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On April 1 1998, the Third Financial Market Enhancement Act (Drittes Finanzmarktförderungsgesetz) entered into force amending various German statutes and covering stock exchange and securities trading law, investment fund law as well as the laws on venture capital companies, mortgage banks and public banks. The most important changes relate to the Stock Exchange Act (Börsengesetz), the Securities Trading Act (Wertpapierhandelsgesetz) and the Investment Companies Act (Kapitalanlagegesellschaftengesetz).
Stock exchange and securities trading law

In the area of stock exchange and securities trading law, the amendments include the following:

  • shortening the periods of limitation for prospectus liability and for incorrect investment advice to a maximum of three years;
  • abolition of the minimum time of existence of an issuer applying for inclusion in the regulated market;
  • liberalization of statutory provisions to facilitate multiple listings;
  • introduction of provisions on de-listings in accordance with international standards;
  • clarification of the requirements on a prospectus for warrants;
  • acceptance of framework prospectuses for Medium Term Note (MTN) programmes;
  • recognition of prospectuses of foreign issuers in a foreign language under certain conditions;
  • facilitation of a listing without listing prospectus, if the securities of the issuer have already been officially listed for at least three years in another EU or European Economic Area member state;
  • shortening the time period between the publication of a listing prospectus and the start of trading from three days to one day;
  • the Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt für den Wertpapierhandel) is to check that securities sales prospectuses of securities which are neither officially quoted nor admitted to the regulated market at a German stock exchange are complete;
  • limitation of the exemption of state issuers from the duty to issue a securities sales prospectus;
  • introduction of a duty to publish a securities sales prospectus for exchange offers of securities which are neither officially quoted nor admitted to the regulated market of a German stock exchange;
  • increase of the possible administrative fines for the violation of the Securities Sales Prospectus Act to a maximum of Dm1 million;
  • introduction of special provisions reflecting new developments in the area of issuing techniques (eg bookbuilding) in listing prospectuses and securities sales prospectuses; and
  • allowing the Federal Supervisory Office for Securities Trading to prohibit advertising for securities which includes incorrect statements on the scope of the examination of the securities sales prospectus by the office.
Investment Fund Law

The other core part of the Third Financial Market Enhancement Act consists of provisions amending the Investment Companies Act. Changes include the following:

  • new types of funds will be permitted: funds of funds, mixed securities and real property funds, old age pension funds (Altersvorsorge-Sondervermögen) and investment stock corporations (Investmentaktiengesellschaften);
  • the permitted business activities of securities funds are to be enlarged (eg acceptance of stock index funds, of an investment of liquid assets in cash deposit funds, of the use of swaps and other over-the-counter transactions and, under certain conditions, of the execution of repo transactions);

Among the various other new provisions is a clarification of the rules on the transfer of funds from one investment company to the other.

Further amendments

The Venture Capital Companies Act (Unternehmensbeteiligungsgesellschaftengesetz) has also been substantially amended. Changes include the following:

  • more favourable tax treatment;
  • the acceptance of venture capital companies in the form of limited liability companies;
  • the possibility not to publicly offer the shares of a venture capital company; and
  • a liberalization of the rules on investments and on the re-financing of venture capital companies (eg no longer limitations on issuing debentures).

Among the changes relating to mortgage banks and public banks are:

  • the acceptance of certain business activities of mortgage banks in central and eastern European reform states belonging to the OECD; and
  • provisions intended to ease the issuing of jumbo mortgage bonds (Jumbo-Pfandbriefe).
Law on no par value shares

A law on no par value shares (Stückaktiengesetz) was also passed by the German parliament. It introduces the possibility for German stock corporations to issue shares with no par value. Previously shares had to have a nominal value of Dm5.

Capital Raising Facilitation Act

Finally, a new Capital Raising Facilitation Act (Kapitalaufnahmeerleichterungs-gesetz) was passed at the same time. Aiming at the facilitation of listings of German stock corporations on foreign exchanges, this statute allows German stock corporations to draw up their annual accounts in accordance with generally accepted international accounting principles, such as the US Generally Accepted Accounting Procedures (GAAP) or the International Accounting Standards (IAS), provided the corporation is either already listed on a foreign exchange or has applied for a listing or has a subsidiary listed on a foreign exchange. If so, any divergences between the accounting standards applied and the German accounting standards must be disclosed in an appendix to the published balance sheet. If the annual accounts are drawn up in a foreign language, they must be accompanied by a certified German translation.

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