In its circular 01/2010, BaFin has provided detailed guidance in relation to the content of marketing materials to be distributed by investment firms. Key aspects of the document dealt with the way information in relation to financial instruments has to be presented. In particular, issues like the simulation of past performance and the impact of costs on the performance of the products have caused lengthy and animated discussions which are ongoing to date. Meanwhile this circular has become part of the minimum requirements for compliance as further outlined below.

On 4 March 2010, BaFin issued a general decree under which market participants must notify it of not short selling positions in stocks of ten listed German financial companies as of a threshold of 0.2% and publish such notification as of a threshold of 0.5%. Notifications must be made by the holder of the net short position by the end of the next trading day and publications must be in an anonymous format on the BaFin website. The decree is due to be replaced by a position which would come into force in March 2012 which might, however, be subject to further amendments following an EU initiative on the same subject. It can be expected that the disclosure obligation will be expanded to all issuers listed on the regulated market of a German exchange.

In May 2010, BaFin published its comments based on market due diligence it had conducted on the potential to improve its recently introduced investment protocol. As a consequence of the deficits it identified, it can be expected that the investment protocol will be subject to further amendments and will require in particular a more detailed and individual description of the advice provided. This must also be viewed in the context of the EU PRIPS Directive (Packaged Retail Investor Products).

Also in May 2010, BaFin introduced a general prohibition on:

These general prohibitions, which were published without any significant advance warning, caused a lot of market turbulence. The ordinances have been replaced in July 2010 through the Act preventing abusive securities and derivative trades. Since then naked short selling in shares listed on the regulated market of a German stock exchange is prohibited.

In June 2010, BaFin published its minimum requirements for the compliance function and further conduct, organisation and transparency obligations (MaComp). With this document, BaFin undertook a first step to further define the compliance function within an investment firm. The document also includes a number of tasks BaFin expects to be dealt with by the compliance function of an investment firm.

Further to the cornerstones introduced by the German government as early as March 2010 and following conclusion of the consultation period, on 25 August 2010, the German government issued the draft Restructuring Act (Gesetz zur Reorganisation von Kreditinstituten –the "Restructuring Act"). The Restructuring Act sets out rules relating to the reorganisation or winding down of distressed credit institutions of systemic importance, among other things, by transferring assets and liabilities of a relevant institution (in whole or in part) to another entity to restructure the business of such institution and so as to avoid insolvency procedures. The Restructuring Act entered into force on 1 January 2011.

In September 2010, the German government published the first draft of the so-called Act to strengthen investor protection and to improve operation of the capital markets (Anlegerschutz und Funktionsverbesserungsgesetz or AnlSFG). The AnlSFG, which is expected to come into force in spring 2011, includes a number of new legislative initiatives which will all have a significant impact on the German financial market. Key aspects of this act comprise the preparation of a product information document which has to be handed over to retail clients when providing investment advice. The document is broadly similar to the key investment document that is likely to be introduced in July 2011 as a consequence of the UCITS IV Directive (2009/65/EU). The first draft also included far reaching regulation for closed-ended funds. This has been melted down to registration requirements for distribution personnel, which is still subject to debate and has meanwhile become part of a separate legal initiative.

Another important aspect of the AnlSFG deals with further disclosure obligations concerning, among other things, CFDs. The vague definition which significantly expands the disclosure obligations in relation to economic positions in an issuer is still subject to discussions. The new requirement can be seen as a response to the Porsche/Volkswagen or the Continental/Schaeffler matter where, in particular, the non-disclosure of economic holdings created a misleading picture of the positions held by market participants. According to the draft, the new disclosure obligation will come into effect nine months after the AnlSFG comes into force.

The AnlSFG also introduces registration requirements for employees of investment firms providing investment advice or marketing financial instruments. In addition, compliance personnel will become subject to specific qualification requirements. Another key change to be introduced by the AnlSFG relates to changes of the rules for open-ended real estate investments funds. In particular, a two-year holding period as well as restrictions for institutional investors concerning the redemption of the units they hold will have a significant impact on the further development of this product in Germany.

Following the implementation of the directive concerning rating agencies, BaFin confirmed the first registration of a rating agency in Europe. It is of particular importance that the relevant supervisory body is not one of the national supervisory authorities. It has been granted by the newly created European Securities Markets Authority.

It can be expected that the various initiatives at EU and national level will mean that the constant flow of new regulations will continue in 2010. The coming into force of the AnlSFG, the implementation of UCITS IV and further capital requirements for institutions are just a few initiatives which will have a significant impact on the financial market regulation.