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German Government Publishes Proposed Law for Proprietary Trading Firms

On September 5, the German Federal Government published a proposal relating to a draft law implementing Regulation (EU) 2019/834 (EMIR REFIT), which also clarifies the licensing requirements for non-EU firms (which would include UK firms after Brexit) that conduct cross-border proprietary trading with German counterparties or on German trading venues.

The proposal provides for an “Own Account Exemption”, which will be available to non-EU firms trading on own account in Germany in financial instruments other than commodity derivatives, emission allowances or derivatives thereof. In order to benefit from such exemption, relevant firms must not be market makers have direct electronic access to a German trading venue, apply a high-frequency algorithmic trading technique (when dealing on German trading venues) or deal on own account when executing client orders.

The exemption, therefore, formalizes the so-called “inter-dealer” exemption, whereby transactions in financial instruments with counterparties or persons in Germany do not trigger licensing requirements as long as both parties are trading on own account without executing client orders.

It also provides potential relief for post-Brexit UK and other non-EU firms that trade for own account, while acting as members or participants of German exchanges (e.g. Eurex), as long as the other requirements of the Own Account Exemption are still met.

The Own Account Exemption will be available for a firm in a given jurisdiction until the European Securities and Markets Authority (ESMA) issues an equivalence decision in respect of such jurisdiction and records the firm in its related third country firm register pursuant to Articles 46 to 48 of the Markets in Financial Instruments Regulation.

The proposed law is expected to become effective in early 2020. It is also expected that, should the UK leave the EU without a deal before the proposal becomes effective, the German regulator, BaFin, would apply the draft law in anticipation of its effectiveness.

The proposal (in German) is available here.

©2019 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
Partner

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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