for turbo certificates and their design as knock￾out products mean that retail clients generally do not have the opportunity to weather short-term losses, since the term ends when the knock-out event occurs. Equally, the extremely high average leverage means it is also unlikely that turbo certificates will recoup an initial drop in price during the term of the product.

The negative performance combined with the extremely short holding period for turbo certificates shows that trading in turbo certificates is more like a speculative ”game of chance” than strategic investing for the purpose of asset accumulation. As is the case with classic roulette, in general the client loses money over time when trading in turbo certificates. The high costs associated with turbo certificates also contribute to client losses. Issuers report average fees and expenses of 8.2% over the entire term of turbo certificates, not including securities account fees and order fees. In fact, according to the information provided by issuers, total costs over the term were in excess of 10% for approximately 30% of the turbo certificates issued. This means that the costs are considerably higher than for other financial products such as investment certificates or exchange traded funds (ETFs). In addition, issuers generally fix the bid and ask prices, and hence the price of turbo certificates, themselves at their own discretion during market making. In some cases, the spread can be more than 50% of the price of the turbo certificate concerned. Thus, the partly extremely high costs of turbo certificates also contribute to the substantial losses. The high proportion of retail clients (approximately 75%) who suffer losses when trading in turbo certificates, in conjunction with the average loss per retail client of roughly EUR 6,400 and the high total loss for all retail clients of more than EUR 3.4 billion in the observation period are enough in themselves to give rise to significant investor protection concerns.
2.1.2.2 Size and development of the market for trading in turbo certificates
in Germany
In Germany, a total of approximately 543,000 (different) retail clients traded in turbo certificates between 2019 and 2023. The total purchase volume (trading volume for the turbo certificates purchased) attributable to retail clients during this period was approximately EUR 195 billion. In 2023 alone, approximately 237,000 German retail clients traded in turbo certificates with the intermediaries polled in BaFin’s market survey. Compared to 2019, the market grew by approximately 110%, measured in terms of the number of retail clients trading. Consequently, it can be said that the market grew substantially during the observation period. This being the case, and given the marketing and distribution activities by both issuers and

intermediaries, it can be assumed that the number of retail clients trading in turbo certificates is also likely to continue to increase in future. Factors pointing to continued growth in the market for turbo certificates include not only its past growth and marketing and distribution activities, but also the fact that neobrokers – which make it particularly easy to access turbo certificates – are systematically increasing their market share. In addition, turbo certificates offer high product margins. Issuers and intermediaries generate ongoing income from the spreads and financing costs, which they bill clients for. As a product group, turbo certificates are highly scalable – another factor suggesting that their supply will continue to increase. Consequently, it was shown that a substantial number of retail clients trade in turbo certificates and hence also that a large number of retail clients suffer losses from these products. All in all, more than 400,000 German retail clients suffered losses trading in turbo certificates in the course of the observation period. In addition, it must be noted that turbo certificates are not a niche product for interested and knowledgeable clients but are in fact in very high demand among retail clients. Given the growth in the market to date, it can be expected that the number of retail clients trading in turbo certificates will continue to increase going forward. If the assumptions remain unchanged, this means that the absolute aggregate client losses will also continue to increase, since in this case an even larger number of retail clients would on average suffer a loss when trading in turbo certificates. The considerable importance of turbo certificates as a product for retail clients in Germany can also be seen from a look at the number of transactions in these products. In 2023 alone, retail clients executed more than 26 million transactions in turbo certificates. One in 14 transactions in financial instruments traded by retail clients in the observation period involved turbo certificates. The number of transactions in turbo certificates more than doubled between 2019 and 2023. This underscores the growing importance of turbo certificates as an investment product or speculative product for retail clients in Germany. The trading volume (exchange turnover) also shows how important turbo certificates are for retail clients: according to statistics from the German Structured Securities Association (Bundesverband für strukturierte Wertpapiere e. V. – BSW), turbo certificates were the structured securities

with the highest exchange turnover (44.7%) in December 2023. The share was only 29% in December 2019 and has therefore risen significantly over time.11 The importance of turbo certificates in Germany can be seen not only from the growing number of retail clients investing in them and the number of transactions executed respectively the exchange turnover, but also by looking at the providers of these products. With the exception of the savings banks (Sparkassen), all issuers of certificates active in Germany also offer turbo certificates. In addition, BaFin's market survey shows that between 2019 and 2023, turbo certificates were traded at roughly 1,300 intermediaries and hence at almost all supervised institutions in Germany that offer securities trading. In particular, the substantial commission paid by issuers to intermediaries makes trading in turbo certificates attractive for intermediaries. The large number of retail clients affected and the rapid growth in the market for trading in turbo certificates serve overall to strengthen the significant investor protection concerns resulting in particular from the negative investment performance by retail clients.
2.1.2.3 Type of clients involved
Turbo certificates are typically financial products that are specially designed for distribution to retail clients. This can be seen not only from the number of retail clients who traded in turbo certificates in recent years but also with respect to issuers’ distribution and marketing channels, which target retail clients in particular. Above all, the use of finfluencers, social media advertising and bonus offers is aimed at motivating retail clients to trade in turbo certificates. In addition, the issuers consistently state in the key information document that (experienced) retail clients are the target group for turbo certificates. Turbo certificates also appear attractive to retail clients because their price is often relatively low. Turbo certificates are frequently issued at a price of less than EUR 10. The price for the large majority of active products is regularly less than EUR 1. As a result, retail clients have the feeling that they, too, can participate in “expensive” underlyings for a relatively small amount. The low 11 See Bundesverband für strukturierte Wertpapiere e. V., Börsenumsätze von strukturierten Wertpapieren, December 2023:
https://www.derbsw.de/DE/MediaLibrary/Document/Statistics/24%2001%2019%20BSW%20B%C3 %B6rsenums%C3%A4tze%20Dezember%202023.pdf.

price of individual turbo certificates means that a very large number of retail clients can afford them. By selecting low prices, issuers can have a marketing effect and there is a danger that not all retail clients are aware of the fact that a low price ultimately reflects a low intrinsic value for the turbo certificate. Despite the existing rules (target market identification, appropriateness/suitability assessment) it cannot be ruled out that retail clients who are not, or are not sufficiently, knowledgeable or experienced will also trade in turbo certificates. It is true that intermediaries must perform an appropriateness assessment in the case of turbo certificates. However, BaFin's market survey showed that only isolated intermediaries do not permit clients whose appropriateness assessment was negative to trade in these financial instruments, as a voluntary investor protection measure. Rather, the survey reveals that, in the case of at least two of the intermediaries surveyed, 90% of retail clients with a negative appropriateness assessment for turbo certificates nevertheless traded in such products. This in some cases extremely high proportion of retail clients for whom the appropriateness assessment performed by the intermediaries was negative shows in itself that retail clients regularly trade in turbo certificates although they do not have the necessary knowledge of and experience in trading speculative and highly risky financial instruments. Significant investor protection concerns exist in particular in relation to retail clients as the target group for the marketing, distribution and sale of turbo certificates in Germany.
2.1.2.4 Complexity of turbo certificates
Turbo certificates are complex structured products. Their pricing is based on the performance of an underlying, while at the same time a leverage mechanism and a knock-out threshold are integrated. This combination requires a high level of understanding of how the price of the underlying will perform and of the effects of the leverage and the consequences of a knock￾out threshold. The leverage used with the turbo certificates results in a particularly high level of complexity. Due to this leverage, turbo certificates magnify the price movements for underlyings. This means that even relatively small price movements in the underlying can lead to disproportionately large gains or losses for the turbo certificate. In general, leverage makes it difficult for retail clients to understand the performance of a turbo certificate and to assess the likelihood of losses. This applies in particular to inexperienced clients. In this

context, the market survey shows that demand for turbo certificates with high levels of leverage is particularly strong among retail clients. Thus, some of the turbo certificates issued have an initial leverage of more than 100. It is not uncommon for certain turbo certificates to have a leverage of more than 1,000, especially shortly before a knock-out event. The knock-out threshold is an additional factor contributing to the high level of complexity of turbo certificates. Where this threshold is reached, turbo certificates generally expire and are completely worthless. This leads to an immediate total loss of the capital deployed, regardless of whether the underlying subsequently recovers again. Consequently, clients must not only forecast the price performance correctly, but must also factor in short-term volatility that could lead to a knock-out. Even if they assess the underlying correctly in the long term, briefly exceeding the knock-out threshold results in a total loss. This means that clients must constantly monitor the performance of their turbo certificate so as to be able to sell their product if necessary before the knock-out event occurs. For this reason, turbo certificates are only suited to extremely short-term investment periods. However, BaFin's market survey showed that 6% of retail clients held turbo certificates for longer than one month, contrary to the holding period of one calendar day recommended in the key information document. However, such a duration does not fit the way turbo certificates are designed, which is basically for short-term speculation. Rather, it reveals a misunderstanding of this form of investment. In addition, not only do issuers have a certain freedom when it comes to setting the prices for turbo certificates, but they are also not obliged to provide price quotations, at least to retail clients. This means that issuers, as market makers, can set the prices for turbo certificates, and suspend or even discontinue the provision of price quotations, at their own discretion. In this respect, BaFin's market survey shows that there were a significant number of price suspensions for turbo certificates in the observation period. For example, on average price suspensions occurred for approximately 36.7% of all turbo certificates traded in July 2024. Consequently, the increased complexity relates not only to the product structure itself but also to the conditions governing price quotations at the issuers. This means that the already high complexity inherent in turbo certificates is further increased by the complexity relating to market making and price quotations for turbo certificates. In addition, retail clients are exposed not only to the investment risks in relation to turbo certificates themselves but also to the risks

associated with market making, such as high spreads or the suspension or discontinuation of price quotations. What is more, retail clients trading in turbo certificates are exposed not only to price risk but also to issuer counterparty risk, since they do not have a direct claim to the underlying. Even if the underlying performs positively, retail clients have no claim to repayment if the issuer defaults. This is because they are not protected by a deposit guarantee scheme in the case of turbo certificates. Retail clients need to assess this risk as well and to include it in their investment decision. Further complexity arises from the fact that issuers do not use uniform descriptions for individual turbo certificates features: For example, turbo certificates with unlimited durations are known as “mini-futures”, but also as “unlimited turbo certificates” or “open-end turbos”. This makes it harder for retail clients to understand the products. In addition, there are other different types of turbo certificates. For example, issuers offer not only long and short strategies and turbo certificates with and without fixed terms, but also a number of other variants whose special features and functionality substantially increase their complexity for retail clients. Thus “X-turbo warrants” have a longer knock-out period, while in the case of “smart turbo warrants” the knock-out threshold is only relevant during the closing auction and does not play a role during the trading period. The large number of turbo certificates on offer also increases the complexity for retail clients. At times, retail clients may have to choose between more than 800,000 turbo certificates that are on offer simultaneously and that provide not only a variety of different features and underlyings but also a range of different distances to the knock-out threshold. The combination of these features makes turbo certificates substantially more complex than classic investment products such as equities, bonds or capital protection certificates. For this reason, turbo certificates are particularly complex products. The high level of complexity involved with turbo certificates and the risks associated with them serve overall to intensify the significant investor protection concerns resulting in particular from the negative investment performance generated by retail clients when trading in turbo certificates.

2.1.2.5 Selling practices associated with turbo certificates
Turbo certificates are “self-directed products” that are not distributed in the context of investment advice. This means that the marketing and distribution activities undertaken by issuers, providers and intermediaries are particularly important. BaFin’s market survey shows that a large proportion of the intermediaries, providers and issuers promote trading in turbo certificates. In some cases, institutions also promote specific turbo certificates using their ISINs. Both on their websites and in brochures, issuers and providers present turbo certificates, explain how they work and list the risks of turbo certificates. In most cases, turbo certificates are promoted by issuers and providers as enabling above-average profits to be made while deploying only small amounts of money or capital. However, no reference is made to the low probability of retail clients making a profit in the first place when trading in turbo certificates. Retail clients cannot see from the information provided by the issuers that approximately 75% of retail clients make losses with turbo certificates. Equally, the risks associated with price quotations are often not mentioned in the issuers’ and providers’ distribution documents. What is more, none of the marketing documents examined contain statements about the recommended holding period of one calendar day. As a result, although issuers do mention risks as well as the opportunities associated with turbo certificates in their distribution documents, important information for clients such as the recommended holding period and the loss ratio is not generally explicitly mentioned. Turbo certificates are regularly presented in advertising in such a way as to draw attention to the speculative and sometimes gambling element of trading in these products. In the product brochures, turbo certificates are frequently promoted as products that enable clients to profit more and faster/disproportionately from certain price movements in the underlying than would be the case if they were to acquire the underlying itself. Such promotions regularly do not include an equivalent mention of the corresponding risks. In addition, in some cases turbo certificates are advertised as incurring reduced or even no transaction fees. Such promotional activities and incentives can distract clients’ attention from the high risks associated with the product. They aim to attract retail clients and to create incentives for trading. This runs the risk of retail clients seeing the offers as a key product feature, which prevents them from assessing the actual product risks.

What is more, BaFin's market survey revealed that intermediaries receive inducements from issuers in the form of kick-backs. Generally, the size of the inducement depends on the retail clients' trading volume (trade size). Consequently, intermediaries’ income increases as the number of retail clients involved in trading rises and the volumes traded grow. This means that intermediaries themselves have a keen interest in retail clients trading the largest possible volumes of turbo certificates. As a result, intermediaries may become dependent on certificate trading by their clients and conflicts of interest may therefore arise. In some cases, intermediaries also grant retail clients bonuses in connection with the acquisition of turbo certificates. In particular, retail clients are motivated to trade larger volumes of turbo certificates by reduced order costs depending on the order volume. Furthermore, issuers and providers use different marketing terms for turbo certificates. To this must be added the different marketing terms for special types of turbo certificates as already described above. The inconsistent terms for these products can be confusing for retail clients and can significantly impair comparability between both products and issuers. What is more, terms such as “BEST” or “smart” can be confusing for retail clients and can give the impression of a higher return or a lower risk. Issuers, providers and intermediaries use a wide range of different marketing and distribution channels in connection with turbo certificates. Among other things, affiliate partners and finfluencers are used in the distribution and marketing of turbo certificates. It cannot be ruled out that in some cases these may also address retail clients who do not belong to the target market for these products (such as clients with no or only extremely limited knowledge of complex financial products), since the content is made available to a broad public and can be accessed by all retail clients in general. Affiliate partners and finfluencers regularly focus on retail clients who do not have the necessary knowledge and experience of highly speculative and risky financial instruments. In most cases, such promotions or recommendations by finfluencers are not flagged as advertising, but are packaged as personal experience or information posts. Such marketing techniques contribute to inexperienced retail clients in particular becoming aware of products such as turbo certificates and trading them in ignorance of the risks involved. The marketing and distribution techniques and distribution channels used, and the distribution incentives offered by, intermediaries, issuers and

providers in connection with turbo certificates serve overall to intensify the significant investor protection concerns resulting in particular from the negative investment performance generated by retail clients.
2.1.2.6 Interim outcome
Overall, there are significant investor protection concerns with respect to the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany that necessitate a product intervention measure in accordance with Article 42 of MiFIR and section 15 (1) sentence 2 of the WpHG in conjunction with Article 42 of MiFIR in the form set out in the operative part of this General Administrative Act.
2.2 No sufficient other option to address the risks referred to in Article
42(2)(1)(a) of MiFIR and to address the issue by improved supervision or by enforcing existing requirements (Article 42(2)(1)(b) of MiFIR)

Existing regulatory requirements under EU law that are applicable to the marketing, distribution or sale of turbo certificates do not adequately address the risks set out in Article 42(2)(1)(a)(i) of MiFIR. Neither the requirements of EU law nor national requirements – as laid down in the WpHG, for example – can sufficiently address the above-mentioned risks to clients in connection with turbo certificates. In accordance with the requirements of Article 42(2)(1)(b) of MiFIR, BaFin has examined whether there are other sufficient options to address the risks referred to in Article 42(2)(1) (a) of MiFIR and to address the issue by improved supervision or enforcement of existing regulatory requirements under EU law. The applicable existing regulatory requirements are laid down in MiFID II, the Delegated Directive on MiFID II (EU) 2017/593, the Delegated Regulation on MIFID II (EU) 2017/565, MiFIR, the PRIIPs Regulation and the national implementing legislation such as the WpHG and the Regulation Specifying Rules of Conduct and Organisational Requirements for Investment Services Enterprises (Verordnung zur Konkretisierung der Verhaltensregeln und Organisationsanforderungen für Wertpapierdienstleistungsunternehmen – WpDVerOV). These result in the following requirements, among others:

2.2.1 Adequate provision of information
BaFin has examined whether the provisions on fair client information under
Article 24(3) and (4) of MiFID II12 sufficiently address the risks referred to in
Article 42(2)(1)(b) of MiFIR and whether the problem would better be solved
by improved supervision or enforcement of the requirements under those provisions. This is not the case. The provision as prescribed by the legislators of appropriate information within the meaning of the above-mentioned rules cannot eliminate the significant investor protection concerns that have been listed. Approximately 75% of retail clients generate losses when trading in turbo certificates despite the existing regulations. In particular, the existing regulations do not provide for a risk warning in the form ordered in the present General Administrative Act. Only the disclosure of the loss ratio, which has not been provided to date, makes the risks in connection with trading in turbo certificates clear and transparent to retail clients.
2.2.2 Suitability and appropriateness requirements
Article 25(2) of MiFID II13 requires investment firms providing investment
advice or portfolio management to obtain the necessary information regarding the client’s or potential client’s knowledge and experience in relation to transactions in certain types of financial instruments, their financial situation including their ability to bear losses, and their investment objectives including their risk tolerance (customer exploration as the basis for the suitability assessment). However, the marketing, distribution and sale of turbo certificates is generally conducted without investment advice or portfolio management services being provided, despite these products’ complexity and the risks associated with them, and retail clients therefore generally remain unprotected by investment advice or portfolio management, particularly in the area of very risky and complex turbo certificates. Consequently, recourse to Article 25(2) of MiFID II does not offer a sufficient other option to address the risks referred to in Article 42(2)(1)(a) of MiFIR. 12 Note: Transposed into national law in section 63 (1), (6) and (7) of the WpHG. 13 Note: Transposed into national law in section 64 (3) of the WpHG.

Pursuant to Article 25(3) of MiFID II,14 the investment firm must assess the appropriateness of the financial instrument for the client (appropriateness assessment) when offering turbo certificates or the option of trading in turbo certificates without the provision of investment advice or portfolio management (“non-advisory business”). In order to assess appropriateness, Article 25(3)(1) of MiFID II15 requires investment firms to ask their clients or potential clients to provide information regarding their knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded, in particular so as to enable the investment firm to assess whether the investment services or products envisaged are appropriate for the client. However, under Article 25(3)(2) of MiFID II,16 financial instruments can be traded with the client after a warning has been issued, even if the appropriateness assessment has previously led to the conclusion that the financial instrument is not appropriate for the client or potential client. Equally, pursuant to Article 25(3)(2) of MiFID II,17 firms can also trade with clients after issuing a simple warning in those cases in which clients or potential clients do not provide any information, or do not provide sufficient information, and hence an appropriateness assessment is not possible. In this case, the client simply has to be informed of this. By contrast, the standardised, detailed and test of basic knowledge about turbo certificates prescribed by BaFin in Appendix II ensures that retail clients can only execute trades after they have passed this test of basic knowledge about turbo certificates. This is not an addition or change to the appropriateness assessment in accordance with Article 25(3) of MiFID II, but a separate, independent instrument for protecting retail clients that is based on Article 42 of MIFIR and section 15 (1) sentence 2 of the WpHG in conjunction with Article 42 of MIFIR, and that is justified by this General Administrative Act. To prevent the potential misunderstandings feared by petitioners and to clearly distinguish the mandatory test of basic knowledge about turbo certificates from the statutory appropriateness assessment, the term “enhanced appropriateness assessment” used in the draft of this General Administrative Act has been replaced by “test of basic knowledge about turbo certificates”. The duty to perform the appropriateness assessment required in accordance with Article 14 Note: Transposed into national law in section 63 (10) of the WpHG. 15 Note: Transposed into national law in section 63 (10) sentence 1 of the WpHG. 16 Note: Transposed into national law in section 63 (10) sentence 3 of the WpHG. 17 Note: Transposed into national law in section 63 (10) sentences (3) and (4) of the WpHG.

25(3) of MiFID II in line with the statutory and regulatory requirements is not affected by this. The statutory appropriateness assessment pursuant to Article 25(3) of MiFID II aims to ensure that retail clients only acquire financial instruments whose features and risks they basically understand. However, at least two of the intermediaries polled in the market survey stated that roughly 90% of retail clients with a negative appropriateness assessment for turbo certificates nevertheless traded in turbo certificates. The appropriateness assessment in its current form is based in part merely on a self-assessment. This runs the risk of clients overestimating their knowledge and experience, or deliberately providing incorrect information. As a result, this procedure is insufficient to effectively guarantee investor protection, especially in the case of highly speculative products such as turbo certificates. At least two of the intermediaries surveyed have already introduced knowledge tests and ask specifically about knowledge of these products. Overall, however, even the measures already introduced by the intermediaries in some cases – such as ruling out in practice the ability to place orders in the case of negative appropriateness assessment or testing clients’ knowledge during the appropriateness assessment – cannot sufficiently eliminate the significant investor protection concerns to the extent that would be needed to make a product intervention measure unnecessary. These measures are voluntary measures taken by a small number of intermediaries, and their design also differs from intermediary to intermediary. These isolated measures do not in themselves guarantee a level of protection for trading in turbo certificates that would enable them to eliminate significant investor protection concerns. Voluntary concrete testing of knowledge about turbo certificates cannot prevent key aspects of turbo certificates being insufficiently captured in the risk information process. This can lead to retail clients not being informed of all critical aspects such as leverage effects, the precise cost structure or the specific knock-out risk despite undergoing a test of their knowledge developed by the intermediary. By contrast, the standardised, detailed test of basic knowledge about turbo certificates prescribed by BaFin in Appendix II to this General Administrative Act ensures that all relevant risk factors are systematically and objectively captured, communicated and included in testing. Key aspects covered include specific questions regarding leverage, liquidity risk and the consequences of sudden market movements.

Equally, clients’ attention is not continuously drawn to the risks associated with trading in turbo certificates in the voluntary measures introduced by the intermediaries. This means that it is not guaranteed that clients are informed transparently about material risk factors at regular intervals during purchase transactions. It should also be noted with reference to the appropriateness assessment that, in accordance with Article 25(3) of MiFID II, investment firms are entitled to rely on the information supplied by clients and there is no legal obligation to review client information for experience, knowledge and financial means. Under this provision, client information only has to be verified if the firms are positively aware of the fact that the information is out of date, inaccurate or insufficient. In the final analysis, for the reasons given above even a due and proper appropriateness assessment cannot prevent the risks associated with turbo certificates that have been demonstrated, and in particular the large percentage of retail clients who sustain losses with turbo certificates. Furthermore, the fact that appropriateness has not been established does not automatically exclude the client from the proposed transaction. There is therefore no sufficient other option to address the risks mentioned or to solve the problem by improved supervision or by enforcing existing requirements by way of a suitability or appropriateness assessment. However, the risks mentioned are addressed by combining the requirements set out in the operative part of this General Administrative Act, and in this case in particular using the test of basic knowledge about turbo certificates in subparagraph 2(c)(1) of the operative part of this General Administrative Act.
2.2.3 Product governance
BaFin has also examined whether the provisions governing product monitoring in accordance with Article 24(2) of MiFID II18, the fourth subparagraph of Article 16(3) of MiFID II19 and Articles 9 and 10 of Delegated Directive (EU) 2017/593 of the Commission of 7 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non￾18 Note: Transposed into national law in section 63 (4) and (5) of the WpHG. 19 Note: Transposed into national law in section 80 (4) of the WpHG.

monetary benefits20 would sufficiently address the risks set out in Article 42(2)(1)(b) of MiFIR and whether the problem would better be solved by improved supervision or enforcement of the requirements under those provisions. When manufacturers and distributors identify a target market for financial instruments, together with other features they must specify the client category (retail clients, professional clients or eligible counterparties) with which the financial instrument is compatible. It is true that target market identification – meaning excluding retail clients from the positive target market or including retail clients in the negative target market – could be used to ensure that turbo certificates are not distributed to retail clients. However, a negative target market would lead to retail clients being denied access to turbo certificates completely as a matter of principle. Therefore, the rules governing target market identification do not represent an existing regulatory requirement that must be given priority in relation to the restriction on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany being introduced with this General Administrative Act. Rather, this General Administrative Act immediately creates uniform requirements and a uniform level of protection for retail clients domiciled in Germany. The General Administrative Act is therefore the most efficient way to achieve the required level of protection and to eliminate the significant investor protection concerns described above.
2.2.4 Key information documents
Articles 5 to 14 of the PRIIPs Regulation contain disclosure requirements. The Regulation lays down uniform rules on the format and content of key information documents that manufacturers of packaged investment products and insurance-based investment products must provide to retail clients so that they can understand and compare the key features and risks of such products.
Article 5 of the PRIIPs Regulation, which has been further clarified in
Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and 20 Note: Transposed into national law in section 81 (4) of the WpHG and sections 11 and 12 of the WpDVerOV.

insurance-based investment products (PRIIPs), lays down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents. In particular, it sets out, among other things, a methodology for presenting the summary risk indicator and accompanying explanations, including information on whether retail clients can lose all of their invested capital or whether they incur additional financial obligations. However, BaFin's market survey shows that retail clients trade in turbo certificates despite this information and that roughly 75% of retail clients sustain losses. Consequently, the information contained in the key information document is obviously not enough to make the risks sufficiently clear to retail clients, and it also only relates to the concrete product. The results of BaFin's market survey show that this does not achieve the necessary level of protection for retail clients. This type of information does not prevent significant investor protection concerns in relation to the marketing, sale and distribution of turbo certificates to retail clients domiciled in Germany. This General Administrative Act ensures that retail clients are informed about the high loss ratio and the associated negative expected investment performance for turbo certificates, and that they therefore receive information going above and beyond that required by the PRIIPs Regulation. Additionally, the test of basic knowledge about turbo certificates conveys the key product features for turbo certificates and checks whether retail clients have understood them. Based on this information, retail clients can then decide for themselves whether they want to accept this risk of loss. As a result, a presentation of the risks and in particular of the risk of total loss as part of the requirements under the PRIIPs Regulation does not represent a suitable means of fully eliminating the significant investor protection concerns that have been raised. The PRIIPs Regulation does not contain any requirements over and above this that would eliminate or sufficiently address the issue.
2.2.5. Securities prospectus
Article 3(1) of the EU Prospectus Regulation states that securities, and hence
also turbo certificates, can only be offered to the public once a prospectus has been drawn up and published. Public offerings of turbo certificates generally involve the publication of base prospectuses within the meaning of
Article 6 of the EU Prospectus Regulation.

More specifically, Annex 14 Section 2 of Commission Delegated Regulation (EU) 2019/980 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) No 809/2004 requires the material risks associated with the security in question to be described in the prospectus. However, the requirements of prospectus law are insufficient to prevent retail clients incurring high losses in connection with trading in turbo certificates. While both the risks and the way in which turbo certificates work are described in general terms in the base prospectuses, this information is not enough to effectively protect retail clients from making bad decisions. In addition, base prospectuses do not have to provide product-specific information. Even the additional information provided in the final terms are not enough to make the specific risks associated with turbo certificates sufficiently clear to retail clients. The information provided to date via the base prospectuses and the final terms is not enough to ensure that clients can actually understand the specific risks associated with turbo certificates. Neither the EU Prospectus Regulation nor the national rules set out in the German Securities Prospectus Act (Wertpapierprospektgesetz – WpPG) provide for regulations that would remedy or sufficiently solve the problem.
2.2.6 Interim outcome
The significant investor protection concerns cannot be eliminated in the same way without restricting the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany by means of a product intervention in accordance with Article 42 of MiFIR and section 15 (1) sentence 2 of the WpHG in conjunction with Article 42 of MiFIR, even by cumulatively enforcing all of the requirements described above. Consequently, there is no sufficient other option to counter the risks referred to in Article 42(2)(1)(a) of MiFIR and to address the issue through improved supervision or enforcement of the existing regulatory requirements. The restrictions on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany enacted with the present General Administrative Act are therefore necessary to eliminate the significant investor protection concerns described above.

2.3 Consultation of competent authorities of other Member States
The competent authorities of other Member States have also been consulted by BaFin about the present measure under Article 42(2)(d) of MiFIR. A significant concern within the meaning of the legal requirement might arise from the fact that intermediaries or issuers of turbo certificates are domiciled in other Member States. However, the measure is restricted solely to the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany. As a result, offering these instruments in other Member States is not affected, at least not directly.
2.4 No discrimination
The product intervention measure restricts the marketing, distribution and sale of turbo certificates by making such marketing, distribution and sale to retail clients domiciled in Germany contingent on meeting certain preconditions. It does not discriminate against services provided or offered from another (EU Member) State (Article 42(2)(e) of MiFIR). With regard to turbo certificates, there are significant investor protection concerns that justify a product intervention measure under Article 42 of MiFIR across the entire geographical scope of application. The free movement of capital is not restricted.
2.5 No significant risk to physical agricultural markets
Under Article 42(2)(f) of MiFIR, the public bodies competent for the oversight, administration and regulation of physical agricultural markets under Regulation (EC) No. 1234/2007 must be properly consulted by BaFin before a product intervention measure is adopted under Article 42 of MiFIR if a financial instrument or activity or practice poses a serious threat to the orderly functioning and integrity of physical agricultural markets. This does not apply in the current case. The product intervention measure has been justified by the existence of significant investor protection concerns within the meaning of Article 42(2)(a)(i) alternative 1 of MiFIR. The current assessment is that the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany does not fundamentally represent a danger to the due and proper functioning and the integrity of the financial and physical markets within the meaning of Article 42(2)(a)(i) alternative 2 of MiFIR.

A formal consultation of the public bodies competent for the oversight, administration and regulation of physical agricultural markets was therefore not required.
2.6 Exercise of discretion
BaFin has exercised the discretion granted to it under Article 42(1) of MiFIR and section 15 (1) sentence 2 of the WpHG in conjunction with Article 42(1) of MiFIR in the sense of adopting the above-mentioned measure. The measure serves to address the investor protection concerns identified on the basis of the market survey performed. It is proportionate because it is suitable, necessary and appropriate. The measure merely restricts the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany. The marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany is still possible if the restrictions set out in subparagraphs 2(a) to (c) of point (1) of the operative part of this General Administrative Act are complied with.
2.6.1 Suitability of the measure
The restriction on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany that has been ordered is suited to achieving the legitimate purpose of the measure. Article 42 of MiFIR and
section 15 (1) sentence 2 of the WpHG in conjunction with Article 42 of MiFIR
serve to protect collective client protection interests.
The obligation to provide a standardised risk warning that also includes the loss ratio for retail clients provided for in subparagraph 2(a) of point (1) of the operative part of this General Administrative Act ensures that retail clients are explicitly made aware of the risks, and in particular the probability of loss, associated with turbo certificates. The risk warning specified in the Appendix to this General Administrative Act will prominently display the most important risks to retail clients in condensed form. Requiring intermediaries, issuers and providers to ensure that third parties engaged by them also have to provide a risk warning when promoting turbo certificates avoids any circumvention of the obligation to display the risk warning by outsourcing promotional activities. This means that even if the promotions originate with external agencies or other partners that have been engaged, the addressees of this General Administrative Act still have a duty to ensure the risk warning is provided.

Supplementing the risk warning by a statement to the effect that the loss ratio that was calculated by BaFin does not take a portfolio perspective, as suggested by individual petitioners, is not suitable due to the fact that investment decisions must generally be seen in the context of a portfolio. In addition, the proposed addition to the risk warning would distract retail clients’ focus from the loss ratio, which is the decisive risk factor. Equally, an addition to the risk warning proposed by individual petitioners to the effect that retail clients may sustain a total loss of the money they have invested is not suitable, since the risk of total loss is not unique to turbo certificates. Consequently, including the risk of total loss does not add any specific value for retail clients but rather, on the contrary, dilutes the specific insight, which was derived empirically from the market study, regarding the loss ratio. Adding information about a potential total loss would deflect attention from the core point of the risk warning. Moreover, the legal documents such as the key information document and the securities prospectus already refer to the risk of total loss. Other, far-reaching restrictions suggested by petitioners particularly in relation to advertising for turbo certificates are not necessary, at least at present. The restriction on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany set out in the General Administrative Act is a suitable way of fully eliminating the significant client protection concerns that have been raised. The prohibition on granting monetary and non-monetary benefits in connection with turbo certificates that is ordered in subparagraph 2(b) of point (1) of the operative part of this General Administrative Act means that retail clients will no longer be motivated by such marketing instruments to trade in turbo certificates or be distracted from, or be prepared to neglect, the risks and the probability of loss when trading in turbo certificates. The General Administrative Act was modified to clarify the specific relationship between the monetary and non-monetary benefits and trading in turbo certificates. The change makes clear that the prohibition on monetary and non-monetary benefits relates directly to trading in turbo certificates. The obligation to test basic knowledge about turbo certificates imposed in subparagraph 2(c) of point (1) of the General Administrative Act ensures that only retail clients with the necessary knowledge of the risks associated with these products, and of how they work, can trade in turbo certificates.

Moreover, testing retail clients’ basic knowledge about turbo certificates specifically draws their attention to the risks associated with turbo certificates. An even stricter design for the test – which was called for by some petitioners (for example by introducing additional questions, by preventing the test from being repeated, or by shortening the validity period) – do not seem necessary to achieve the objective, since the test of basic knowledge about turbo certificates provided in point 8 of Appendix II to this General Administrative Act in conjunction with the other measures is already suitable to combating the significant client protection concerns. Moreover, this is a minimum requirement, which means that intermediaries remain free to test the basic knowledge about turbo certificates at shorter intervals or to supplement the test with additional questions. The expansion pursuant to section 15 (1) sentence 2 of the WpHG of the group of addressees for the orders made in subparagraph 2(a) of point (1) and subparagraph 2(b) of point (1) of the operative part of this General Administrative Act to include persons or entities that are not investment firms within the meaning of Article 4(1)(1) of MiFIR and for which Article 42 of MiFIR is not directly applicable is also suited to addressing the significant investor protection concerns that have been identified. Consequently, the measure is suited overall to taking the significant investor protection concerns described above into account. The restriction on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany leads to the significant investor protection concerns that have been identified being eliminated.
2.6.2 Necessity for the measure
The restriction is also necessary in the scope stated in the operative part of this General Administrative Act. No less incisive measure is available that would be equally suited to addressing the present significant investor protection concerns. In particular, the restriction represents a more moderate measure than a complete prohibition on the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany. In contrast to a complete prohibition, the restriction allows retail clients to continue trading in turbo certificates but sufficiently limits the investor protection concerns that have been mentioned.

Merely strengthening the general education of retail clients by issuers and providers of turbo certificates regarding the risks associated with trading in turbo certificates, and especially the risk of high losses, cannot be considered to be an equally suitable measure. Only the obligation to issue a risk warning provided for in subparagraph 2(a) of point (1) of the operative part of this General Administrative Act can create complete transparency about the high probability of losses; this, in conjunction with the prohibition on granting benefits set out in subparagraph 2(b) of point (1) of the operative part of this General Administrative Act and the duty to test basic knowledge about turbo certificates set out in subparagraph 2(c) of point (1) of the operative part of this General Administrative Act can eliminate the significant investor protection concerns that have been identified. Publications by BaFin on the topic of turbo certificates can merely point out rather than eliminate these risks, especially given the limited range of influence of such publications. Equally, such publications cannot prevent retail clients being granted benefits in connection with the acquisition of turbo certificates, or making investments without a test of basic knowledge about turbo certificates having been performed. Equally, a reduction in leverage for turbo certificates would not be equally suited to addressing the high probability of loss and the losses actually realised by retail clients. The leverage for turbo certificates replicates the relationship between changes in the underlying and changes in the price of the turbo certificate. This leverage is not fixed, but rather depends on the difference between the current price of the underlying and the knock-out threshold. The nearer the underlying comes to the knock-out threshold, the greater the leverage. For this reason, a fixed limit on leverage would lead to the turbo certificate being automatically terminated when the maximum leverage is reached. However, this additional limit would be redundant in view of the knock-out threshold, which already leads to the turbo certificate being automatically terminated once a certain price level is reached. Consequently, a fixed leverage limit would further increase the complexity of turbo certificates, and clients would have to monitor both the knock-out threshold and the distance of the leverage to the prescribed leverage limit. Alternatively, a leverage limit could be designed in such a way that market makers would only be permitted to provide bid prices, but no ask prices, once a certain leverage limit is reached. However, the absence of ask prices could heavily distort pricing and could artificially increase the spread to the disadvantage of clients. In addition, market makers would have to continuously monitor the leverage limit and quoting ask prices would have to be suspended repeatedly if the leverage limit was exceeded. Such a practice would represent an
unreasonable restriction on market makers’

business. Furthermore, it would put providers of turbo certificates at a disadvantage, whereas providers of other high-leverage products (such as warrants) would still be able to quote ask prices. A leverage limit focusing solely on the time of issuance also does not represent an equally suited, more moderate measure. This is because it is highly unlikely that retail clients would only trade in turbo certificates directly following their issuance. Consequently, such a leverage limit would also not protect retail clients from high losses in relation to trading in turbo certificates. Overall, a leverage limit does not represent an equally suited, more moderate measure to appropriately address the significant investor protection concerns that have been raised. Contrary to the submission made by one petitioner during the consultation, this product intervention measure does not need to be supplemented by a restriction on leverage in order to dispel the significant client protection concerns that have been raised. These are already met by the three requirements set out in the General Administrative Act: the duty to provide a standardised risk warning, the prohibition on monetary and non-monetary benefits and the duty to test basic knowledge about turbo certificates. Introducing an additional restriction on leverage for turbo certificates would be neither necessary nor proportionate. The expansion pursuant to section 15 (1) sentence 2 of the WpHG of the group of addressees for the orders made in subparagraph 2(a) of point (1) and subparagraph 2(b) of point (1) of the operative part of this General Administrative Act to include entities that are not investment firms within the meaning of Article 4(1)(1) of MiFIR and for which Article 42 of MiFIR is not directly applicable is also needed to address the significant investor protection concerns that have been identified. This applies in particular to entities that issue or offer turbo certificates but that are not classified as investment firms. These third parties are primarily issuers that can at least be assigned to an investment firm but do not themselves count as an investment firm and therefore are not directly supervised by BaFin.
2.6.3 Proportionality of the measure in the narrower sense
(appropriateness)
Restricting the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany to the extent specified in the operative part of this General Administrative Act is also appropriate.

The measure addresses the significant investor protection concerns that have been described by creating an appropriate and uniform level of protection by creating transparency, restricting monetary and non-monetary incentives for acquisition and introducing a mandatory requirement for passing a test of basic knowledge about turbo certificates. It does not have any detrimental effect on the efficiency of financial markets, or on issuers, providers, intermediaries, investment firms or retail clients that is disproportionate to the benefits. An overall assessment must be made as part of the appropriateness assessment to weigh all the interests involved. In particular, (section 15 (1) sentence 2 of the WpHG in conjunction with) Article 42(2)(c) of MiFIR requires the extent and nature of the significant concerns identified with regard to investor protection, the level of sophistication of the clients or market participants concerned and the economic interest of the addressees, as well as the likely effect of the measure on clients and market participants, to be taken into account in this assessment. With regard to the retail investors protected by the measure, it must also be taken into account that the legislators attach particular importance to the protection of collective consumer interests. Under section 4 (1a) of the Act Establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz – FinDAG), BaFin is obliged to protect collective consumer interests within its legal mandate. This legal mandate must be seen in the light of the economic importance of collective consumer protection. For the reasons set out in the following, the public interest in collective client protection outweighs the economic interest of the issuers, providers, investment firms and intermediaries in the unrestricted marketing, distribution and sale of turbo certificates to retail clients in Germany.
2.6.3.1 Addressees selected and impacts of the measure
The product intervention measure restricting the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany is being ordered in the form of a General Administrative Act within the meaning of
section 35 sentence 2 of the VwVfG.
The addressees of the General Administrative Act are in particular, as intermediaries, both investment firms within the meaning of Article 1(1) of MiFID II in conjunction with Article 4(1)(1) of MiFID II that are domiciled in

Germany and that market, distribute or sell turbo certificates to retail clients domiciled in Germany or that intend to do so in future, as well as those that are domiciled in another Member State of the European Economic Area (EEA) and that market, distribute or sell turbo certificates to retail clients domiciled in Germany or that intend to do so in future. Consequently, the restriction does not apply to investment firms or other addressees of the General Administrative Act that are domiciled in Germany to the extent that they market, distribute or sell turbo certificates exclusively to retail clients in other EEA Member States. In addition, providers and issuers of turbo certificates that are not investment firms within the meaning of Article 1(1) of MiFID II in conjunction with Article 4(1)(1) of MiFID II but that offer or issue turbo certificates to retail clients domiciled in Germany are also covered via section 15 (1) sentence 2 of the WpHG in conjunction with Article 42 of MiFIR with regard to the orders set out in subparagraph 2(a) of point (1) and subparagraph 2(b) of point (1) of the operative part of this General Administrative Act. The General Administrative Act is addressed to a group of addressees that can be defined but is not objectively known at the time of adoption of the measure. Although the majority of intermediaries, issuers and providers domiciled in Germany are already known to BaFin from its market survey, it is possible that this group has grown in the meantime, that it will grow in the future, and that further intermediaries will enable retail clients domiciled in Germany to trade in turbo certificates. The same applies to issuers and providers of turbo certificates. It also applies to foreign investment firms that market, distribute or sell turbo certificates across borders to retail clients domiciled in Germany under the free movement of services in the EEA. This is the only way of ensuring a uniform level of consumer protection for retail clients in Germany. Regardless of the origin of the provider, intermediary and issuer, retail clients domiciled in Germany cannot buy turbo certificates without the level of protection prescribed in this General Administrative Act. Specifically:
2.6.3.1.1 Impact of the measure on the addressees
The adoption of the measure set out in the operative part of this General Administrative Act that is aimed in particular at intermediaries, providers and

issuers of turbo certificates is the most efficient way of achieving the desired level of protection with regard to trading in turbo certificates in Germany. It is suitable, necessary and appropriate in relation to all addressees. The General Administrative Act will impact the economic interest of the addressees of the General Administrative Act with regard to the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany. Specifically, intermediaries, providers and issuers may incur costs such as IT costs, consulting costs and costs in connection with updating their terms and conditions to implement the General Administrative Act. Above all, these costs can arise in the form of IT costs in view of the duty to provide the risk warning in all communications in connection with the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany and of the implementation of the test of basic knowledge about turbo certificates. However, these costs are expected to be manageable and must be subordinated to the need for improved investor protection. An exception to this General Administrative Act for relatively small investment firms that was called for by petitioners would distort competition and counteract the uniform level of protection to be created with this General Administrative Act. It is therefore necessary, including in view of the need to uphold the principle of equal treatment, to maintain a consistent regulation applicable to all market participants. In addition, investment firms are free to exclude retail clients in general from trading in turbo certificates. The duty of intermediaries, issuers and providers to ensure that any third parties engaged by them also provide a risk warning for promotions of turbo certificates is proportionate, since it is limited to checking on the provision, and if necessary imposing the addition, of a standardised risk warning. At an organisational level, only minor additional work is involved, since issuers, intermediaries and providers merely have to check on and, if necessary, impose the provision by the third parties they have engaged of the risk warning in line with the requirements of Appendix I to this General Administrative Act. Moreover, this duty only exists in the context of turbo certificates and must be implemented in any case by intermediaries, issuers and providers if no third parties are engaged. BaFin's market survey also shows that some intermediaries have already implemented a knowledge test. This demonstrates that existing processes can be enhanced with reasonable effort. Intermediaries already have established appropriateness assessment systems that can be enhanced with relatively little additional technical and organisational effort by making

selective additions. The test of basic knowledge about turbo certificates also leads to clients making more conscious and better-informed decisions in favour of suitable products. It can therefore be assumed that intermediaries’ effort and costs associated with client complaints will decline. Moreover, testing basic knowledge about turbo certificates can be combined with the statutory appropriateness assessment in accordance with Article 25(3) of MiFID II, taking into account the conditions stipulated in Appendix II to this General Administrative Act. Consequently, implementing a test of basic knowledge about turbo certificates in the form prescribed in this General Administrative Act does not represent an unreasonable imposition on intermediaries in relation to turbo certificates. In addition, the General Administrative Act could lead at least temporarily to a reduction in demand for turbo certificates on the part of retail clients domiciled in Germany, especially due to the duty to provide a risk warning in all communications in connection with the certificates’ marketing, distribution and sale. However, the potential reductions for intermediaries, issuers and providers also have to be subordinated to this extent to the public interest in protecting retail clients; they are inherent to such product intervention measures. In addition, it should be borne in mind that intermediaries, issuers and providers generally market, distribute and sell a large number of securities, and that therefore the trade in turbo certificates does not, as a matter of principle, significantly impact these firms’ overall financial performance. This General Administrative Act only affects turbo certificates as defined in point (2) of the operative part of this General Administrative Act. Consequently, intermediaries, providers and issuers are still free to market, distribute and sell other leveraged certificates without such restrictions to retail clients domiciled in Germany. Intermediaries therefore are also able at least to discontinue offering turbo certificates to retail clients domiciled in Germany without having to fully exit the leveraged certificates business. Moreover, the turbo certificates covered by the present restriction can still be marketed without restriction to professional clients within the meaning of
Article 4(1)(10) of MiFID II. Furthermore, it should be borne in mind that the
General Administrative Act merely restricts rather than completely prohibits the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany. A change in the business model of intermediaries, providers and issuers is therefore not necessary, but is limited to making organisational adjustments regarding the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany.

In addition, the General Administrative Act merely provides for restrictions resulting in organisational duties on the part of issuers, providers and intermediaries. The General Administrative Act does not result in a duty to make adjustments with respect to the design of the “turbo certificate” product itself. Restricting or prohibiting marketing, distribution and sale are intervention options open to BaFin as provided for by the legislators in (section 15 (1) sentence 2 of the WpHG in conjunction with) Article 42(1)(a) of MiFIR. When introducing these intervention options, the legislators were aware that intervention could have economically adverse consequences for those affected. The legislators deliberately accepted these potential consequences in favour of better investor protection. According to the assessment by the legislators, the financial interests of the intermediaries, issuers and providers must be subordinated to this extent to the interests of protecting retail clients. Furthermore, one of the main reasons that the financial sector is highly regulated is that it serves wider interests and objectives. The legislators give high priority to investor protection. According to this assessment by the legislators, the marketing, distribution and sale of a financial instrument should only be possible to the extent that a product is at least potentially able to serve those wider interests and objectives, and that the need to ensure a minimum level of investor protection is not disproportionately jeopardised by the product. By participating in the capital market, typical retail clients primarily pursue the purpose of capital accumulation. This is basically a savings or investment process. Financial instruments with which clients generate, on average, a negative investment performance to the extent applicable in the current case are therefore fundamentally incompatible with this and should be considered to be detrimental to investor protection. The significant investor protection concerns described above clearly show that a large proportion of retail clients lose money when trading in turbo certificates and that German retail clients already generated a total loss of more than EUR 3.4 billion over the period under consideration alone. For these reasons, the economic interest of intermediaries, issuers and providers in the unrestricted marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany must be considered less deserving of protection than the public interest in collective client protection,

and must be subordinated to the significant investor protection concerns described above.
2.6.3.1.2 Impact of the measure on other market participants
The present measure is also proportionate in respect of other market participants. In addition to the addressees of the General Administrative Act, other market participants who are not intermediaries, issuers or providers of turbo certificates could be indirectly affected by the provisions set out in subparagraph 2(a) of point (1) and subparagraph 2(b) of point (1) of the operative part. Specifically, third parties who market or distribute turbo certificates but that are not classified as intermediaries, issuers or providers must be considered here. In particular, these third parties are persons or entities who promote trading in turbo certificates on behalf of intermediaries, providers and issuers. Potential examples include affiliate partners, finfluencers or other promotional partners. These are indirectly affected by the General Administrative Act since issuers, intermediaries and providers must make sure that third parties who promote trading in turbo certificates on behalf of an issuer, intermediary or provider ensure that all communications regarding turbo certificates contain the mandatory risk warning. Any costs that other market participants may incur as a result of the need to adapt information and promotional material in relation to the target group of retail clients must be borne by comparison with the uniform level of protection created by the present measure, which aims at limiting the risk of loss. Any significant effects of the General Administrative Act on the financial sector as a whole can be ruled out. At least at present, the share of turbo certificates traded by retail clients is of no real consequence compared with the market for securities as a whole. In addition, turbo certificates may continue to be marketed, distributed and sold to retail clients domiciled in Germany if the restricting measures are complied with. The interdependencies between the retail client market for turbo certificates and other capital markets and the effects on stock exchange trading are extremely minor.

All in all, the advantages resulting from eliminating the significant investor protection concerns that have been identified outweigh the potentially negative effects of the measure on other market participants.
2.6.3.1.3 Impact of the measure on clients
The impact of the measure on retail clients is also proportionate. The marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany is still permitted provided that the three partial restrictions in the operative part of this General Administrative Act are implemented. It should indeed be borne in mind that individual retail clients must decide for themselves whether turbo certificates are a suitable investment for them, taking into account their individual life situation and financial position. The General Administrative Act restricts this autonomy insofar as it can, by imposing a duty on investment firms to implement the test of basic knowledge about turbo certificates, at least also indirectly limit retail investors’ freedom of action. However, this limitation is proportionate because the impact of the measure on retail clients remains highly restricted. Turbo certificates can continue to be made accessible to retail clients domiciled in Germany. Consequently, retail clients’ access to turbo certificates will not be completely prohibited provided that they have successfully passed the test of their basic knowledge about turbo certificates. It is true that taking the test of their basic knowledge about turbo certificates may possibly lead to minor delays in placing orders. However, this potential delay has very minor effects since this General Administrative Act does not require the test of basic knowledge about turbo certificates to be taken before each order is placed, but merely requires it to be conducted every six months. On the other hand, it cannot be ruled out that the measure will lead to modifications in market practice with regard to trading in turbo certificates (in the wider sense), as retail clients domiciled in Germany may no longer be granted any monetary or non-monetary benefits. The General Administrative Act could also lead to an increase in order costs in connection with turbo certificates. On the one hand because intermediaries will no longer be permitted to grant any reductions in connection with turbo certificates (such as reduced order fees where certain transaction volumes are traded), and on the other because intermediaries could pass on any potential costs incurred in the implementation of this General Administrative Act to retail clients.

The present restriction ensures that retail clients are made aware of the risks and the probability of loss associated with turbo certificates, that they only trade in turbo certificates if they have a basic understanding of how turbo certificates work and the risks associated with them, and that they are also not distracted by monetary and non-monetary benefits from the risks associated with these products. Consequently, it is appropriate to adopt the restriction set out in the operative part of this General Administrative Act. A product intervention measure necessarily leads to investment opportunities being restricted to a certain extent, but this is in line with the legislators’ intention. Article 42 of MiFIR and section 15(1) sentence 2 of the WpHG in conjunction with Article 42 of MiFIR deliberately provide the Federal Financial Supervisory Authority with the possibility to intervene in the event of significant concerns for investor protection, which are inherent in corresponding restrictions. Moreover, if the legal requirements are met, a retail client may obtain classification as a professional client and may be granted access to trading in turbo certificates after obtaining this status without having to take the test of basic knowledge of turbo certificates. In addition, professional clients can still be granted monetary and non-monetary benefits. Furthermore, where communications in connection with turbo certificates focus solely on the marketing, distribution and sale to professional clients, the duty to display the standardised risk warning does not apply. Classification as a professional client in accordance with Article 4(1)(10) of MiFID II21 is open to retail clients if their experience, knowledge and expertise allow them to make investment decisions and adequately assess the associated risks. According to the legislators’ intention, a change in classification may be considered if at least two of the criteria referred to in Annex II (II)(1) to MiFID II22 are met. This subclassification is appropriate because it can be assumed in the case of such clients that they have the necessary knowledge and experience as well as sufficient financial means to adequately assess and bear the risks associated with financial instruments, in particular the risks or the likelihood of losses. Overall, the benefits of eliminating the identified significant investor protection concerns, such as informed investment decisions, protection against false incentives and ensuring knowledge, outweigh the potential negative impact of the measure on retail clients. 21 Note: Transposed into national law in section 67 (6) of the WpHG. 22 Note: Transposed into national law in section 67 (6) nos. (1) to (3) of the WpHG.

The measure is thus also appropriate taking into account and weighing up all the interests involved.
2.6.3.2 Appropriateness in relation to the concrete restrictions
The concrete restrictions in subparagraphs 2(a) to (c) of point (1) of the operative part of this General Administrative Act are appropriate, since they appropriately balance the affected interests of providers and individual retail clients on the one hand and the public interest in protecting collective client interests on the other. Specifically:
2.6.3.2.1 Duty to provide a standardised risk warning
The addressees’ obligation to include a uniform risk warning as prescribed in the Appendix to this General Administrative Act is appropriate. Subparagraph 2(a) of point (1) of the operative part of this General Administrative Act obliges intermediaries, issuers and providers to provide a risk warning as prescribed in Appendix I to this General Administrative Act in all communications in connection with the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany. This risk warning must be displayed prominently and highlighted, and must include a loss ratio. This measure ensures that the risks of turbo certificates and in particular the loss ratio are presented to retail clients transparently and unambiguously. Displaying the risk warning in a clearly visible manner immediately before each purchase of a turbo certificate ensures that retail clients can include the risks and the probability of loss in their investment decision and so consciously decide whether they want to expose themselves to these risks. Providing the average loss ratio in the risk warning ensures transparent presentation of the risks associated with turbo certificates and enables an appropriate level of protection without completely prohibiting the marketing, distribution and sale of turbo certificates to retail clients. The purpose of the risk warning is to put retail clients in a position to take note of the content of the risk warning in good time and to include this information in their decision for or against the purchase of a turbo certificate. The risk warning helps retail clients to take well-founded decisions as to

whether or not they want to acquire a high-risk product for which the probability of making a loss is greater than of making a profit. The duty to provide the loss ratio when trading in turbo certificates also aims to combat the tendency of intermediaries, providers and issuers to highlight the potential opportunities for high profits as opposed to the probability of loss. Point 7 of Appendix I to this General Administrative Act requires an average loss ratio to be provided for trading in turbo certificates overall and hence is not provider-specific. This means that intermediaries do not have to calculate the loss ratio themselves. This approach reduces the effort involved after the risk warning has been implemented once. In particular, the effort is reduced because clients can in principle trade in turbo certificates from different issuers at intermediaries. A provider-specific loss ratio for turbo certificates would lead to a different loss ratio for the specific issuer of the turbo certificate to be traded having to be displayed to clients. In addition, provider-specific loss ratios would have to be recalculated at regular intervals and then also added to the intermediaries’ trading systems. However, issuers and providers cannot calculate loss ratios themselves on the basis of retail clients’ transactions, since they do not generally have access to the transaction data concerned. Consequently, intermediaries would have to calculate the loss ratios for the different issuers and providers themselves in each case. All in all, provider-specific loss ratios would therefore lead to unreasonably high additional effort for the intermediaries, who would have to implement the different risk warnings in their trading systems. As a result, the loss ratio calculated by BaFin in the course of its market survey is used. This is generally applicable and can also be applied to future periods. The general applicability of the loss ratio is due in particular to the extremely broad data set underlying the calculation, which reduces random effects and hence results in statistically robust significance. In addition, BaFin will regularly recalculate the loss ratio for retail clients’ trading in turbo certificates and – to the extent that significant deviations are found – will amend the General Administrative Act. In addition, referencing the loss ratio calculated by BaFin prevents intermediaries, issuers and providers from using company-specific loss ratios for marketing purposes. The form that an appropriate risk warning must take is prescribed in
Appendix I to this General Administrative Act. For example, the layout of the

risk warning as expressed by its font, colour, size or placement may not lead to it being unclear or insufficiently legible. The risk warning specified in point 7 of Appendix I to this General Administrative Act is also proportionate with regard to the information that it provides. The prominent display of the risk warning makes retail clients aware of the fact that seven out of ten retail clients sustain losses when trading in turbo certificates, and that these are high-risk products that are not suitable for long-term investment strategies. Contrary to the submissions by petitioners, it is also appropriate to prescribe the duty to display the risk warning both for all marketing communications and for the purchasing process (order placement). Displaying a risk warning repeatedly in different contexts means that the high risk associated with turbo certificates is always made clear to retail clients. Marketing communications represent an advertising or information context, and the focus is on product features. Retail clients should already be made aware of the risks associated with turbo certificates in this context, since this is the only way to combat potential misperceptions caused by marketing statements. In the case of order placement, retail clients are about to make their investment decision. At this point, they should again be directly made aware of the high risks associated with turbo certificates. By contrast, the risk warning’s protective function would not fully take effect if it were not displayed during the order process or were only to be displayed once (for example when turbo certificates are purchased for the first time). The potential risk of the order placement process becoming more difficult that was mentioned by petitioners must be subordinated to the objective of the risk warning, namely to make the high risks associated with turbo certificates clear to retail clients. Moreover, in practice the risk warning can be designed in such a way that it does not lead to any delay, but is rather integrated visually with the order entry form. Intermediaries, issuers and providers who engage third parties such as affiliate partners, affiliate networks or finfluencers to perform marketing and distribution activities must also ensure that these third parties comply with the duty to provide the risk warning in connection with trading in turbo certificates. This is appropriate since otherwise intermediaries, issuers and providers would be able to get round the duty to provide a risk warning imposed by this General Administrative Act by commissioning such entities.

Implementing the prescribed risk warning can entail additional effort or costs both for intermediaries, issuers and providers and for any third parties engaged. However, such charges must be subordinated to the resulting higher level of client protection and are appropriate.
2.6.3.2.2 Prohibition on monetary and non-monetary benefits
The prohibition on granting monetary and non-monetary benefits within the meaning of subparagraph 2(b) of point (1) of the operative part of this General Administrative Act is also appropriate. Promotional measures offering retail clients bonuses or other (financial) incentives for trading in turbo certificates (such as reduced order fees, the waiver of order fees, new client bonuses, etc.), can distract retail clients from the risks associated with turbo certificates or can induce them not to take such risks into consideration. Such offers can also motivate retail clients who would otherwise hardly invest in these products, who would invest in them less often, or who would not become aware of them, to trade in turbo certificates. Such monetary and non-monetary benefits are frequently tied to retail clients executing a certain number of transactions in turbo certificates. Monetary benefits can include, for example, waiving transaction fees in connection with turbo certificates or reducing order fees for these products, particularly if a certain trading volume or number of transactions are a precondition for qualifying for the benefit. Surcharges on low-volume transactions in turbo certificates are also covered by this prohibition, since such requirements could put pressure on retail clients to trade larger volumes of turbo certificates. “Refer a friend” promotions are also included where these relate to trading in turbo certificates. Temporary promotions that are used by intermediaries in particular to encourage retail clients to trade in certificates are also prohibited in connection with trading in turbo certificates even if they do not relate solely to turbo certificates. In such cases intermediaries, issuers and providers must explicitly rule out transactions in turbo certificates. However, the prohibition does not apply to general promotions that are not specifically related to turbo certificates, are not temporary in nature, and are not linked to preconditions such as certain transaction volumes or a certain number of transactions.

In addition, the prohibition does not apply to information and research tools such as analysis tools, tutorials, training or the provision of market prices that are made available to retail clients in connection with turbo certificates and that can assist them in making decisions. Also, intermediaries, issuers and providers may not engage any third parties to grant retail clients monetary and non-monetary benefits in connection with turbo certificates. Furthermore, intermediaries, issuers and providers who commission third parties to perform promotional services must ensure that these third parties do not grant retail clients any monetary or non￾monetary benefits in connection with trading in turbo certificates. While the prohibition on monetary and non-monetary benefits restricts the marketing and distribution options available to intermediaries, providers and issuers, they can still promote trading in turbo certificates in other ways. Contrary to the submissions by petitioners, the prohibition on monetary and non-monetary benefits does not impinge unjustifiably on established market mechanisms and does not inappropriately disadvantage retail clients. Protection against inappropriate incentives is more important than a potential cost benefit in individual cases. Monetary and non-monetary benefits can motivate retail clients to take decisions to buy turbo certificates that are not based on an objective assessment of the risk/return benefit ratio. They distract attention from the actual risk, the cost structure and the product’s suitability. These benefits distort competition away from investment quality and towards the attractiveness of the incentive model. Dispensing with potential cost benefits is therefore to be seen as acceptable, since protecting retail clients takes precedence over potential short-term price benefits. Equally, the potential distortion of competition in favour of neobrokers and investment firms with extremely low order fees that was mentioned by petitioners must be subordinated to protecting retail clients. Whether this can be considered to be a distortion of competition is in itself questionable. Regardless of this, however, client protection is a higher-ranking objective that must apply equally to all intermediaries irrespective of the fees or cost models that individual Intermediaries base their business models on.

2.6.3.2.3 Duty to implement a test of basic knowledge about turbo certificates
The duty to test basic knowledge about turbo certificates prescribed in subparagraph 2(c) of point (1) of the operative part of this General Administrative Act is appropriate. The introduction of a mandatory test of basic knowledge about turbo certificates in the form of a “client test” that conveys the key product features and serves to check whether retail clients have understood these represents a significant extension of investor protection. In particular, such a test can protect retail clients from overly hasty and potentially existentially threatening investment decisions. The introduction of a mandatory test of basic knowledge about turbo certificates in addition to the appropriateness assessment provided for in
Article 25(3) of MiFID II is appropriate, since this statutory requirement does
not take the specific characteristics of turbo certificates into account and is not enough to provide clients with sufficient protection particularly in the case of highly speculative and risky products such as turbo certificates. Specifically, this is due to the fact that retail clients can ignore the results of a(n) (negative) appropriateness assessment and that such appropriateness assessments are based solely on retail clients' self-assessments. A test of basic knowledge about turbo certificates helps protect inexperienced retail clients and retail clients who do not sufficiently understand the risks involved from making bad financial decisions. Given the negative investment performance generated by retail clients when trading in turbo certificates and the recommended investment period of one day, plus the high cost of turbo certificates and the fact that market makers are not obliged to provide prices, there is a risk that retail clients will not fully understand these characteristics, especially in view of the high degree of complexity exhibited by turbo certificates. The existing appropriateness assessment, which is based on general knowledge and experience of financial instruments, is therefore not enough to ensure that retail clients can actually grasp the specific risks associated with turbo certificates. For the reasons given above, a test of basic knowledge about turbo certificates is being prescribed, comprising specific questions about how turbo certificates work and the risks involved with them. The design of the test of basic knowledge about turbo certificates (see Appendix II Design of the test of basic knowledge about turbo certificates) therefore requires retail

clients to correctly answer at least six of the questions about turbo certificates given in point 8 of Appendix II to this General Administrative Act before they can purchase turbo certificates. To answer the questions correctly, retail clients must understand the consequences of reaching the knock-out threshold, the recommended investment period, the costs that will be incurred, the loss ratio, price quotations and what happens if issuers of turbo certificates become insolvent. The test of basic knowledge about turbo certificates thus covers the key functions of, and risks associated with, turbo certificates. The duty to repeat the test of basic knowledge about turbo certificates every six months is also appropriate with respect to the potential impact on intermediaries and retail clients mentioned by petitioners. Requiring a test of basic knowledge about turbo certificates to be conducted at least every six months appropriately balances client protection on the one hand and the impact on intermediaries and retail clients on the other. Regularly repeating the test is the only way to ensure that retail clients have the knowledge they need to decide whether or not to make trades. In addition, specifying a concrete validity period for the test of basic knowledge about turbo certificates ensures a uniform level of consumer protection on the market. For this reason, an approach to testing basic knowledge about turbo certificates that is tailored or specific to individual undertakings is not suitable. Contrary to the statement by one petitioner during the consultation, however, it is neither necessary nor proportionate for achieving the objective of this General Administrative Act to restrict the opportunities to repeat the test of basic knowledge about turbo certificates if a retail client does not pass it. Testing basic knowledge about turbo certificates and displaying the correct answers ensures that retail clients are made aware of the necessary minimum information about how these products work and the risks associated with them. Retail clients who cannot answer the questions correctly the first time they are tested should only be prevented from trading turbo certificates until they answer the questions correctly. The learning outcome is not impacted by the opportunity to repeat the test immediately. By contrast, restricting the opportunities to repeat the test (e.g. using a cooling-off period lasting several days, weeks or months) would lead to a retail client being unable to execute their planned transaction at all. This would represent a de facto (temporary) prohibition on trading that, in BaFin’s view, would be disproportionate both for the addressees of this General Administrative Act and for retail clients.

BaFin does not share the concerns expressed by petitioners that retail clients could successfully pass the test of basic knowledge about turbo certificates without grasping the actual risks posed by these financial products. Firstly, it already seems highly improbable that retail clients without existing knowledge will obtain a perfect score in the test of basic knowledge about turbo certificates by randomly selecting the right answers. Furthermore, the information is always communicated when the retail client selects the answer – in other words, even if the right answer is selected by chance. In addition, the answers to the questions asked will be displayed if an incorrect answer is given, so as to ensure that the intended learning effect for retail clients is achieved. The questions prescribed are suitable and sufficient to communicate the material product features for turbo certificates. Expanding the list of questions – as called for by petitioners – is not necessary to achieve this objective while also taking into account the effort at the investment firms, and would therefore also be disproportionate for the addressees in the context of this measure. Furthermore, it should be borne in mind that this General Administrative Act merely prescribes a minimum level of protection. Investment firms are free to expand on the mandatory list of questions given in point 8 of Appendix II, and also to shorten the validity period for the test and to exclude opportunities for repeating the test. Granting discretion in relation to the language used to formulate the questions in point 2 of Appendix II is appropriate in order to allow investment firms to adapt them to their specific corporate language. Additional leeway, including in relation to the content, is not necessary and would run the risk of diluting the intended information gain for retail clients. The test of basic knowledge about turbo certificates within the meaning of this General Administrative Act does not replace the statutory appropriateness assessment in accordance with Article 25(3) of MiFID II, but must rather be performed in addition to this. However, the obligation to implement this test is restricted to retail clients’ trading in turbo certificates. The test of basic knowledge about turbo certificates can also be combined or performed together with the statutory appropriateness test, provided that the requirements listed in Appendix II to this General Administrative Act, in particular in relation to the frequency with which testing must be performed and the requirement to exclude retail clients who do not answer all six questions correctly, are observed.

The more specific requirements for knowledge testing and for updating client information set out in section BT 6 of the Minimum Requirements for the Compliance Function and Additional Requirements Governing Rules of Conduct, Organisation and Transparency pursuant to sections 63 et seq. of the Securities Trading Act for Investment Firms (MaComp as amended on September 26, 2024) also do not give rise to a different conclusion. Firstly, they are restricted to ensuring that the information that must be provided by clients in relation to their experience and knowledge that is needed for the appropriateness assessment is up to date, complete and correct. Secondly, they do not prescribe any concrete intervals, and hence any comparable regularity, for verifying the client information.
2.7 Implementation period
Point (1) of the operative part of this General Administrative Act sets out an implementation period of eight months following the adoption of the measure. This period is appropriate. Establishing a transitional period is warranted in the present case for reasons of proportionality. The above-mentioned implementation period also does not contravene the purpose of the measure. Rather, it is intended to enable the addressees to adapt their business models and terms and conditions to the restriction set out in the operative part of this General Administrative Act. Taking into consideration this need to potentially modify the addressees’ business models and terms and conditions to comply with the present restriction, it is reasonable for the addressees to meet the obligation by the end of an eight-month period following the announcement of this General Administrative Act. The implementation period has been increased from three to eight months to take account of the objections raised in the consultation. A further increase in the implementation period is not indicated, even taking necessary technical and administrative modifications into account. In particular, the 12- month period called for by some petitioners does not appear appropriate. This can also be seen from the fact that other petitioners consider it possible to perform the implementation in less than eight months. The interest in a longer implementation period must be subordinated to the public interest in the timely elimination of the significant client protection concerns that have been established. This applies in particular in view of the high losses that

retail clients suffer when trading turbo certificates. Therefore, after weighing up the interests of the addressees of the General Administrative Act and the client protection objective, an eight-month implementation period appears sufficient and appropriate.
2.8 Justification of the right of revocation
BaFin reserves the right of revocation, in particular so as to be able to prevent this product intervention measure from running counter to the uniform European regulation of turbo certificates in the event that turbo certificates are regulated at European level. In addition, the right of revocation is designed to make it possible to respond to changes in the market situation.
3. Appendix
The Appendix to this General Administrative Act contains the conditions governing the provision of a mandatory risk warning pursuant to subparagraph 2(a) of point (1) of the operative part of this General Administrative Act (Appendix I) and for the design of the test of basic knowledge about turbo certificates pursuant to subparagraph 2(c) of point (1) of the operative part of this General Administrative Act in connection with the marketing, distribution and sale of turbo certificates to retail clients domiciled in Germany (Appendix II).
Appendix I Design of the mandatory risk warning
The design of the risk warning in accordance with subparagraph 2(a) of point (1) of the operative part of this General Administrative Act shall be as follows:

1. The risk warning must be clearly visible to retail clients at all times in
   all communications within the meaning of subparagraph 2(a) of point (1) of the operative part of this General Administrative Act. This applies to communications in all relevant areas of the websites or trading apps (e.g. detailed product pages or information sections on turbo certificates). In addition, the risk warning must be displayed when purchases are entered into (e.g. on the order entry screen).

2. The risk warning must be clearly distinguishable from the other text.
   This can be achieved using a box, a background colour or bold type. The risk warning may not be covered up by other communications such as interactive elements (“pop-up windows”).

3. The font size for the risk warning must be at least as large as the
   standard size for the remaining text elements in the communications concerned. If for technical reasons the font size for the risk warning in a mobile App cannot correspond to the standard size for the other text elements, the risk warning must be clearly identified by its colour and must be highlighted.

4. The risk warning must be permanently displayed, for example as a
   permanent disclaimer at the bottom of the screen. Merely displaying the risk warning temporarily at the beginning of a promotional video is not sufficient, for example. Equally, retail clients may not be able to remove the risk warning on websites or in mobile apps. For technical reasons, the risk warning on the order entry screen can be designed in such a way that it does not have to be permanently displayed once it has been explicitly confirmed by the retail client.

5. If the communication is in a language other than German, a
   translation of the risk warning into this other language must be used. The translation must faithfully reproduce the risk warning given under point 7.

6. In the case of audio messages, the risk warning under point 7 must
   be read/reproduced in understandable language and at an understandable speed at the start of the message.

7. The following risk warning must be provided:
   On average, 7 out of 10 retail clients suffer losses when trading turbo certificates. Turbo certificates are highly risky products and are not suited for long-term investment strategies.

Appendix II Design of the test of basic knowledge about turbo certificates
The test of basic knowledge about turbo certificates in accordance with subparagraph 2(c) of point (1) of the operative part of this General Administrative Act must have the following design:

1. The test of basic knowledge about turbo certificates must include at
   a minimum the six multiple choice questions given in point 8.

2. Investment firms may adapt the language of the questions as long as
   this does not result in any changes to the content. The order of the questions may be changed.

3. The test of basic knowledge about turbo certificates is considered to
   have been passed if the retail client answers at least all six questions listed in point 8 of this Appendix correctly.

4. Retail clients can repeat the test of basic knowledge about turbo
   certificates as many times as they wish. Investment firms can also provide for stricter rules here and, for example, restrict the number of repeat attempts.

5. After the six-month validity period has expired, the test of basic
   knowledge about turbo certificates must be repeated before any turbo certificates are purchased. Investment firms can shorten the validity period for the test of basic knowledge about turbo certificates or, for example, can require the questions to be answered every time an order is placed.

6. The test of basic knowledge about turbo certificates does not replace
   the statutory appropriateness assessment within the meaning of
   Article 25(3) of MiFID II. However, as a matter of principle the test of
   basic knowledge about turbo certificates can also be integrated with the statutory appropriateness assessment, taking into account all requirements listed in this Appendix.

7. Retail clients must be informed of the results of the test of basic
   knowledge about turbo certificates directly after the test of basic knowledge about turbo certificates has been performed. The correct answers must be displayed following the test of basic knowledge about turbo certificates in the case of questions that have been answered wrongly.

8. Questions for the test of basic knowledge about turbo certificates 23:
   (1) What happens if a turbo certificate reaches the knock-out threshold? a) The price of the turbo certificate decreases but may subsequently recover. b) The knock-out threshold only plays a role at the end of the year. c) The turbo certificate expires immediately, and the price of the turbo certificate cannot subsequently recover. (2) For what investment period are turbo certificates typically designed? a) Turbo certificates are designed for long-term investment over several years. b) Turbo certificates have a fixed term of at least one year. c) Turbo certificates are typically designed for an extremely short holding period of one day. (3) What costs are incurred when trading in turbo certificates? a) No costs are incurred apart from the certificate’s purchase price. b) Spreads, financing costs and possibly other fees are incurred in addition to the purchase price. c) Only a one-time transaction fee is incurred on purchase in addition to the purchase price. 23 Note: Solution to the questions under 9; the correct answers are: (1) = c), (2) = c), (3) = b), (4) = c), (5) = b), (6) = b).

(4) What percentage of retail clients lose on average when trading in turbo certificates? a) 30%. b) 50%. c) Over 70%. (5) Is the issuer or market maker obliged to provide price quotations for turbo certificates at all times? a) Yes, the issuer must provide price quotations at all times, regardless of the market situation. b) No, prices can be suspended, e.g. during periods of high volatility or market disruptions. c) Yes, but only during regular exchange opening times. (6) What happens if the issuer of a turbo certificate becomes insolvent? a) The certificates are protected by a deposit protection fund. b) There is the risk of a total loss for the client. c) Turbo certificates are taken over automatically by a third party.

Notes:
Under section 15 (2) of the WpHG, objections and appeals against measures under Article 42 of MiFIR and section 15 (1) sentence 2 of the WpHG in conjunction with Article 42 of MiFIR do not have any suspensory effect. Under section 120 (2) no. 2b of the WpHG, any person who wilfully or negligently contravenes an enforceable order under section 15 (1) of the WpHG commits an administrative offence. Under section 120 (9) no. 30 of the WpHG, any person who wilfully or negligently contravenes an enforceable order under Article 42(1) of MiFIR commits an administrative offence. Instruction on available remedies:
Objections to this General Administrative Act can be submitted to BaFin in Bonn or Frankfurt am Main within one month of its announcement. Dr. Thorsten Pötzsch