BaFin Interpretation of Terms in Section 34b WpHG and FinAnV — BAFIN — DE

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This letter serves as an explanation of the interpretation by BaFin of a number of terms that are of particular significance for the application of section 34b WpHG in conjunction with the FinAnV . The contents of section 34b WpHG , the FinAnV and this letter represent minimum requirements. Under the conditions set out in section 34b (4) WpHG , the provisions set forth in section 34b (1), (2) and (5) WpHG and this letter do not apply to journalists.

Business sign: WA 36 - W - 2534B - 2004/0030

01.09.2005

Analysis of financial instruments

"Analysis" in the context of this letter refers to financial analysis within the meaning of section 34b (1) sentence 1 WpHG and information containing a recommendation for a particular investment decision within the meaning of section 34b (6) sentence 1 WpHG .

The term financial analysis is defined in section 34b (1) sentence 1 WpHG .

According to this definition, financial analysis is constituted by

information concerning financial instruments within the meaning of section 34b (3) WpHG in conjunction with section 2 (2b) WpHG or their issuers, containing a direct or indirect recommendation for a particular investment decision, and intended for release to an unspecified group of individuals.

Investment services enterprises must also observe section 34b (6) WpHG if they make available to others

information concerning financial instruments within the meaning of section 2 (2b) WpHG or their issuers, that contains a direct or indirect recommendation for a particular investment decision.

The method by which the analysis is made available (in written or electronic form, or in some other way, e.g. in the context of public presentations) is of no material importance.

In relation to section 34b (1) sentence 1
WpHG
, section 34b (6)
WpHG covers situations in which investment services enterprises make analyses available to a restricted group of individuals in the context of customer relations. The term investment services enterprises is defined in section 2 (4) WpHG .

Information concerning financial instruments or their issuers containing a direct or indirect recommendation for a particular investment decision (section 34b (1) sentence 1 and (6) sentence 1
WpHG
)

In order to be considered an analysis it must comprise

the preparation of information concerning one or more financial instruments or their issuer(s) that contains an investment recommendation for a specific financial instrument ( e.g. Buy/Sell or a price target).

a) In order to be considered information concerning a financial instrument or its issuer containing a recommendation, it must contain a recommendation and, if regarded as a material whole, convey the impression that the financial instrument or issuer concerned has been the subject of detailed consideration. The financial instrument or its issuer must not necessarily have been the subject of research. In particular, it is not mandatory to evaluate and analyse an enterprise's financial or market trading data. It is generally sufficient that the impression of such consideration is delivered via facts, opinions and/or comments relating to the recommendation, or - in exceptional cases - via the presentation of or the context in which the recommendation is made.

A mere recommendation that does not convey the impression that the financial instrument or the issuer has been the subject of detailed consideration, however, does not qualify as an analysis. This should be distinguished from a situation in which a mere recommendation is to be regarded as a summary of a financial analysis prepared by a third party as defined in section 34b (2) WpHG .

In line with the prerequisites set out above, a technical examination of a financial instrument deriving projections for future performance from past price trends, or a sector report covering several enterprises and containing a recommendation, may also be considered an analysis.

An analysis is not, however, constituted by

the rendering of a pure price chart, unless it is used as the basis for future prognoses, the assessment of an index, a report analysing the economic, political or market environment that does not contain recommendations for specific instruments, a sample portfolio which does not offer additional information on the financial instruments included or their issuers that would convey the impression of detailed consideration, a portfolio recommendation referring to regions or sectors and not to individual financial instruments or their issuers, a warrant calculator or a similar tool that is used to evaluate statistical data on the basis of generally accepted algorithms, a pure product description, a company description that does not include a direct or indirect recommendation for a particular investment decision, pure marketing material ( e.g. advertising or other informational material used in marketing), unless it gives the impression of unbiased information, the pure dissemination of company news that does not contain a direct or indirect recommendation for a particular investment decision, information prepared to fulfil statutory obligations ( e.g. ad-hoc disclosures pursuant to section 15 WpHG , stock exchange admission or sales prospectuses, information on domestic or foreign investment companies pursuant to the Investment Act (Investmentgesetz)), an investment recommendation which does not give the impression that a financial instrument or its issuer has been the subject of detailed consideration ("We recommend buying X stocks"), a simple summary of recommendations made by the enterprise in question (recommendation lists). Section 34b (2) WpHG should, however, be observed in relation to lists containing summaries of third-party financial analyses.

b) An analysis must always contain a recommendation for a financial instrument or its issuer (see a) above). Such recommendations for particular investment decisions can be made directly, for instance in the form of a recommendation to buy, hold or sell particular financial instruments, or indirectly, whereby particular price targets are defined.

For an indirect recommendation it is sufficient, but also necessary, that if the statement is considered as a whole, it clearly expresses how the current or future price/value of a financial instrument is assessed. An evaluation which presents or assesses past events, without offering an opinion on the current or future value or price of the financial instrument, is not an indirect investment recommendation ( e.g. ranking lists based on past performance by a financial instrument).

Correspondingly, details of completed transactions in the context of individual asset or fund management would not generally be regarded as an investment recommendation.

In line with the prerequisites set out above, the following statements may constitute indirect recommendations:

"The stock is overvalued"
"The stock is undervalued"
"The stock has high recovery potential"
"Outperformer"
"Underperformer"
"Bullish stocks"
"Bearish stocks"
"Our best performers"
"Tip of the day"
"Trading idea"
"Top player"

Intended for release to an unspecified group of individuals (section 34b (1) sentence 1
WpHG
)

A financial analysis within the meaning of section 34b (1) sentence 1 WpHG assumes that the financial analysis may be intended for release to an unspecified group of individuals, possibly by a third party from the outset. This is the case if the financial analysis is not designed to serve purely internal purposes, but is also intended for distribution channels or for the public as defined in Directive 2003/6/EC [2] and Directive 2003/125/EG [3] . A distribution channel is a channel which makes the financial analysis available to such a large number of people that it is tantamount to public distribution ( e.g. copies displayed in offices, the internet or media, but also correspondingly extensive postal or electronic mailing lists).

A recommendation that was prepared as part of specific investment advice based on the individual requirements of a particular client does not constitute an analysis. A recommendation that has been tailored to the client's individual circumstances, taking into account their personal, financial or tax situation, for instance within the context of investment advisory services, is not included in this instance, because it was submitted to selected clients, for example in conjunction with a personal letter. The decisive factor is that the recommendation was based on the individual situation of the particular client or group of clients from the outset, making it a personal recommendation.

Informal short-term investment recommendations stemming from the sales or trading departments of an investment services enterprise, which are forwarded to clients ( e.g. sales notes) do not constitute analyses. This is only the case, however, if they are not released or intended for release to the public or to a large number of people, via distribution channels or the media for instance (see above). The title of such information is immaterial in terms of its classification.

Public distribution and communication (section 34b (1) sentence 2
WpHG
)

A financial analysis is "publicly distributed" in accordance with section 34b (1) sentence 2 WpHG if it is made available to the public or to a large number of people ( e.g. via postal delivery, via e-mail or by posting it on the internet). The existence of a disclaimer does not serve to prevent an analysis from being publicly distributed.

An analysis is "communicated" if it is made available by a person other than the person who was responsible for preparing the analysis. The number of recipients is immaterial. For a financial analysis to have been "communicated", however, the object of communication must in fact be classed as a financial analysis, i.e. it must be intended for release to an unspecified group of individuals (see above).

Making information available to others (section 34b (6) sentence 1
WpHG
)

Information containing a recommendation for a particular investment decision within the meaning of section 34b (6) sentence 1 WpHG is "made available to others" if it leaves the immediate area of the investment services enterprise and the undertakings associated with it, and is released, for instance, to institutional or private clients. The number of recipients is immaterial. This does not apply to individual investment advisory services and sales notes (see 3 above).

In the context of public distribution or communication within the meaning of section 34b (1) and (6) WpHG , it is immaterial whether or not the recipients had or could have had access to the analysis via other sources.

[ ... ]

[1]

Federal Law Gazette I, no.
70 of 22 December 2004, p.
3522)

[2]

L
96/16 dated 12 April 2003

[3]

L
339/73 dated 24 April 2003

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