This is a convenience translation prepared by Linklaters LLP the German text published by BaFin is binding in all respect

Transcription

1 This is a convenience translation prepared by Linklaters LLP the German text published by BaFin is binding in all respect General Decree of BaFin in respect of establishing or entering into credit derivatives to the extent the protection buyer is not materially reducing any related credit risk, dated 18 May 2010 As published on 18 May 2010: I. Establishing or entering into credit derivatives within the meaning of 2 (2) No. 4 Securities Trading Act (Wertpapierhandelsgesetz WpHG) is forbidden with respect to a protection buyer since 18 May 2010 (midnight), if the relevant credit derivative transaction provides for the following terms: 1. the protection seller is obliged to make a payment to the protection buyer upon the occurrence of a pre-defined credit event either in cash (at a fixed amount or at an amount determined by reference to the final price of the reference obligation following the credit event) or by way of physical settlement (Credit Default Swap); this does also apply if the credit default swap is embedded in a credit linked note or a total return swap; and 2. at least one of the reference obligations is an obligation of an EU member state that has adopted the euro or such EU member state is a reference entity. II. However, the ban pursuant to item I. does not apply if the execution of such a credit derivative transaction leads - from an economic perspective - not only to an immaterial credit risk reduction in 1. an existing position in a reference obligation of a credit derivative specified in item I, or 2. an existing position in other financial instruments the value of which is dependent on the creditworthiness of a EU member state that is a debtor of a reference obligation pursuant to item I 2. III. Further, the ban pursuant to item I. does not apply to transactions, that shall replace or close out credit derivative positions pursuant to item I. entered into prior to the ban (including credit linked notes). IV. This ban shall apply until 31 March 2011, hrs. V. This General Decree is issued subject to reservation of revocation pursuant to section 36 (2) Administrative Procedures Act (Bundesverwaltungsverfahrensgesetz BVwVfG). VI. The General Decree shall be deemed announced on the day following the customary announcement. Grounds: The Decree is based on section 4 (1) WpHG according to which the Federal Financial Supervisory Authority shall counteract undesirable developments which may adversely affect the orderly conduct of trading with financial instruments or the provision of investment services or ancillary services or which may result in serious disadvantages for the financial market. It may, pursuant to section 4 (1) sentence 3 WpHG issue orders to eliminate or to prevent undesirable developments. 1

2 In connection with the most recent developments on the global financial markets, an extraordinary volatility in relation to debt securities issued by member states of the European Union which have adopted the Euro as their legal tender can be observed. In addition, the yields of government bonds have increased substantially, the credit spreads in relation to German government bonds have also widened to a great extent. The spreads of credit default swaps, where the default risk of governments affects the pricing, have also widened considerably. This concerns the credit default risk of several governments of the euro zone in particular. The financial markets in the Euro zone have become so turbulent that international, European and national institutions have been forced to apply support measures on an unprecedented scale. Seen as a whole, there are extraordinary circumstances which in aggregate may cause serious disadvantages for the financial market. Given the current situation of the capital markets in particular, there is a risk that trading in credit default swaps and, simultaneously, an uncertain situation as to information may result in effects on the market prices of government bonds of countries of the Euro zone which in turn may result in excessive price movements in connection with the assessment of default risks which in turn could jeopardise the stability of the financial system as a whole and could thus lead to serious disadvantages for the financial market. At the same time, the function of the capital markets to provide appropriate protection instruments against credit default risks may be jeopardised. In order not to jeopardise the protective function of the capital markets and to counteract such undesirable developments, it is necessary to restrict the ability to enter into such credit default swaps by a contract to transactions that from an economic perspective have a protective function which entails an actual, and not only an insignificant, reduction of credit risks. Hence, the prohibition is limited to transactions where no, or only a subordinate, protection purpose may be assumed to exist. The prohibition is appropriate and necessary to preserve and strengthen the trust of market participants in the effective functioning of the capital market and thus to counteract and/or prevent the aforementioned undesirable developments. A more moderate, equally effective measure cannot be envisaged. The chosen duration of the provision makes it possible for the companies to plan their securities trading activities with sufficient certainty over a protracted period. The exemptions take into account the market participants justified interest in the use of protection instruments and the protection for reliance on existing law in relation to any exposures already entered into as well as trading in credit linked notes already issued. The reservation of a revocation ensures that BaFin will be able to respond in a timely manner to changes in the markets. This in particular makes it possible to promptly revoke the Decree in the event of a general stabilisation of the markets. Instruction on available remedies: It is possible to object to this Decree within one month of its issuance. The objection must be submitted in writing or for recording with the Federal Supervisory Authority in Lurgiallee 12, D Frankfurt am Main, or Graurheindorfer Str. 108, D Bonn. 2

3 General Decree of BaFin on the Prohibition of Naked Short Selling in certain Shares with effect from 18 May 2010 As published on: 18. May Naked short sales of shares in the following financial sector companies are prohibited: AAREAL BANK AG ALLIANZ SE COMMERZBANK AG DEUTSCHE BANK AG DEUTSCHE BÖRSE AG DEUTSCHE POSTBANK AG GENERALI Deutschland HOLDING AG HANNOVER RÜCKVERSICHERUNG AG MLP AG MÜNCHENER RÜCKVERSICHERUNGS-GESELLSCHAFT AG A transaction qualifies as naked short sale if, at the time of the relevant transaction, the seller of the shares (a) does not hold the legal title to the instruments sold, or (b) does not have an unconditionally enforceable contractual or proprietary (in rem) claim for the transfer of title to a corresponding number of instruments of the same class. 2. Exempted from the prohibition are transactions entered into by persons who have contractually undertaken to buy or sell financial instruments on a non-transient basis by way of own-account trading at prices set by themselves to the extent that the relevant transaction is required to discharge such contractual obligations; transactions which market participants have entered into with clients to settle a share transaction entered into at a fixed or determinable/ascertainable price (fixed price transactions). Exempted from the prohibition are also short sales that serve the purpose of creating a hedge in relation to existing positions. Further Exemptions may be granted on written request. 3. This General Decree shall apply until 31 March 2011, hrs. 4. This General Decree is issued subject to the reservation of revocation pursuant to Section 36(2) Administrative Procedures Act (Bundesverwaltungsverfahrensgesetz BVwVfG). 5. The General Decree shall be deemed announced on the day following the customary announcement. Grounds: The Decree is based on section 4 (1) WpHG according to which the Federal Financial Supervisory Authority shall counteract undesirable developments which may adversely affect the orderly conduct of trading with financial instruments or the provision of investment services or ancillary services or which may result in serious disadvantages for the financial market. It may, pursuant to 3

4 section 4 (1) sentence 3 WpHG, issue orders to eliminate and to prevent undesirable developments. In the last few weeks, massive uncertainties have been felt on the financial markets which could cause serious disadvantages for the financial market. The financial markets in the Euro zone have become so turbulent that national and European institutions have been forced to apply support measures on an unprecedented scale. Against the background of sharp decreases in prices of government bonds issued by various countries in the Euro zone and a significant increase in the related CDS spreads, doubts have arisen about the creditworthiness of certain countries in the Euro zone, which could carry over to the stock markets. Given this situation, there is a risk that the volatility and losses on the financial market will be exacerbated. In such a situation, an influence exercised on the share prices of the specified stocks by short selling on a massive scale, by reason of the importance of such companies for the aggregate economy, would result in excessive price movements. These in turn could additionally jeopardise the stability of the financial system and would thus entail further serious disadvantages for the financial market. To be able to counter the risk of such undesirable developments, it is necessary to prohibit the short selling of stocks in the aforementioned companies. The prohibition will also serve to prevent manipulation of the market by short selling. An undesirable development in this regard could occur if short selling were used to manipulate the market, for example if after a transaction had been completed, rumours about such transaction were spread via the media without the corresponding conflict of interests having been disclosed (section 20a (1) (3) WpHG in conjunction with section 4 (3) (2) MaKonV (German Regulation specifying the Prohibition of Market Manipulation). The prohibition is appropriate and necessary to prevent and/or counteract the aforementioned undesirable developments and thus to preserve and strengthen the trust of market participants in the effective functioning of the capital market. A more moderate, equally effective measure cannot be envisaged. The chosen duration of the provision makes it possible for the companies to plan their securities trading activities with sufficient certainty over a protracted period. The market participants justified interest in the use of hedging instruments has been sufficiently taken into account by the exceptions to the Decrees, so that the restrictions on the trading in financial instruments will be kept to a minimum. The reservation of a revocation right enables BaFin to respond flexibly to current developments during the period of application of the Decree. This in particular makes it possible to promptly lift the prohibition in the event of a general stabilisation of the markets. Instruction on available remedies: It is possible to object to this Decree within one month of its issuance. The objection must be submitted in writing or for recording with the Federal Supervisory Authority in Lurgiallee 12, Frankfurt am Main, or Graurheindorfer Str. 108, Bonn. 4

5 General Decree of BaFin on the Prohibition of Naked Short Selling in Debt Securities which are issued by Member States of the EU and which are denominated in Euro 1. Naked short selling of debt instruments within the meaning of section 2 (1) sentence 1 no. 3 of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) are prohibited if such instruments are admitted to trading on a regulated market in Germany, are issued by a member state of the European Union and are denominated in Euro. A transaction qualifies as naked short sale if, at the time of the sales transaction, the seller of the debt securities (a) does not hold the legal title to such debt securities, (b) does not have an unconditionally enforceable contractual or proprietary (in rem) claim for the transfer of title to a corresponding number of debt securities of the same kind. 2. Exempted from the prohibition are transactions entered into by persons who have contractually undertaken to buy or sell financial instruments on an non-transient basis by way of own-account trading at prices set by themselves to the extent that the relevant transaction is required in order to discharge such contractual obligations as well as transactions which market participants have entered into with clients to settle a debt transaction entered into at a fixed or determinable/ascertainable price (fixed price transaction). Exempted from the prohibition are also short sales that serve the purpose of creating a hedge in relation to existing positions. Further Exemptions may be granted on written request. 3. This General Decree shall apply until 31 March 2011, hrs. 4. This General Decree is issued subject to the reservation of revocation pursuant to Section 36(2) Administrative Procedures Act (Bundesverwaltungsverfahrensgesetz BVwVfG). 5. The General Decree shall be deemed announced on the day following the customary announcement. Grounds: The Decree is based on section 4 (1) WpHG according to which the Federal Financial Supervisory Authority shall counteract undesirable developments which may adversely affect the orderly conduct of trading with financial instruments or the provision of investment services or ancillary services or which may result in serious disadvantages for the financial market. It may, pursuant to section 4 (1) sentence 3 WpHG, issue orders to eliminate and to prevent undesirable developments. In connection with the most recent developments on the global financial markets, an extraordinary volatility in relation to debt securities issued by member states of the European Union which have adopted the Euro as their legal tender can be observed. In addition, the yields of government bonds have increased substantially, the credit spreads in relation to German government bonds have also widened to a great extent. The spreads of credit default swaps, where the default risk of governments affects the pricing, have also widened considerably. This concerns the credit default risk of several governments of the euro zone in particular. The financial markets in the Euro zone have become so turbulent that international, European and national institutions have been forced to apply support measures on an unprecedented scale. Seen as a whole, there are extraordinary circumstances which in aggregate may cause serious disadvantages for the financial market. In such a situation, an influence exercised on the prices of the specified debt securities by short selling on a massive scale would result in additional excessive price movements. These in turn 5

6 could additionally jeopardise the stability of the financial system and would thus entail serious further disadvantages for the financial market. To be able to counter the risk of such undesirable developments, it is necessary to prohibit the short selling of the specified debt securities. The prohibition will also serve to prevent manipulation of the market by short selling. An undesirable development in this regard could occur if short selling were used to manipulate the market, for example if after a transaction had been completed, rumours about such transaction were spread via the media without the corresponding conflict of interests having been disclosed (section 20a (1) (3) WpHG in conjunction with section 4 (3) (2) MaKonV (German Regulation specifying the Prohibition of Market Manipulation). The prohibition is appropriate and necessary to prevent and/or counteract the aforementioned undesirable developments and thus to preserve and strengthen the trust of market participants in the effective functioning of the capital market. A more moderate, equally effective measure cannot be envisaged. The chosen duration of the provision makes it possible for the companies to plan their securities trading activities with sufficient certainty over a protracted period. The market participants justified interest in the use of hedging instruments has been sufficiently taken into account by the exceptions to the Decrees, so that the restrictions on the trading in financial instruments will be kept to a minimum. The reservation of a revocation right enables BaFin to respond flexibly to current developments during the period of application of the Decree. This in particular makes it possible to promptly lift the prohibition in the event of a general stabilisation of the markets. Instruction on available remedies: It is possible to object to this Decree within one month of its issuance. The objection must be submitted in writing or for recording with the Federal Supervisory Authority in Lurgiallee 12, Frankfurt am Main, or Graurheindorfer Str. 108, Bonn. 6