Guideline on the Granting of Authorization for Providing Securities Services under Section 15 WpIG

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DEUTSCHE BUNDESBANK
Guideline on the
Granting of Authorization for Providing Securities Services under Section 15 WpIG (Status: January 27, 2025)

This guideline provides companies wishing to submit an application for authorization for securities services under Section 15 WpIG with initial indications of which aspects are of particular importance from the supervisory perspective in the authorization procedures. The guideline does not claim to be exhaustive; the statutory foundations apply.

Contents
1 Licensable Securities Services.................................................... 3
1.1 Securities Firms ............................................................................................... 3
1.2 Securities Services.................................................................................. 4
1.3 Securities Ancillary Services........................................................................ 9
1.4 Ancillary Business Activities ................................................................................................... 9
1.5 Financial Instruments................................................................................................ 9
2 Exceptions ........................................................................................................ 10
3 Authorization Procedure ............................................................................................. 14
3.1 Prerequisites for Granting Authorization....................................................... 14
3.1.1 Initial Capital............................................................................................. 15
3.1.2. Other Grounds for Refusal.......................................................................... 16
3.1.3 Impairment of Supervision...................................................................... 17

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3.2 Content of the Authorization Application................................................................................ 18
3.3 Submission of the Application .................................................................................... 20
4 Requirements for Managing Directors, Administrative or Supervisory Bodies ............. 21
4.1 Requirements for Managing Directors...................................................................... 21
4.2 Requirements for Administrative or Supervisory Bodies...................................... 22
5 Holders of Qualifying Holdings ................................................................... 22
6 Branches and Cross-Border Provision of Services by
Companies with Their Seat in Another Contracting State...................................... 25
6.1 Establishment of a Branch ................................................................. 25
6.2 Cross-Border Provision of Services .................................................. 26
7 Fees/Levies.............................................................................................. 26
8 Information on the Applicable Compensation Scheme................................. 26
9 Addresses ......................................................................................................... 27
Mailing Address Mailing Address Telephone Fax e-mail / Internet for Value and Urgent Mail for Registered Mail Wilhelm-Epstein-Straße 14 Postfach 10 06 02 (0 69) 95 66 - 1 (0 69) 5 60 10 71 zentrale.bbk@bundesbank.de 60431 Frankfurt am Main 60006 Frankfurt am Main http://www.bundesbank.de

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1 Licensable Securities Services
Anyone who, within the domestic territory, the scope of application of the Act on the Supervision of Securities Firms (Securities Firms Act – WpIG), provides securities services on a commercial basis or on a scale requiring a business operation established in a commercial manner, generally requires written authorization (§ 15(1) WpIG) from the Federal Financial Supervisory Authority – hereinafter referred to as BaFin. Exceptions apply to companies with their seat in another state of the European Economic Area (§ 73 WpIG). BaFin may grant authorization subject to conditions (§ 15(8) WpIG); the authorization may furthermore be restricted to individual securities services or restricted in content such that the securities firm is not authorized to acquire ownership or possession of customer funds or customer securities (§ 15(9) WpIG).

If financial or securities services are provided without the required authorization, BaFin may order the immediate cessation of business operations and the prompt settlement of these transactions with the company and the members of its bodies pursuant to Section 37(1) No. 1 of the Banking Act (KWG). Coercive measures may also be issued against companies and their body members who are involved in the initiation, conclusion, or settlement of the unauthorized transactions.

Providing securities services, securities ancillary services, or ancillary business activities without authorization is a criminal offense (§ 82 WpIG).

1.1 Securities Firms
Securities firms are, according to Section 2(1) WpIG, those companies that provide securities services alone or together with securities ancillary services or ancillary business activities on a commercial basis or on a scale requiring a business operation established in a commercial manner.

Business operations are considered commercial if the operation is designed for a certain duration and pursued with the intention of generating profit. Alternatively, the criterion of the necessity of a business operation established in a commercial manner applies. The decisive factor for the presence of this characteristic is not that a business operation established in a commercial manner exists, but solely whether the transactions have such a scale that an objective commercial organization is required.

Generally, the WpIG distinguishes between Small, Medium, and Large Securities Firms. A Small Securities Firm within the meaning of Section 2(16) WpIG exists if the conditions of Article 12(1) of Regulation (EU) 2019/2033 (IFR) are met1. A Medium Securities Firm within the meaning of Section 2(17) WpIG exists if

1 Securities firms (within the meaning of MiFID) that do not exceed any of the thresholds listed in Art. 12(1) IFR: Value of AUM < 1.2 billion EUR; Value of COH < 100 million EUR/Day for cash transactions or < 1 billion EUR/Day for derivatives; Value of ASA = 0; Value of CMH = 0; Value of DTF = 0; Value of NPR = 0, Value of CMG = 0; Value of TCD = 0; total balance sheet and off-balance sheet total of the securities firm < 100 million EUR; annual gross total income from securities services and investment activities of the securities firm < 30 million EUR, calculated as an average based on the annual figures of the two-year period immediately preceding the respective financial year.

DEUTSCHE BUNDESBANK Frankfurt am Main 4 of 28 the conditions of Article 12(1) of the IFR are not met2. A Large Securities Firm is a securities firm within the meaning of Section 2(18) WpIG that is required to apply Regulation (EU) 575/2013 (CRR) due to Article 1(2) of the IFR or due to an authorization pursuant to Article 1(5) of the IFR or under Section 8 WpIG3.

1.2 Securities Services
What constitutes a securities service is exhaustively defined in Section 2(2) Nos. 1 to 10 WpIG. Accordingly, the following are to be qualified as securities services:

1. the purchase or sale of financial instruments in one's own name for the account of another (financial commission business),
2. the assumption of financial instruments for one's own risk for placement or the assumption of equivalent guarantees (underwriting business),
3. the mediation of transactions regarding the purchase and sale of financial instruments (investment mediation),
4. the provision of personal recommendations within the meaning of Article 9 of Delegated Regulation (EU) 2017/565 of the Commission of April 25, 2016 supplementing Directive 2014/65/EU (MiFID II) of the European Parliament and of the Council as regards organizational requirements for securities firms and conditions for the exercise of their activities as well as as regards the definition of certain terms for the purposes of the said Directive (OJ L 87 of 31.3.2017, p. 1; L 246 of 26.9.2017, p. 12; L 82 of 26.3.2018, p. 18), last amended by Delegated Regulation (EU) 2019/1011 (OJ L 165 of 21.6.2019, p. 1), to customers or their representatives, relating to transactions with certain financial instruments, provided the recommendation is based on an examination of the investor's personal circumstances or is presented as suitable for him and is not disseminated exclusively via information dissemination channels or made known to the public (investment advice),
5. the purchase or sale of financial instruments in another's name for another's account (conclusion mediation),

2 Securities firms (within the meaning of MiFID) that exceed at least one of the thresholds from Art. 12(1) IFR, which characterize Small Securities Firms, but do not reach the thresholds for Large Securities Firms.
3 Securities firms (within the meaning of MiFID) that engage in proprietary trading and/or underwriting business, and meet one of the following conditions:
a) The total value of the consolidated balance sheet total of the securities firm is 15 billion EUR or more, calculated as an average of the preceding twelve months. b) The total value of the consolidated balance sheet totals of all securities firms in a group, whose individual balance sheet totals are less than 15 billion EUR, exceeds in total the amount of 15 billion EUR. c) The securities firm is subject to a decision by the competent authority pursuant to Section 8(1) WpIG. (Securities firms, which engage in trading on own account and/or underwriting business and whose assets are above a threshold of 30 billion EUR (Art. 4(1)(b)(i), (ii) CRR) will in the future be CRR credit institutions.)

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6. the operation of a multilateral system that brings together the interests of a large number of persons in the purchase and sale of financial instruments within the system and according to non-discretionary rules in a way that results in a contract for the purchase of these financial instruments (operation of a multilateral trading facility),
7. the operation of a multilateral system that is not a regulated market or a multilateral trading facility and that brings together the interests of a large number of third parties in the purchase and sale of bonds, structured finance products, emission certificates, or derivatives within the system in a way that results in a contract for the purchase of these financial instruments (operation of an organized trading facility),
8. the placement of financial instruments without a firm commitment underwriting obligation (placement business),
9. the management of individual or multiple portfolios of investments in financial instruments for others with discretionary power (portfolio management),
10. proprietary trading through
a) the continuous offering of the purchase and sale of financial instruments to financial markets at prices set by oneself for one's own account using one's own capital (market-making), b) the frequent, organized, and systematic conduct of trading for one's own account on a significant scale outside a regulated market or a multilateral or organized trading facility, when customer orders are executed outside a regulated market or a multilateral or organized trading facility, without operating a multilateral trading facility (systematic internalization), c) the purchase or sale of financial instruments for one's own account as a service for others, or d) the purchase or sale of financial instruments for one's own account as an immediate or indirect participant in a domestic organized market or a multilateral or organized trading facility using high-frequency algorithmic trading technology, which is characterized by aa) an infrastructure to minimize network latencies and other delays in order transmission (latencies), which has at least one of the following devices for the input of algorithmic orders:
aaa) colocation, bbb) proximity hosting, or ccc) direct electronic high-speed access,

DEUTSCHE BUNDESBANK Frankfurt am Main 6 of 28 bb) the ability of the system to initiate, generate, relay, or execute an order without human intervention within the meaning of Article 18 of Delegated Regulation (EU) 2017/565, and cc) a high intraday message rate within the meaning of Article 19 of Delegated Regulation (EU) 2017/565 in the form of orders, quotes, or cancellations, even if no service for others is involved (high-frequency trading). Whether frequent systematic trading within the meaning of item 10 letter b exists is determined by the number of transactions outside a trading venue within the meaning of Section 2(22) of the Securities Trading Act (OTC trading) with a financial instrument to execute customer orders carried out for one's own account. Whether trading on a significant scale within the meaning of item 10 letter b is determined either by the proportion of OTC trading to the total trading volume of the company in a specific financial instrument or by the ratio of the company's OTC trading to the total trading volume in a specific financial instrument in the European Union. The prerequisites for systematic internalization are only met when both the upper limit for frequent systematic trading specified in Articles 12 to 17 of Delegated Regulation (EU) 2017/565 and the relevant upper limit for trading on a significant scale specified therein are exceeded, or if a company voluntarily subjects itself to the regulations applicable to systematic internalization and has submitted a corresponding authorization application to BaFin.

Anyone who, in addition to providing securities services, also wishes to purchase and sell financial instruments for their own account, provided this does not constitute proprietary trading (principal trading), also requires authorization from BaFin for this (§ 15(3) WpIG). If principal trading is operated as a member or participant of an organized market or a multilateral trading facility or with direct electronic access to a trading venue or with commodity derivatives, emission certificates, or derivatives on emission certificates, authorization from BaFin for principal trading is required independently of Section 15(1) WpIG (§ 15(4) WpIG). Anyone who requires written authorization from BaFin pursuant to Section 15(4) sentence 1 is considered a securities firm.

The above-mentioned securities services are explained in more detail below. Further in-depth information can be found in the "Guidelines" available at www.bafin.de for the individual authorization cases.

Financial Commission Business (No. 1)
Financial commission business refers to the purchase and sale of financial instruments in one's own name for the account of another.

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Underwriting Business (No. 2)
Underwriting business involves the assumption of financial instruments for one's own risk for placement ("underwriting consortium") or the assumption of equivalent guarantees.

Investment Mediation (No. 3)
The activity of the investment mediator consists of receiving and transmitting orders from investors, insofar as they relate to financial instruments according to Section 2(5) WpIG 4. Even the person who consciously and finally influences an investor to conclude a transaction regarding the purchase and sale of a financial instrument provides investment mediation.

Investment Advice (No. 4)
Investment advice exists when the investor is advised to take a specific action as being in their interest, but not in the case of mere customer information. The recommendation must constitute advice tailored to the customer regarding a specific financial instrument, or the advice must at least give the impression of taking the customer's personal circumstances into account. A mere recommendation to a non-individually determinable group of persons, for example via a newspaper or similar, is not sufficient.

Conclusion Mediation (No. 5)
The purchase and sale of financial instruments takes place in open representation, i.e., in the name and for the account of the customer (investor).

Operation of a Multilateral Trading Facility (No. 6) A multilateral trading facility exists when the interests of individual persons in the purchase or sale of financial instruments according to Section 2(5) WpIG are brought together, without leaving any discretionary power regarding the final conclusion of the transaction with a specific counterparty. A fixed set of rules is required; a platform in the technical sense is not necessary. Bilateral systems, where the counterparty to the purchase or sale is always the same provider, are not considered multilateral trading facilities. Listing systems that function like an electronic blackboard, where interested parties can publicly submit their trading wishes, are also not covered.

Operation of an Organized Trading Facility (No. 7) The organized trading facility supplements existing types of trading systems and must also ensure non-discriminatory access to the system and appropriate regulation. In contrast to a regulated market and a multilateral trading facility, the operator of an organized trading facility has discretionary power in the execution of orders.

4 cf. Section 1.5

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Placement Business (No. 8)
Placement business is a special case of conclusion mediation, in which the institution acts towards investors in open representation of the customer (principal) as part of the placement of financial instruments.

Portfolio Management (No. 9)
The essential criterion for classification as a portfolio manager is the presence of discretionary power in the investment decisions to be made. Discretionary power exists when the specific investment decisions lie at the discretion of the manager.

Securities must be held by the portfolio manager in a securities depot of the customer at a credit institution; otherwise, authorization for operating depot business under the KWG (and thus becoming a credit institution itself) or authorization for the ancillary service under Section 2(3) sentence 1 No. 1 WpIG, which also includes operating restricted depot business for the institution's own customers, is generally required.

Proprietary Trading (No. 10)
In trading on behalf of a third party as a proprietary trader, the institution does not appear to its customer as a commission agent, but as a buyer and seller. Even if it is legally a pure sales contract, the transaction is a service within the meaning of the Financial Markets Directive (MiFID II).

Trading in financial instruments is always to be assigned to one of the following five categories:

• Trading in another's name for another's account (open representation) is a securities service within the meaning of Section 2(2) No. 5 WpIG (conclusion mediation).
• Trading in another's name for another's account (open representation) within the framework of a placement business is a securities service within the meaning of Section 2(2) No. 8 WpIG (placement business).
• Trading in one's own name for another's account (hidden representation) is a securities service within the meaning of Section 2(2) No. 1 WpIG (financial commission business).
• Trading in one's own name for one's own account is, provided it constitutes a service for others, a securities service within the meaning of Section 2(2) Nos. 10a to c WpIG (proprietary trading).
• Trading in one's own name for one's own account is, even if it does not constitute a service for others, in the case of high-frequency trading, a securities service within the meaning of Section 2(2) No. 10d WpIG (proprietary trading).

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1.3 Securities Ancillary Services
Authorization for providing securities ancillary services pursuant to Section 2(3) No. 1 (safekeeping and administration of financial instruments), No. 2 (granting of loans) WpIG or, insofar as not already licensable under Section 15(1) WpIG, Section 2(3) No. 4 (foreign exchange transactions) WpIG can only be granted if authorization for providing at least one securities service has been issued. With the expiration or revocation of the authorization for providing securities services, the authorization for providing securities ancillary services automatically expires.

1.4 Ancillary Business Activities
Authorization for providing ancillary business activities pursuant to Section 2(4) (restricted safekeeping business, third-country deposit mediation) WpIG can only be granted if authorization for providing at least one securities service has been issued. With the expiration or revocation of the authorization for providing securities services, the authorization for providing ancillary business activities automatically expires.

1.5 Financial Instruments
Financial instruments within the meaning of Section 2(5) WpIG are:

1. Shares and other interests in domestic or foreign legal entities, partnerships, and other companies, insofar as they are comparable to shares, as well as deposit receipts representing shares or share-comparable interests,
2. investments within the meaning of Section 1(2) of the Investment Act (VermAnlG) with the exception of interests in a cooperative within the meaning of Section 1 of the Cooperative Societies Act (GenG),
3. debt instruments, in particular participation certificates, bearer bonds, order bonds, and rights comparable to these debt instruments, which are tradable on capital markets by their nature, with the exception of payment instruments, as well as deposit receipts representing these debt instruments,
4. other rights entitling to the acquisition or sale of rights according to items 1 and 3 or leading to a cash payment determined in dependence on such rights, currencies, interest rates, or other yields, commodities, indices, or measurement values,
5. interests in investment funds within the meaning of Section 1(1) of the Investment Code (KAGB),
6. money market instruments,
7. currencies or units of account,
8. derivatives,

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9. allowances pursuant to Section 3 No. 3 of the Greenhouse Gas Emissions Trading Act (Treibhausgas-Emissionshandelsgesetz), emission reduction units pursuant to Section 2 No. 20 of the Project Mechanism Act (Projekt-Mechanismen-Gesetz), and certified emission reductions pursuant to Section 2 No. 21 of the Project Mechanism Act.