Frequently asked questions on notification and publication requirements for holders of net short positions. Scope of application & general

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1 Frequently asked questions on notification and publication requirements for holders of net short positions Scope of application & general 1. From what time will the notification and publication requirements pursuant to section 30i of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) apply? 2. What shares are covered by the transparency requirements of section 30i of the WpHG? 3. What is meant by the term net short position? 4. When do the notifications and publications have to take place? 5. Which days are trading days? 6. To whom are the notification and publication requirements addressed? 7. From what thresholds do the notification and publication requirements exist? 8. When must a further notification and/or publication be submitted? 9. When do positions reach, exceed or fall below thresholds? 10. When must the first notification and/or publication be submitted? 11. What if a net short position was already notified under the General Decree on Transparency Requirements? Calculation of a net short position 12. Which financial instruments have to be included in the calculation of the net short position? 13. Are shares in funds (Sondervermögen) required to be included in the calculation? 14. How are index and basket products as well as ETFs to be included in the calculation? 15. Is a calculation based on the delta value required for derivative instruments? 16. May positions within a group be netted? 17. May positions in the case of investment funds be netted at the level of the asset management company (Kapitalanlagegesellschaft KAG)? 18. At what level is the net short position to be calculated in the case of umbrella structures and master feeder structures? Wertpapieraufsicht Asset-Management Hausanschrift: Bundesanstalt für Finanzdienstleistungsaufsicht Marie-Curie-Str Frankfurt Germany Kontakt: Leerverkaufsüberwachung/ short-sellling monitoring Referat WA 25 Fon +49 (0) Fax +49 (0) leerverkaeufe@bafin.de Zentrale: Fon +49 (0) Fax +49 (0) Dienstsitze: Frankfurt Marie-Curie-Str Bonn Graurheindorfer Str. 108 Georg-von-Boeselager-Str Bonn Dreizehnmorgenweg 44-48

2 Seite 2 17 Electronic notification and publication procedure General 19. How is a notification and/or publication to be submitted? 20. Do notifications and publications have to be submitted using the electronic reporting channel? 21. How does the electronic notification procedure at BaFin work? 22. Who is required to notify a net short position? Electronic notification procedure at BaFin 23. Who is required to notify a net short position electronically? 24. May net short positions be notified on a preliminary basis prior to approval of the application for the specialised procedure? 25. When does activation take place? 26. What documents must be sent to BaFin together with the print-out of the application for the specialised procedure? 27. What are the (minimum) conditions to be satisfied by the authorisation or letter of confirmation? 28. Is it necessary to submit cancellations if notifications contain errors? Exemptions for market makers and other providers of liquidity 29. To what extent must market makers and other providers of liquidity satisfy the requirements of the notification and publication requirements? 30. What is the nature of the notification requirement for market makers? 31. How and where do market makers i.a. have to submit the notification? 32. What if a notification has already been submitted pursuant to section 30h (2) sentence 1 of the WpHG? Further questions 33. Are there any other exemptions from the transparency requirements, e.g. for fixed price transactions? 34. How will any violations of the notification and transparency requirements for net short positions be sanctioned?

3 Seite 3 17 Scope of application & general 1. From what time will the notification and publication requirements pursuant to section 30i of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) apply? The notification and publication requirements for holders of net short positions pursuant to section 30i of the WpHG enter into force on 26 March What shares are covered by the transparency requirements of section 30i of the WpHG? Pursuant to section 30i (1) sentence 1 of the WpHG, the notification and publication requirements for holders of net short positions apply to all shares of a company which are admitted to trading on the regulated market of a German stock exchange. 3. What is meant by the term net short position? A net short position arises if the aggregation of the holder s financial instruments results in a net exposure on the short side. Such aggregate economic interest (economic exposure) is subject to the notification requirement (and where applicable additionally to a publication requirement) when the thresholds specified in section 30i of the WpHG are exceeded. Here, the following applies: (short position - long position) / aggregate number of shares in issue = net short position 4. When do the notifications and publications have to take place? Net short positions must be notified by the end of the next trading day within the meaning of section 30 (1) of the WpHG after they arise (and, where required, also published by then). It is not required to notify and publish positions that cross or reach the thresholds within one trading day; only the net short position at the end of the respective trading day is decisive.

4 Seite 4 17 Example: A net short position arising on Friday of a given week must be notified to BaFin by the end of the following Monday. If this net short position reaches, exceeds or falls below the threshold of 0.5% on a rounded basis, the net short position is additionally required to be published by the end of the Monday in the electronic Federal Gazette. 5. Which days are trading days? According to section 30 (1) of the WpHG, trading days are all calendar days except Saturdays, Sundays or public holidays that are legally recognised in at least one Federal State. In this regard BaFin makes available a calendar of trading days. Example A net short position arising on Wednesday before Easter amounting to 0.23% on a rounded basis must be notified to BaFin by the end of the Tuesday after Easter because Maundy Thursday is a public holiday in Baden-Württemberg. 6. To whom are the notification and publication requirements addressed? The transparency requirements pursuant to section 30i of the WpHG apply to all holders of net short positions, irrespective of whether they are domiciled in Germany or abroad. As a rule, the legal entity holding the financial instruments in question is the one subject to the notification requirement. However, if the notification requirement applies to a fund (Sondervermögen), the notification for such fund must be effected by the person who is responsible for managing the fund or who actually performs such management. This is usually the asset management company (Kapitalanlagegesellschaft - KAG).

5 Seite From what thresholds do the notification and publication requirements exist? Section 30i of the WpHG provides for a two-tier transparency system. The holder of net short positions (person/entity subject to the notification requirement) must notify BaFin by the end of the next trading day at the latest if its net short position reaches, exceeds or falls below the threshold of 0.2% of a company s shares in issue (first tier) if the shares are admitted to trading on the regulated market of a German stock exchange. If the net short positions reach, exceed or fall below a threshold of 0.5%, the person/entity subject to the notification requirement must itself additionally publish these positions in the electronic Federal Gazette (second tier). The publication, too, must take place by the end of the next trading day. 8. When must a further notification and/or publication be submitted? After a notification has been submitted, a further notification must be submitted after the position reaches, exceeds or falls below an additional 0.1 percentage points or a multiple thereof (thresholds e.g.: 0.2%, 0.3%, 0.4%, 0.5%, 0.6%, etc.). Example: A net short position of 0.24% on a rounded basis was notified. If the net short position in the share during the ensuing period stays between 0.21% and 0.29% on a rounded basis, no further notification is required because the position in question did not reach, exceed or fall below any further threshold. However, in the event that the level of the position reaches 0.20% on a rounded basis or falls below the threshold of 0.2% at a level of at least 0.19% on a rounded basis, a new notification is required (as also in the case, e.g., of a level of 0.31% on a rounded basis since in this case the threshold of 0.3% is exceeded). For a notification with additional publication for positions exceeding 0.5%, these statements apply analogously.

6 Seite When do positions reach, exceed or fall below thresholds? The threshold (e.g. 0.2%, 0.3%, 0.4%, 0.5%, 0.6%, etc.) is reached if the net short position reaches the exact threshold on a rounded basis. A position exceeds or falls below a threshold if the rounded position value is above or below the threshold. Please note that net short positions falling below the threshold of 0.2% must be notified and that net short positions falling below the threshold of 0.5% must be notified and additionally be published. Example: If the net short position is 0.30% on a rounded basis, a notification that the threshold of 0.3% has been reached is required. In the case of a net short position equal to 0.31% on a rounded basis, a notification that the threshold of 0.3% has been exceeded and that the position now amounts to 0,31% is required. 10. When must the first notification and/or publication be submitted? The first notification or, as the case may be, publication relates to net short positions existing or having arisen on 26 March These must be notified by the end of 27 March 2012 and, to the extent they are subject to a publication requirement, also published within such period. 11. What if a net short position was already notified under the General Decree on Transparency Requirements? No requirement to notify and publish a net short position pursuant to section 30i of the WpHG exists if a comparable notification has already been submitted prior to 26 March 2012 (section 42b of the WpHG) and the position has not changed to such extent that a threshold event has occurred as a result of the change. Subsequent changes must be notified in accordance with the provisions of section 30i of the WpHG and the Regulation on Net Short Positions (Netto- Leerverkaufspositionsverordnung NLPosV).

7 Seite 7 17 Example: At the beginning of March 2012, A had already notified a net short position equal to 0.34% on a rounded basis (threshold of 0.3% exceeded) for the shares of one of the ten selected companies covered by the General Decree on Transparency Requirements. If on 26 March 2012 this net short position is 0.37% on a rounded basis, no new threshold event has occurred, with the result that in this case there is no notification requirement pursuant to section 30i of the WpHG. Example: At the beginning of March, A had already notified a net short position equal to 0.34% on a rounded basis (threshold of 0.3% exceeded) for the shares of one of the ten selected companies covered by the General Decree on Transparency Requirements. If on 26 March 2012 this net short position exceeds the threshold value of 0.4% on a rounded basis and, for example, is equal to 0.41% on a rounded basis, this position must be notified to BaFin by the end of 27 March Calculation of a net short position 12. Which financial instruments have to be included in the calculation of the net short position? This requirement covers short positions in the share itself, and likewise as a rule all derivative positions in financial instruments whose performance is dependent on the performance of the respective share. That means that in particular option transactions, swaps and financial instruments that are based on indices and baskets and at least partly include the specified stocks, as well as such shares in exchange-traded funds (ETFs), must be included in the calculation. The inclusion of derivative financial instruments applies regardless of whether these instruments were traded in Germany or abroad on a regulated market, a multilateral trading facility (MTF) or over-thecounter (OTC). In this regard it also does not matter whether the respective transaction is for physical delivery or settlement in cash. Any existing securities lending and loan transactions as well as repurchase transactions (repos) are not to be included. Open positions under transactions concluded by trading participants with a customer for settlement of a transaction in shares concluded at a fixed

8 Seite 8 17 or definable price (fixed price transaction) are also to be included in the calculation. Subscription rights are also included since these likewise represent an economic interest in the share. 13. Are shares in funds (Sondervermögen) required to be included in the calculation? Here, a distinction has to be made. Shares in funds within the meaning of the Investment Act (Investmentgesetz InvG) (common funds (Publikums-Sondervermögen) and special funds (Spezial-Sondervermögen) as a rule are not to be included in the calculation of the net short position. However, shares in exchange-traded funds are to be included in the calculation, see section 2 (2) sentence 3 of the Regulation on Net Short Positions (Netto-Leerverkaufspositionsverordnung NLPosV) (see also Question 14. "How are index and basket products as well as ETFs to be included in the calculation?"). Both in the case of shares in common funds (Publikums- Sondervermögen) and with shares in special funds (Spezial- Sondervermögen) issued for the respective holders, no notification and publication requirement exists for the fund shares held. The net short position is to be calculated at the level of the respective fund and notified by the person who is responsible for managing the fund or who actually performs such management. This is usually the asset management company (Kapitalanlagegesellschaft - KAG). This clarification by the NLPosV clarifies the statements made in the draft bill (German Bundestag publication 17/1952 p. 10 left column) which stipulates criteria for determining positions in the case of common funds and special funds. This avoids redundant notifications of net short positions by the holder on the one hand and at the level of the fund on the other. 14. How are index and basket products as well as ETFs to be included in the calculation? In the case of index and basket products as well as exchange-traded funds (ETFs), the respective shares of the individual holder are to be determined with reference to the shares covered by section 30i of the WpHG and included in the calculation of the net short position. Inclusion must always be effected, also regardless of the percentage by which the respective shares are contained or represented in the ETF.

9 Seite Is a calculation based on the delta value required for derivative instruments? Yes, long and short positions of derivatives as a rule must be determined based on the delta value (sensitivity ratio). If the net short position reaches, exceeds or falls below a relevant threshold because of the change in the delta value for the net short position, a notification and, where applicable, publication is necessary. 16. May positions within a group be netted? No, netting within a group with reference to one of the stocks specified is not allowed. Also within group structures, the calculation must take place at the level of the respective legal entity. 17. May positions in the case of investment funds be netted at the level of the asset management company (Kapitalanlagegesellschaft KAG)? No, in the case of investment funds no netting takes place at the level of the respective asset management company; instead, the net short positions of the individual funds must be disclosed. 18. At what level is the net short position to be calculated in the case of umbrella structures and master feeder structures? In the case of umbrella structures, the calculation of the net short position must take place at the level of the respective subfunds. In the case of master-feeder structures, it takes place at the level of the respective master fund. Electronic notification and publication procedure General 19. How is a notification and/or publication to be submitted? Net short positions may be notified and published exclusively via an electronic reporting channel.

10 Seite The technical details are clarified by the Regulation on Net Short Positions (Netto-Leerverkaufspositionsverordnung NLPosV) providing for the electronic notification and publication procedure for net short positions. For notifications, BaFin makes available an electronic notification procedure by means of the Reporting and Publishing Platform (Melde- und Veröffentlichungsplattform MVP) accessible via the Internet. Publications, however, are to be made in the electronic Federal Gazette. 20. Do notifications and publications have to be submitted using the electronic reporting channel? Yes. No other notification and publication satisfies the conditions of section 30i of the WpHG in conjunction with the provisions of the Regulation on Net Short Positions (Netto-Leerverkaufspositionsverordnung NLPosV). Only in the case of technical problems may the notification be submitted by fax under the fax number: +49 (0)228/ to ensure observance of the applicable deadlines. The electronic notification must be submitted subsequently without undue delay as soon as the technical difficulties have been resolved. 21. How does the electronic notification procedure at BaFin work? No later than when the first notification is submitted, (1.) a successful registration on the Reporting and Publishing Platform (Melde- und Veröffentlichungsplattform MVP) of BaFin and (2.) a registration for the specialised procedure for net short positions are necessary in order to (3.) notify BaFin of net short positions electronically. Upon commencement of the option of advance registration, you will find a detailed instruction guide for the electronic notification procedure in the IT information sheet that will be published sufficiently in advance. 22. How does the electronic publication procedure for the electronic Federal Gazette work? In addition to being notified to BaFin, net short positions that reach, exceed or fall below a threshold of 0.5% must be published by the holder in the electronic Federal Gazette.

11 Seite For this purpose, the Federal Gazette makes available an electronic publication procedure to the person/entity subject to the publication requirement for submitting the net short positions. No later than when the first publication is effected, the person/entity subject to the publication requirement must identify itself to the operator of the electronic Federal Gazette as part of the electronic registration. Electronic notification procedure at BaFin 23. Who is required to notify a net short position? The holder of the net short position is subject to the notification requirement. Notifications may be submitted by the person/entity subject to the notification requirement either itself, through its contact person or through an external third party. a. Notification by a contact person of the person/entity subject to the notification requirement If the notification is submitted by a contact person of the person/entity subject to the notification requirement, the contact person, no later than when the first notification is submitted, must designate itself as contact person of the person/entity subject to the notification requirement and furnish proof of its authorisation to submit notifications (and, if applicable, publications) by means of a signed instrument of authorisation (in this regard, see Question 27. "What are the (minimum) requirements to be met by the authorisation or the confirmation letter?"). Example: The net short positions of A-Bank are notified by Employee B working in the compliance department at A-Bank. B can furnish proof in the form of an authorisation instrument that it is authorised by A-Bank to notify and publish net short positions. b. Notifications by a third-party notifier Persons or entities subject to notification and publication requirements may have their notifications and publications performed at their own expense by a third-party notifier. BaFin must be furnished proof of this through submission of a letter of confirmation issued by the person/entity subject to the notification requirement on behalf of the thirdparty notifier no later than when the first notification is submitted, such

12 Seite letter of confirmation to be identical in content to an authorisation (in this regard, see Question 27. "What are the (minimum) requirements to be met by the authorisation or the confirmation letter?"). Example: XY-Dienstleistungs-GmbH was authorised by A-Bank to perform A- Bank s notification and publication requirements. As soon as a net short position subject to the notification and/or publication requirement arises, Mr. B employed at XY Dienstleistungs-GmbH notifies this to BaFin and where applicable has a publication effected in the electronic Federal Gazette. 24. May net short positions be notified on a preliminary basis prior to approval of the application for the specialised procedure? Yes. Already before the activation of the account i.e. immediately after the registration for the specialised procedure for net short positions the notifying party receives a temporary access by means of which it may submit preliminary notifications until (possible) revocation of the notification authorisation by BaFin. However, these notifications are initially preliminary. The notifications are recorded in the internal database of BaFin when the notifying party's account has been activated. 25. When does activation take place? Once the written documentation for the "Application for specialised procedure for net short positions" has been received, BaFin compares the data provided electronically with the documentation submitted. In the event of successful verification, it activates the notifying party's account for the procedure. BaFin informs both the notifying party and the person/entity subject to the notification requirement of such activation. 26. What documents must be sent to BaFin together with the print-out of the application for the specialised procedure? The question of what documents must be sent to BaFin together with the print-out of the application for the specialised procedure depends on who submits the notification (and for whom).

13 Seite a. Notification by person/entity subject to the notification requirement (direct reporting) (1) Person/entity subject to the notification requirement is a natural person (notification is submitted by such person/entity itself): copy of a valid official ID containing a photo and satisfying the passport and ID requirements in Germany (e.g. passport, ID card). (2) Person/entity subject to the notification requirement is a legal person or other legal entity; notifying party is a contact person of the person/entity subject to the notification requirement (notification is submitted by own contact person of such person/entity subject to the notification requirement): copy of an extract from the commercial register or cooperative society register or comparable official register or list; and authorisation of person/entity subject to the notification requirement issued for the respective contact person authorising the contact person to fulfil the requirements pursuant to section 30i of the WpHG on behalf of the person/entity subject to the notification requirement. b. Notification by third-party notifier (1) Person/entity subject to the notification requirement is a legal person; third-party notifier is a legal person (notification is submitted by contact person of the third-party notifier (external third party)): copy of an extract from the commercial register or cooperative society register or comparable official register or list of the person/entity subject to the notification requirement; copy of an extract from the commercial register or cooperative society register or comparable official register or list of the thirdparty notifier; letter of confirmation of person/entity subject to the notification requirement for the third party authorising the third-party notifier to fulfil the requirements pursuant to section 30i of the WpHG on behalf of the person/entity subject to the notification requirement; and authorisation of third-party notifier for its contact person. (2) Person/entity subject to the notification requirement is a natural person; third-party notifier is a legal person (notification is submitted by contact person of the third-party notifier (external third party)):

14 Seite copy of a valid official ID of person/entity subject to the notification requirement containing a photo and satisfying the passport and ID requirements in Germany; copy of an extract from the commercial register or cooperative society register or comparable official register or list of the third party notifier; letter of confirmation of person/entity subject to the notification requirement for the third-party notifier authorising the thirdparty notifier to fulfil the requirements pursuant to section 30i of the WpHG on behalf of the person/entity subject to the notification requirement; and authorisation of third-party notifier for its contact person. (3) Person/entity subject to the notification requirement is a legal person; third-party notifier is a natural person (notification is submitted by the third-party notifier (external third party)): copy of an extract from the commercial register or cooperative society register or comparable official register or list of the person/entity subject to the notification requirement; copy of a valid official ID of the third-party notifier containing a photo and satisfying the passport and ID requirements in Germany (e.g. passport, ID card); and letter of confirmation of person/entity subject to the notification requirement for the third-party notifier authorising the thirdparty notifier to fulfil the requirements pursuant to section 30i of the WpHG on behalf of the person/entity subject to the notification requirement. (4) Person/entity subject to the notification requirement is a natural person; third-party notifier is a natural person (notification is submitted by the third-party notifier (external third party)): copy of a valid official ID of person/entity subject to the notification requirement containing a photo and satisfying the passport and ID requirements in Germany; copy of a valid official ID of the third-party notifier containing a photo and satisfying the passport and ID requirements in Germany (e.g. passport, ID card); and letter of confirmation of person/entity subject to the notification requirement for the third-party notifier authorising the thirdparty notifier to fulfil the requirements pursuant to section 30i of the WpHG on behalf of the person/entity subject to the notification requirement.

15 Seite What are the (minimum) conditions to be satisfied by the authorisation or letter of confirmation? The authorisation or letter of confirmation must at least contain information on who was entrusted by whom with performing the requirements pursuant to section 30i of the WpHG. 28. Is it necessary to submit cancellations if notifications contain errors? If the person/entity subject to the notification requirement discovers an error in the notification submitted, a cancellation must be sent without undue delay. Any new notification of the net short position that may subsequently be required is to be designated as a correction accordingly on submission of the notification/publication. Exemptions for market makers and other providers of liquidity 29. To what extent must market makers and other providers of liquidity satisfy the requirements of the notification and publication requirements? Market makers as well as persons and companies performing similar liquidity-providing functions on the financial markets are exempted from the notification and publication requirement for net short positions subject to the conditions of section 30i (4) sentence 1 of the WpHG. It does not matter what name is given to the activity. What is decisive instead is that the statutory requirements are met, meaning that lead brokers (Skontroführer), liquidity providers and designated sponsors may also be included in addition to market makers. The positions (long or short) resulting from market maker activity are not included in the calculation of the net short position. However, the transaction to be excluded from the calculation of the net short position in each case must be necessary for performance of the activity as market maker. Consequently, a company may not make the claim, by virtue of its activity pursuant to section 30i (4) sentence 1 of the WpHG, to being exempted from the calculation of net short positions for its entire trading activities. Rather, each individual transaction must satisfy in the entirety the conditions of the respective exceptional elements for which the exemption is claimed.

16 Seite To claim the exemption, the activity must be notified to BaFin stating the financial instruments concerned in each case (in this regard, see also Questions 30. "What is the nature of the notification requirement for market makers? How is the notification requirement i.a. to be fulfilled for market makers?" and 31. "How and where do market makers i.a. have to submit the notification?"). 30. What is the nature of the notification requirement for market makers? The details of the notification requirement are determined by analogous application of the provisions of the Short-Selling Reporting Regulation (Leerverkaufs-Anzeigeverordnung LAnzV). Investment services enterprises wishing to claim the exemptions must notify BaFin pursuant to section 30i (4) sentence 2 in conjunction with sentence 1 of the WpHG of their intention to take up an activity pursuant to section 30i (4) sentence 1 of the WpHG, stating all financial instruments concerned, without undue delay pursuant to the analogous application of section 3 sentence 1 of the LanzV (initial notification). Pursuant to the analogous application of section 3 of the LanzV, any subsequent changes with regard to the financial instruments concerned must be sent to BaFin without undue delay after the end of the quarter in which they have occurred with reference to the last day of the quarter as the cut-off date (analogous application of section 4 of the LanzV, change notification). If no changes have occurred compared with the last notification (notification on existing holdings), only the up-to-dateness of the information already sent has to be confirmed in writing without undue delay after the end of each quarter. 31. How and where do market makers i.a. have to submit the notification? The complete, dated and signed notification must be sent in writing using the form made available on the BaFin website both by fax to +49 (0)228/ ; and by to anzeige-leerverkaeufe@bafin.de.

17 Seite What if a notification has already been submitted pursuant to section 30h (2) sentence 1 of the WpHG? If the activity as market maker or other provider of liquidity was already notified pursuant to section 30h (2) sentence 1 of the WpHG stating the shares concerned in each case, and if this notification also covers all shares concerned pursuant to section 30i of the WpHG, no additional notification requirement exists. However, this fact is to be stated on the form as part of reporting in the next quarter. Further questions 33. Are there any other exemptions from the transparency requirements, e.g. for fixed price transactions? No. There are no other exemptions. 34. How will any violations of the notification and transparency requirements for net short positions be sanctioned? Violations of the notification requirement due to failure to submit notifications or failure to do so correctly, completely, in the prescribed manner or on time will be punished by a fine of up to 200,000 euros. Violations of the publication requirement due to failure to make publications or failure to do so correctly, completely, in the prescribed manner or on time, or due to failure to make subsequent publications on time, will likewise be punished by a fine of up to 200,000 euros. Note: These FAQs are regularly updated by BaFin (updated: 1 March 2012). For further questions, please do not hesitate to contact us under the number: (0)228/ or by under leerverkaeufe@bafin.de.