In Germany, the operation of exchanges for traditional financial instruments as well as for crypto assets has ever since been subject to authorization. If trading on the exchange takes place in form of an automated matching and settlement of buy and sell orders, the exchange will generally qualify as a multilateral trading facility which requires the operator to obtain an authorization as an investment firm pursuant to the German Securities Institute Act (WpIG). The regulatory requirements for the operators of multilateral trading facilities are strict and the granting of the required authorization as well as the ongoing supervision to ensure compliance to all regulatory obligations are carried out by BaFin and the German Central Bank. On the other hand, operators of exchanges in the sense of the German Stock Exchange Act are not considered investment firms. The processing of applications for authorization as well as the ongoing supervision in these cases is not carried out by BaFin and the German Central Bank, but instead by the authorities which are declared competent in the respective federal state, usually the federal states ministry of economic affairs. In this context the question arises, if the application for an authorization to operate a stock exchange enables the operation of a crypto exchange.  

Crypto Assets not Tradable on Stock Exchanges while Security Tokens are

It is legally defined which assets are tradable on stock exchanges. According to the German Stock Exchange Act security exchanges and commodity exchanges are possible options. While on commodity exchanges exclusively commodities such as metals, ores, agricultural products, electricity or other fungible commodities or futures related to the aforementioned are permitted to be traded, it is permitted to trade securities of all kinds such as stocks, debt instruments as well as derivatives of the aforementioned on security exchanges. Traditional cryptocurrencies such as Bitcoin or Ether are neither securities nor commodities in the required sense and are therefore not tradable on stock exchanges in the sense of the German Stock Exchange Act. This does however not apply to security tokens, which are tokenized securities. Tokenized bonds and stocks or tokenized derivatives would therefore be tradable on stock exchanges should the operator fulfill the technical requirements for the trading itself.

What are the Requirements to Operate a Stock Exchange in Germany?

Stock exchanges in the sense of the German Stock Exchange Act are required to be institutions under public law with partial legal capacities, to which the administrative provisions of the German Stock Exchange Act are applicable. Stock exchanges are operated by stock exchange operating companies which can be companies under private law. The operation of a stock exchange requires the authorization of the competent state authority. In order to obtain such an authorization, it is required to show to the state authority that the stock exchange disposes over sufficient financial means. The actual amount required is dependent on the volume of the intended business. In addition to that, the stock exchange operating company has to develop a sustainable business plan and it has to dispose over fit and proper managers and reliable shareholders. Furthermore, it has to be ensured that the stock exchange operating company can provide the technical operation of the exchange and that it has in place a sufficient risk management. Moreover, rules of the exchange that adhere to the stipulated requirements of the German Stock Exchange Act are also required.  The German Stock Exchange Act stipulates additional specific obligations for stock exchange operating companies, such as the implementation of a trade monitoring unit and a stock exchange council. The design of fees and charges are also not at the free discretion of the stock exchange operating company. The schedule of fees has to be approved by the stock exchange supervisory authority. In total, the operation of a stock exchange in the sense of the German Stock Exchange Act is not significantly less complex or costly than the operation of a multilateral trading facility.

Attorney Lutz Auffenberg, LL.M. (London)

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