The study examines the role of Deutsche Börse as a market organizer, the importance of equity capital for corporate financing and the regulatory reforms in Germany with the Fourth Financial Markets Promotion Act and the establishment of the Federal Financial Supervisory Authority (BAFin). It also deals with the topics of corporate governance, accounting standards and auditing of annual financial statements.
The core message of the study is that the reforms of recent years have definitely improved the regulatory framework conditions in Germany; at the same time, the remaining agenda for reform is shorter than many people might think.
"Germany is setting the standards for Europe when it comes to capital market regulation, investor protection and the organization of exchanges", said Rainer Riess, Head of Stock Market Business Development at Deutsche Börse.
In the study, Professor Bernd Rudolph from the University of Munich describes the increasingly important role of equity capital for corporate financing. In his contribution, Karl-Burkhard Caspari, vice-president of the German Federal Financial Supervisory Authority (BAFin), provides an overview of the reforms that have been made in the regulatory framework and outlines current and future initiatives.
Professor Theodor Baums, member of the German government's Commission on Corporate Governance, analyzes the status of corporate governance in Germany, describes the new standards contained in the German Corporate Governance Code and identifies the need for further action. Sir David Tweedie, the Chairman of the newly founded International Accounting Standards Board, reports on the standardization of the international accounting standards and the current status of international discussion.
Professor Jörg Baetge from the University of Münster reports on developments in the auditing of annual financial statements; he summarizes the efforts to assure reliable auditing and effective controls and supervision for auditors.
Dirk Schlochtermeyer, Head of Market Policy at Deutsche Börse, and Heiko Beck, general counsel of Deka Bank, describe what themes will shape the political agenda at the national and European level. The main demands addressed to German lawmakers include the convergence of exchange supervision in Germany and a disclosure obligation for off-exchange transactions, as already exists in most EU countries and the USA.
The authors call for a standardization of exchange regulation in Germany, be it in the form of institutional centralization or merely de facto centralization. The current situation is unsatisfactory in two respects, they say. For one thing, it is difficult for international investors to understand why supervision of such important capital market infrastructure facilities as exchanges is decentralized in Germany. For another, the existing structure leads to a disparate level of supervision in Germany given its federal structure, because the supervisory authorities do not all have equal resources in terms of staff and facilities. As an example of the resulting regulatory arbitrage and distorted competition, the authors cite the differences in whether internalization offers by exchanges are officially approved as resulting in exchange prices or not.
Another theme is improving the transparency of off-exchange trading by publishing the prices and volumes immediately after the transaction is concluded. In contrast to most of the EU member-states, these transactions have to be reported to the BaFin, but publication has not been required up to now. Consequently, it is not clear to market participants and investors at what prices and in what volumes action was taken in over-the-counter trading. In practice, therefore, the overall market situation cannot be taken into account, but only the orderbook situation on the exchange.
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