Can a listing on the stock exchange be an alternative to a BaFin license?

Specialist lawyer Lutz Auffenberg and his law firm Fin Law have specialized in the field of fintech and innovative technologies. In particular, blockchain technology and its regulation are at the center of his work. In his guest article he addresses the question of whether a listing on the stock exchange can be an alternative to a BaFin license.

This article is first on the Fin Law Blog appeared.

In Germany, the operation of exchange platforms for classic financial instruments as well as for crypto values ​​has always been subject to authorization. If trading on the exchange platform takes place through the automatic merging and processing of buy and sell orders, there is usually a multilateral trading system, the operation of which requires approval as a securities trading company in accordance with the Securities Institutes Act (WpIG). The regulatory requirements for operators of multilateral trading systems are high and both the granting of the necessary permits and ongoing supervision to ensure compliance with all regulatory obligations are carried out by BaFin and the Deutsche Bundesbank. In contrast, the operators of stock exchanges under the German Stock Exchange Act are not considered investment firms. The processing of permit applications and ongoing supervision are not carried out by the BaFin and the Bundesbank, but by the body that has been declared responsible in the respective federal state, which is usually the State Ministry of Economics. For the crypto industry, the question arises in this context whether the application for admission to the stock exchange enables the operation of a crypto exchange.

The assets that can be traded on exchanges are stipulated by law. According to the Stock Exchange Act, there can be stock exchanges and commodity exchanges. While only goods such as metals, ores, agricultural products, electricity or other fungible assets or futures transactions relating to these objects may be traded on commodity exchanges, all types of securities such as shares and debt securities as well as related derivatives can be traded on securities exchanges. Classic cryptocurrencies such as Bitcoin or Ether are, however, neither securities nor goods in the required sense and can therefore not be traded on stock exchanges within the meaning of the Stock Exchange Act. However, this does not apply to security tokens, which are securities in tokenized form. Tokenized bonds and shares or tokenized derivatives could therefore also be traded on stock exchanges, provided the stock exchange operator provided the technical requirements for trading.

Stock exchanges under the Stock Exchange Act must be public-law institutions with partial legal capacity to which the administrative regulations of the German Stock Exchange Act apply. Stock exchanges are operated by stock exchange companies, which can be privately organized companies. In order to operate an exchange, exchange operators need a permit from the responsible state authority. In particular, proof of sufficient financial resources is required to obtain a permit, the specific amount depending on the scope of the planned business. In addition, the stock exchange operator must draw up a viable business plan and have professionally suitable and reliable managers and reliable shareholders. It must also be ensured that the exchange operator is technically able to operate the exchange and has an appropriate risk management system. There is also a need for stock exchange regulations that meet the requirements stipulated by the Stock Exchange Act. In addition, the Stock Exchange Act contains a number of specific further specific obligations for stock exchange operators, such as the establishment of a trading surveillance office and an exchange council. In the structuring of the fees and charges, the exchange operators are by no means free. The fee schedule must be approved by the stock exchange supervisory authority. Overall, the operation of an exchange according to the Stock Exchange Act is hardly less complex from a regulatory point of view than the operation of a multilateral trading system.

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Can a listing on the stock exchange be an alternative to a BaFin license?