More recently, we have received a fair number of enquiries by companies domiciled and listed abroad after having been contacted by the German stock exchanges or market participants admitted to a stock exchange. Thereby many companies find out for the first time that their shares are listed on the regulated unofficial market (Freiverkehr) of a German stock exchange, often giving rise to an uncertainty as to the obligations implied by such a listing and how the companies should react to such notifications. The following information is intended to provide an initial orientation.
Freiverkehr (hereinafter “Regulated Unofficial Market”) is a market segment of German stock exchanges which is not subject to general supervision by a public authority. It is, in practice, often referred to by the term OTC (over-the-counter market) although it is regarded as a multilateral trading system (MTF) under German and European securities law. The exchange may permit the operation of an Regulated Unofficial Market by the exchange operator (e.g., Deutsche Börse AG operates the Frankfurt Stock Exchange) if the proper execution of trading and transaction settlement appears to be ensured by trading regulations and by the exchange operator's terms and conditions to be approved by the management of the exchange. The trading regulations regulate the course of trading, while the terms and conditions regulate the participation in trading and the inclusion (listing) of securities therein. Issuers whose securities are listed for trading on the Regulated Unofficial Market without their consent or approval may not be subject to the terms and conditions on publishing information relating to such securities. Unlike the regulated official market
- (regulierter Markt), the Regulated Unofficial Market is based on private law, with its legal thresholds for the listing of securities being lower, thereby providing easier access to the German capital market.
- A market participant of a German stock exchange, e.g., a bank or securities service provider (e.g., brokers) can arrange for its shares to be listed for trading in the Regulated Unofficial Market without requiring approval or consent of a certain issuer whose shares are already listed on another stock exchange (e.g., a German or foreign stock corporation). Such principle applies even if the issuer objects, in other words, the issuer cannot prevent such listing. The main reason for such listing is to facilitate such trades conducted by German owners of foreign shares on a home-market, and at lower costs. If there is no contractual relationship between the issuer and the market participant who initiated the listing, the issuer cannot instruct the market participant to cause the listing and trading to be terminated.
- As opposed to a listing which received express approval or consent from the issuer, a listing without such approval or consent does, in principle, not lead to any obligations or liabilities on the part of the issuer. In this case, issuers are not required to make public information regarding the related financial instruments either. However, any act of assistance or any other „proactive“ measure taken by the issuer in connection with the listing beyond a certain materiality level may be regarded as approval of or consent to such listing, with the consequence that the issuer will fall under the provisions of the European Market Abuse Regulation No. 596/2014 (“MAR”) that provides for various obligations of listed companies and their management and board members (e.g., the publication of ad-hoc notifications regarding insider information and the provisions as to managers’ transactions). However, issuers should note that the EU insider trading rules and rules against price manipulation still apply to the respective shares. Moreover, the operator of the Regulated Unofficial Market may require issuers to provide certain reference data relating to their financial instruments to the extent necessary to meet the requirements of Article 4 of the MAR.
- On the other hand, EU securities law provides for the obligation of EU stock exchanges to report trades on their marketplaces to the competent national securities regulator (in Germany: the Federal Financial Supervisory Authority (BaFin)) on a daily basis, including the respective LEI-number of the issuer’s securities (Legal Identifier number). Such LEI number is an issuer-specific number code, issued by the Global Legal Entity Identifier Foundation (GLEIF). The problem German stock exchanges are currently facing is that they also have to include the LEI number in their daily reports. This number, however, does often not yet exist and the issuer is not obliged to apply for it. In this case, we frequently see that the respective stock exchange contacts the foreign issuer and requests approval for the application of a LEI number. In this event, the issuer has three options: it could either approve the application, explicitly object against it, or leave the request unanswered. According to the information of the Frankfurt Stock Exchange, a large number of affected issuers explicitly objected against such applications in the past. However, BaFin meanwhile has expressed the opinion that a mere approval of such LEI application does not constitute an approval of the listing by means of sec. 3 above. There must always be further circumstances, coming from the sphere of the issuer concerned. We recommend issuers, who still tend to give their approval to the LEI application, to explicitly mention in their response to the relevant stock exchange that such approval is subject to the condition that the issuer will not bear any costs incurred, including the annual ongoing costs for the LEI number, and that they do not approve the current listing itself.