Under section 34 of the WpHG, the voting rights attached to shares of a third party may be attributed to the party subject to the notification obligation under certain circumstances. The attribution criteria in section 34 WpHG largely correspond to the requirements of EU law set out in Article 10 of the Transparency Directive. In specific cases, the rules could differ among the member states due to harmonisation with the requirements of takeover law¹, for which there is an explicit exemption from the EU legal principle of maximum harmonisation (point (iii) of the fourth subparagraph of Article 3(1a) of the Transparency Directive).

The WpHG takes an abstract approach to the criteria set out in section 34 (1) of the WpHG. Where the criteria required for the relevant attribution are satisfied, voting rights are attributed even when the party to which they are attributed, based on the arrangements agreed in the individual case, does not have any legal claim for its instructions to be followed, or declares that it will not exert any influence, or does not exert any actual influence.² This aims to create transparency about the legal and de facto voting, influence and control structures at the company concerned. Likewise, no notification obligation is triggered when there is a change from holding the voting rights attached to shares directly to the attribution of those voting rights under section 34 of the WpHG; the same applies to a change from one attribution criterion to another.

The attribution criteria defined by law are exhaustive.

Shares owned by a subsidiary of the party subject to the notification obligation (section 34 (1) sentence 1 no. 1 and sentence 2 of the WpHG)

Voting rights attached to shares in the issuer that are owned by a subsidiary of the party subject to the notification obligation are fully attributed to such party under section 34 (1) sentence 1 no. 1 of the WpHG.³ See I.2.5.11 for information on exemptions to this rule in connection with investment services enterprises (Wertpapierdienstleistungsunternehmen) and investment and management companies (section 35 (2) to (6) of the WpHG).

Subsidiaries (section 35 (1) of the WpHG)

Section 35 (1) of the WpHG defines subsidiaries as companies that are classified as subsidiaries within the meaning of section 290 of the German Commercial Code (Handelsgesetzbuch – HGB)⁴ (no. 1) or companies that can be controlled (no. 2), irrespective of their legal form and registered office.⁵ Both cases for determining whether or not a company is a subsidiary refer ultimately to the direct or indirect ability of the parent undertaking to control the subsidiary. The scenarios that appear in practice are diverse and cannot be described in any detail here. The following comments therefore constitute abstract, general guidance and are based on the legal provisions set out in section 290 of the HGB and section 17 of the AktG. It is necessary to examine in detail in individual cases, particularly by reference to relevant case law, whether a parent-subsidiary relationship satisfying the requirements for attribution of voting rights actually exists. In view of the large number of potential control scenarios and the conclusive case-by-case assessment of the attribution of voting rights under section 34 (1) sentence 1 no. 1 of the WpHG, parties potentially subject to the notification obligation are encouraged to get in touch with BaFin at an early stage.

Section 35 (1) no. 1 of the WpHG

Under section 35 (1) no. 1 of the WpHG, subsidiaries are companies defined as subsidiaries by section 290 of the HGB. Under section 290 (1) of the HGB, such a parent-subsidiary relationship exists if the parent undertaking is able, directly or indirectly, to control a subsidiary (control concept).

In the context of section 35 of the WpHG, parent undertakings within the meaning of section 290 HGB can also be natural persons or entities other than corporations, as under section 35 (1) of the WpHG the legal form is not relevant for determining the status of either the parent undertaking or the subsidiary.⁶ If the following typical criteria pursuant to section 290 (2) of the HGB apply, there is always an irrefutable presumption that a parent exercises control, i.e. if:

• it holds the majority of the voting rights in another company (no. 1);
• it has the right to appoint or remove the majority of the members of the administrative, managing or supervisory body determining the financial and business policies of another company, and if it is at the same time shareholder (no. 2);
• it has the right to determine the financial and business policies on the basis of a control agreement entered into with another company or by virtue of a provision of the articles of association of the other company (no. 3); or
• in substance, it retains the majority of the financial risks and obtains the majority of the rewards of a company serving to accomplish a narrow and well-defined objective of the parent undertaking (special purpose vehicle).

The primary application of section 290 (2) HGB is no. 1, i.e. the situation that a parent always exercises control if it holds the majority of the voting rights attached to the shares of the subsidiary.

Under section 290 (3) of the HGB, subsidiaries are also companies that can be controlled “indirectly” via third parties. For instance, according to sentence 1 of the above subsection, rights held by a parent undertaking under section 290 (2) of the HGB also include the rights held by a subsidiary and the rights held by persons acting for the account of the parent undertaking or of subsidiaries. Additionally, under sentence 2, rights held by a parent in another company are increased by the rights that it or a subsidiary can control based on an agreement with other shareholders of that company.
Section 290 (3) sentence 3 of the HGB then establishes two exceptions to these principles (in sentences 1 and 2). First, rights attached to shares that are held by the parent or by subsidiaries purely for the account of other persons have to be disregarded (section 290 (3) sentence 3 no. 1 HGB). Second, rights attached to shares that are held as collateral have to be disregarded to the extent that the rights are exercised at the instructions of the collateral provider or, if a credit institution holds the shares as collateral for a loan, in the interests of the collateral provider (section 290 (3) sentence 3 no. 2 HGB).

Section 35 (1) no. 2 of the WpHG

Additionally, under section 35 (1) no. 2 of the WpHG, a company is a subsidiary if another company may exercise a controlling influence on such company. This criterion, which largely parallels section 290 of the HGB, as described above, is defined by the principles of control set out in section 17 of the AktG – especially as clarified by case law. Under section 17 (1) of the AktG, dependent companies are legally independent companies that may be directly or indirectly controlled by another company (controlling company).

The controlling company, i.e. the party subject to the notification obligation, may be a company (with legal capacity) or a natural person⁷; the legal form is also not relevant in this respect in accordance with section 35 (1) of the WpHG.

Under section 17 (2) of the AktG, there is a rebuttable presumption of controlling influence by another company that holds a majority interest in the first company. Under section 16 (1) of the AktG, majority interest exists if the majority of the share capital or the majority of the voting rights of the subsidiary belongs to another company. Which portion of the shares and which portion of the voting rights belong to a company is governed by section 16 (2) and (3) of the AktG. In this context, shares owned by the company include, in particular, shares owned by a company controlled by it or held by a third party for the account of the company (section 16 (4) of the AktG). In contrast to section 290 (2) no. 1 of the HGB, this means that a majority shareholding without a majority of voting rights can also lead to the presumption of control under section 17 of the AktG.

Attribution of voting rights in the case of a commercial partnership (Personenhandelsgesellschaft), in particular a GmbH & Co. KG

Attribution of voting rights in the case of a general commercial partnership (oHG) and a limited partnership (KG)

In a general commercial partnership (offene Handelsgesellschaft – OHG) that is organised under the regular statute (see sections 105 et seq. of the HGB), the voting rights held by the partnership are generally not attributed to any partner under section 34 (1) sentence 1 no. 1 in conjunction with section 35 (1) of the WpHG. However, this may be different in individual cases if the partnership agreement assigns comprehensive management powers to only a single partner of the OHG. In this case, the voting rights held by the partnership may be attributed to that partner.

There are two types of partners in a limited partnership (Kommanditgesellschaft – KG): general partners and limited partners. In the case of a limited partnership organised under the regular statute (see sections 161 et seq. of the HGB), the partner acting as general partner is the comprehensive and sole governing body of the limited partnership. This means that the general partner is vested with the statutory powers to manage and represent the limited partnership (see sections 161 et seq. of the HGB, section 161 (2) in conjunction with sections 114 and 125 of the HGB).

Therefore, in corresponding application of section 290 (2) no. 2 of the HGB the limited partnership organised under the regular statute is considered to be a subsidiary of the general partner. Particularly the intent and purpose of this provision support its application to the general partner of a limited partnership, because the general partner, although it cannot appoint the majority of the members of the partnership’s governing body, is the only partner vested with management powers and, as such, is itself a governing body. This gives it a position that is at least equally strong in the context of the self-government that applies to partnerships. The general partner’s powers as the sole manager of the limited partnership also makes a strong case for presuming a controlling influence within the meaning of section 290 (2) no. 2 of the HGB. For this reason, the voting rights in an issuer held by the limited partnership are generally attributed to the general partner in the limited partnership under section 34 (1) sentence 1 no. 1 in conjunction with section 35 (1) of the WpHG. If there is more than one general partner, there is generally no attribution to the general partners unless comprehensive management powers have been assigned to only a single general partner.

Moreover, attribution to additional partners of a limited partnership, i.e. the limited partners, is possible if they hold – possibly jointly – a majority of the voting rights. In the case of (commercial) partnerships, majority resolutions are generally allowed (section 161 (2) in conjunction with section 119 (2) of the HGB), although in cases of doubt, a majority of the head count is meant.⁸ This can result in situations in which voting rights of a limited partnership are simultaneously attributed to different persons, i.e. the general partner and the limited partner(s).

Attribution of voting rights in case of a GmbH & Co. KG

As with the limited partnership in general, it is also the case for a GmbH & Co. KG (a limited partnership in which a GmbH is the general partner) organised under the regular statute in which the statutory management and representation powers are vested in the general partner GmbH that the general partner GmbH is generally deemed to be the parent undertaking of the GmbH & Co. KG by corresponding application of section 290 (2) no. 2 of the HGB. As a result, the voting rights held by the limited partnership are generally attributed to the general partner GmbH under section 34 (1) sentence 1 no. 1 in conjunction with section 35 (1) of the WpHG. In addition, control by the limited partner(s) may be considered by virtue of the majority of voting rights. For other forms of GmbH & Co. KG organised under individual contractual arrangements, the status of the general partner GmbH as the potential parent undertaking depends on the relevant provisions of the partnership agreement. If the general partner GmbH is excluded from managing the limited partnership, the limited partnership cannot be considered to be its subsidiary. If the general partner GmbH has not been completely excluded from the management powers, but there are restrictions, it must be clarified on a case-by-case basis whether there is still control under section 290 (2) of the HGB. In cases that are not clear-cut, it is advisable to consult BaFin in advance.

A special rule applies to the case where the limited partnership is the sole shareholder of its general partner GmbH (known in German as an Einheitsgesellschaft), In this case, the GmbH specifically does not act as the parent undertaking of the KG. Rather, the limited partnership⁹ in this case is the parent undertaking of the general partner GmbH, so it is not possible to attribute the voting rights to the GmbH.

Attribution of voting rights in the case of foundations (Stiftungen)

As an autonomous set of assets with its own legal capacity, a foundation (Stiftung) is itself subject to the notification obligation under section 33 (1) of the WpHG in the first instance if holdings of voting rights are attributed to it directly or indirectly in amounts that are relevant for thresholds. If it is possible that the foundation might be controlled, it should be considered that there are no investments in a foundation, but merely founders, beneficiaries and the foundation’s governing bodies. As a general rule, therefore, a foundation is not a dependent entity because there are no investments in it, which in turn means that no attribution takes place beyond the foundation with legal capacity.

However, de facto control of a foundation is possible. Such de facto control exists when a person has the right to appoint and remove members of the foundation’s governing bodies by virtue of the foundation’s by-laws. In such cases, voting rights are attributed to the controlling person. The question of whether that person is a founder is of no relevance in this context. It is also irrelevant whether the person holding the right of appointment and removal is a member of one of the foundation’s governing bodies.

In the case of foundations, it is also generally necessary to examine whether the assets are held for the account (section 34 (1) no. 2 of the WpHG) of a beneficiary.

Aspects in the case of trusts

The concept of trust is known especially in Anglo-American jurisdictions. Due to the reporting requirements applying to trusts, it is necessary to distinguish between trusts endowed with own legal capacity and those without own legal capacity.¹⁰

In the case of trusts without own legal capacity, the trust assets constitute a kind of a pool of assets without legal capacity. The legal owner of the trust assets is generally the trustee, which means that there is an inherent notification obligation on the part of the trustee (section 33 (1) of the WpHG), but not on the part of the trust. It is also necessary to distinguish the trustee from the settlor (who is normally not the same person as the trustee). The settlor contributes the trust assets, e.g. including voting shares of a listed issuer, to the trust. There may be a reporting requirement for the settlor, for example, if the assets are held for its account. The same applies to the beneficiaries of the trust. Notification obligations of other persons should also be examined, for example of a protector (who often has the right to appoint and remove the trustee).

Trusts with own legal capacity are also established by a settlor and administered by a trustee. Such trusts with own legal capacity are themselves subject to the notification obligation because they may be owners of voting shares (section 33 (1) of the WpHG) or voting rights can be attributed to them (section 34 of the WpHG). This kind of a trust is comparable to a foundation, as in this case, too, it is not possible to invest in the trust. Nevertheless, they can also be subsidiaries (section 35 (1) of the WpHG) so that voting rights are attributed under section 34 (1) sentence 1 no. 1 of the WpHG. Control may exist, in particular, if a person (e.g. a protector) has the right to appoint and remove the members of the governing bodies of the trust.¹¹ This right may be established by the trust deed, as well as under the legal provisions governing the trust. The question of which notification obligations apply must be assessed on a case-by-case basis.

Joint control (“multi-parent control” - Mehrmütterherrschaft)

A subsidiary may also be controlled jointly by several companies acting at the same level. The relevant principles of “joint control” (Mehrmütterherrschaft) developed by case law¹² on section 17 of the AktG are applicable in the case of control under section 35 (1) no. 2 of the WpHG in conjunction with section 17 of the AktG.

Joint control may exist in the case of a horizontal group of parent undertakings under section 18 (2) of the AktG. Joint - control may also result from contractual agreements on uniform voting, as well as from the actual circumstances, such as the case of overlapping membership on governing bodies. When assessing such cases, the perspective of the controlled company in the case of section 17 of the AktG is always relevant.

It should be noted that an equal (50:50) investment does not automatically lead to joint control.¹³ In this case, there is not necessarily an effective compulsion to agree, since in a stalemate situation it might happen that shareholder resolutions are not adopted, which in turns means that, from the perspective of the company, it is not controlled jointly by both investors. For joint control, additional circumstances are therefore also required in the case of 50:50 investments. According to the decisions by the Federal Court of Justice, for example, joint control may not arise merely case-by-case, rather it must be safeguarded from the outset by a sufficiently secure, stable basis; the mere fact that two shareholders are members of the same family does not permit a conclusion to this effect.¹⁴ A case-by-case assessment must be made in all cases.¹⁵

The legal consequence of joint control in the context of section 35 (1) no. 2 of the WpHG in conjunction with section 17 (1) of the AktG is the attribution of all voting rights under section 34 (1) sentence 1 no. 1 of the WpHG to each of the jointly controlling shareholders (Mehrmütter).

Ability to control in the case of a minority interest (example of majority of voting rights present at general meetings)

Despite a minority interest (less than 50 per cent) in a company, it is still possible to exercise control if other circumstances apply. It is necessary to be able to exercise continuous, comprehensive influence under commercial law.¹⁶ For example, a listed stock corporation may be controlled by a shareholder who regularly holds a majority of voting rights present at general meetings of the issuer.¹⁷ The majority of voting rights present may not be merely temporary. Rather, it must exist for a certain period and it must be possible to assume on the basis of past experience that the number of shareholders present will not increase significantly in the future.

Held for the account of the party subject to the notification obligation (section 34 (1) sentence 1 no. 2 of the WpHG)

Under section 34 (1) sentence 1 no. 2 of the WpHG, voting rights attached to shares of the issuer owned by a third party are fully attributed to the party subject to the notification obligation if the third party holds the shares for the account of the party subject to the notification obligation.¹⁸ The shares are owned by a third party if they are held by such party within the meaning of section 33 (1) of the WpHG. As described above, the decisive factor under section 33 (3) of the WpHG is the contractual legal transaction. With the two terms “to own” and “holding for the account of the party subject to the reporting requirement”, the WpHG describes scenarios in which there is a difference between the legal and beneficial attribution to the voting rights.¹⁹ For the purposes of establishing that shares are held for the account of the party subject to the notification obligation, the connecting factor is that not to the formal owner of the shares (the “third party”) bears the risks and rewards attached to the shares, but the party to which those shares must be attributed (the “party subject to the notification obligation”). What is decisive is who bears the risks relating to the change in the exchange price and the dividend entitlement, as well as pre-emptive rights, any settlement and compensation payments, and the risk of insolvency of the issuer of the shares.²⁰ To arrive at attribution under section 34 (1) sentence 1 no. 2 of the WpHG, however, it must also be possible to influence exercise of the voting rights.²¹ An abstract view also applies in this case, meaning that it does not matter how exercising voting rights is specifically influenced, but that the party subject to the reporting requirement exercises or has the ability to exercise influence legally or de facto.²²

Fiduciary trust (Vollrechtstreuhand)

A third party is deemed to hold voting shares for the account of the party subject to the notification obligation in particular when it holds them in trust.²³ This refers to a fiduciary trust (Vollrechtstreuhand) in which the trustee (the third party) holds title to the shares in respect of third parties. As a rule, there is usually an internal mandate or management agreement between the trustee and the trustor (sections 662, 675 (1) of the BGB). For the purposes of the definition in section 34 (1) sentence 1 no. 2 of the WpHG, it is sufficient for the trustee to be obliged under the internal agreement to exercise the voting rights in the interest of the trustor, or (in the absence of such agreement) for such an obligation to arise from the nature of the interests involved (trust for the benefit of others). A fiduciary trust is not the same as a trust by power of attorney (Vollmachtstreuhand) or a trust by authorisation (Ermächtigungstreuhand), in which merely the voting power is transferred to the trustee on the basis of a legal authorisation.²⁴

Securities lending

As a general principle, retransfer claims under securities lending arrangements (legally loans in kind within the meaning of section 607 of the BGB) constitute only a notifiable instrument within the meaning of section 38 of the WpHG. Attribution under section 34 (1) sentence 1 no. 2 of the WpHG to the lender of shares can only be considered if there are additional circumstances that establish a trust or similar relationship between the lender and the borrower.

Assigned as collateral to a third party (section 34 (1) sentence 1 no. 3 of the WpHG)

Under section 34 (1) sentence 1 no. 3 of the WpHG, the party subject to the notification obligation is attributed those voting rights attached to shares in an issuer that the party subject to the notification obligation has assigned as collateral to a third party, unless the third party is authorised to exercise the voting rights attached to these shares and declares its intention to do so independently from the instructions of the party subject to the notification obligation.²⁵

Withdrawal of the concept of alternative voting rights attribution

Until the TRL-ÄndRL-UmsG came into force on 26 November 2015, the concept of “alternative voting rights application” applied with regard to section 33 (1) and section 34 (1) sentence 1 no. 3 of the WpHG, meaning that the voting shares transferred as collateral were attributed either to the collateral taker or the collateral provider. As with the other attribution criteria, the shares serving as collateral are now attributed to the collateral taker in all cases (section 33 (1) of the WpHG), and to the collateral provider (as before) only under the conditions set out in section 34 (1) sentence 1 no. 3 of the WpHG.²⁶

This also corresponds to administrative practice regarding the parallel takeover law requirement in section 30 (1) sentence 1 no. 3 of the German Takeover Act (WpÜG).

Lodging of shares as collateral and condition for attribution

The attribution of voting rights under section 34 (1) sentence 1 no. 3 of the WpHG relates to the lodging as collateral of shares with voting rights attached by a collateral provider (party subject to the notification obligation) to a collateral taker (third party).
As a general rule, voting rights attached to shares lodged as collateral by the collateral provider with the collateral taker continue to be attributed to the collateral provider, even though the collateral taker, as the legal owner, is entitled to the voting rights in relation to third parties. The primary reason for this is that the collateral taker is required to exercise the voting rights in accordance with the collateral provider’s instructions, except where they are contrary to the security interests of the collateral taker.

Under section 34 (1) sentence 1 no. 3 2nd half-sentence of the WpHG, the voting rights are not attributed to the collateral provider if the collateral taker is authorised to exercise the voting rights attached to the shares and has stated its intention to exercise the voting rights independently of the instructions of the collateral provider. In this case, the voting rights are only counted at the collateral taker.

Pledge

Section 34 (1) sentence 1 no. 3 of the WpHG is not applicable to pledges of shares because legal title to the shares with voting rights attached remains with the pledgor.

If, exceptionally, the pledgee is authorised to exercise the voting rights, attribution under section 34 (1) sentence 1 nos. 6 and 8 of the WpHG can be considered.

Life interest granted to the party subject to the notification obligation (section 34 (1) sentence 1 no. 4 of the WpHG)

Section 34 (1) sentence 1 no. 4 of the WpHG sets out that voting rights are attributed to a person to whom a life interest has been granted. For the WpHG, it is therefore irrelevant who is entitled to the voting right when a life interest has been granted for shares.²⁷ As a result, the voting rights attached to the shares for which the life interest has been granted are also attributed to the party subject to the notification obligation if that party can only exercise the voting rights on the instructions of the shareholder or not at all.²⁸

For the owner of shares with voting rights attached, there is a notification obligation under section 33 (1) sentence 1 of the WpHG; the beneficiary of the life interest holder is subject to the notification obligation under section 33 (1) sentence 1 in conjunction with section 34 (1) sentence 1 no. 4 of the WpHG in cases where thresholds have been triggered.

Capable of being acquired by way of declaration of intent (section 34 (1) sentence 1 no. 5 of the WpHG)

Under section 34 (1) sentence 1 no. 5 of the WpHG, voting rights attached to shares in an issuer are attributed to the party subject to the notification obligation if that party can acquire the shares though a declaration of intent.²⁹

In section 34 (1) sentence 1 no. 5 of the WpHG, the concept of acquisition is to be understood in the narrower sense, i.e. in the sense of obtaining legal title. Consequently, the concept exclusively covers those scenarios in which only the – unilateral – declaration of intent of the party subject to the notification obligation is needed for that party to acquire legal title in the shares without the involvement of the contractual partner or a third party.³⁰ Shares are likewise attributed in accordance with no. 5 if, instead of a declaration of intent, only the payment of a purchase price directly results in the acquisition of legal title. However, if there is an unconditional claim for immediate transfer of the shares, this is the scenario covered by section 33 (3) of the WpHG, so there is no longer any scope to apply no. 5. Contractual agreements that involve a delivery claim or that actually establish such a claim, as well as situations that require the participation of a third party, therefore do not trigger any attribution under no. 5. No. 5 primarily applies to the case of “options conferring rights in rem”.

Entrusting or proxy (section 34 (1) sentence 1 no. 6 of the WpHG)

Under section 34 (1) sentence 1 no. 6 of the WpHG, voting rights are attributed to a party subject to the notification obligation that have been entrusted to that party or which that party may exercise as a proxyholder, provided that it can exercise the voting rights attached to the shares at its own discretion in the absence of specific instructions from the shareholder.³¹

Entrusted voting rights

The criterion of “being entrusted” in no. 6 requires an obligation to safeguard the shareholder’s financial interests with respect to the shares. However, the voting rights are only attributed if, within the limits set by the obligation, the party subject to the notification obligation still has some discretion in exercising the voting rights. For the purposes of the attribution, it is irrelevant whether the party actually exercises discretion. Even where power of representation exists by statute, the voting rights are deemed to be entrusted to the party subject to the notification obligation. For example, parents, as legal representatives, are attributed the full voting rights attached to the shares of their minor children in each case in accordance with no. 6.³²

Authorisation as a voting proxy

Although attribution by virtue of the criterion of “being entrusted” is already possible for proxies in many cases, this authorisation falls under a separate scope of application, since the concepts of being authorised (as proxy) and being entrusted (with voting rights) are not completely identical. It should be noted in this regard that even when a principal issues instructions on a regular basis, this does not end attribution to the proxyholder. The criterion in no. 6 is not satisfied only if the proxyholder is not permitted to act in the absence of instructions. If the proxyholder validly delegates its authoritisation, the voting rights are also attributable to the holder of the delegated authoritisation under no. 6, provided that the conditions described above are met. Likewise, delegating authoritisation does not terminate attribution to the party originally authorised.

Trust by power of attorney and notification obligations of asset management companies

Section 34 (1) sentence 1 no. 6 of the WpHG may therefore be of relevance particularly in the case of a trust by power of attorney (Vollmachtstreuhand) as well as in the investment business in the case of (asset and fund) management companies. In a trust by power of attorney, the trust relationship is established by the trustor’s granting of authoritisation to exercise the voting rights to the trustee and obliging the trustee to safeguard the trustor’s financial interests. However, the trustor reserves legal title to the shares and thus continues to be the shareholder. Management companies can be attributed voting rights attached to shares that the company manages for its clients provided the management companies can exercise such voting rights at their discretion (see section 94 of the Investment Code (Kapitalanlagegesetzbuch – KAGB). Refer to I.2.5.12 below for further details.

Exemptions for proxies exercised by credit institutions (voting rights attached to shares held in safe custody accounts under section 135 of the AktG)

Under section 135 (1) sentence 1 of the AktG, a credit institution may only exercise the voting rights attached to shares, that it does not own and for which it is not recorded as the holder in the share register, if it has been authorised to do so. Such proxy voting rights of credit institutions are not covered by section 34 (1) sentence 1 no. 6 of the WpHG.

Although credit institutions are to be regarded as proxyholders in respect of the voting rights attached to shares held by them in custody, the voting rights are not attributed because the credit institution is not entitled to use its own discretion in exercising such voting rights under section 135 (3) of the AktG. This states that, as a rule, a credit institution that has not received any instructions by the shareholder for exercising the voting right concerned may only exercise that voting right in accordance with its own proposals – which it has first made available to the shareholder in good time. Under section 135 (2) of the AktG, only proposals that exclusively safeguard the interests of the principal may be submitted, without any consideration for the interests of the credit institution. If the shareholder has not issued any other instructions following the proposals, it is presumed that the shareholder has adopted the proposals as its own (section 135 (3) sentence 1 of the AktG).

General meeting proxy (section 34 (3) of the WpHG)

If the proxyholder is only authorised to exercise voting rights for one general meeting at its own discretion without specific instructions from the shareholder, the proxyholder would, in theory, have to file a notification twice: once when it is granted proxy prior to the general meeting if this results in one or more thresholds being exceeded due to the attribution, and again after the general meeting when the proxy or exercise discretion expires and voting rights holdings fall below one or more thresholds again. This provision sets out an exemption from the requirement to file a second voting rights notification; only one notification has to be filed, when the proxy is granted. However, this notification must contain the additional disclosures required by section 34 (3) sentence 2 of the WpHG. The party subject to the notification obligation must state when the general meeting will take place and its holding of voting rights will be after the proxy or exercise discretion has expired.

However, if the holding of voting rights changes after this notification in such a way that, after expiry of the proxy or exercise discretion, the holding of voting rights is different from the holding stated in the notification, this must be disclosed in a second notification; in this case, the exemption provided for in this provision can no longer be used.

Temporary transfer of voting rights without the related shares under an agreement for consideration (section 34 (1) sentence 1 no. 7 WpHG)

The allocation criterion in section 34 (1) sentence 1 no. 7 of the WpHG was added due to the corresponding requirement in the Transparency Directive³³. It applies if the party subject to the notification obligation can exercise voting rights attached to shares under an agreement that provides for the temporary transfer of the voting rights without the related shares for consideration. Split-offs are prohibited under German stock corporation law (section 8 (5) of the AktG). This means that membership rights cannot be split off from the share and shareholders’ voting rights cannot be temporarily transferred without transfer of the share.³⁴ In the case of shares subject to German stock corporation law, an agreement to transfer the voting rights without the underlying share is therefore not possible.

At most, attribution under section 34 (1) sentence 1 no. 7 of the WpHG can be considered in the case of an agreement entered into under foreign law on the transfer of voting rights without the related shares (e.g. in the case of a third country issuer of shares that has opted for the Federal Republic of Germany as its home country).

Shares lodged as collateral and exercise of voting rights (section 34 (1) sentence 1 no. 8 of the WpHG)

The attribution criterion in section 34 (1) sentence 1 no. 8 of the WpHG also serves to fully implement the requirements of the Transparency Directive.³⁵ It applies to cases when voting shares are lodged as collateral with the party subject to the notification obligation. The holding of voting rights attached to the shares of the third party (collateral provider) lodged as collateral with the party subject to the Section 34 (1) sentence 1 no. 8 of the WpHG serves to implement notification obligation, as the collateral taker, are attributed to the latter, provided that it holds the voting rights and declares its intention of exercising them.

In addition to the typical contractual retention obligation, there must therefore be a corresponding collateral agreement between the third party (collateral provider, generally the shareholder) and the party subject to the notification obligation (collateral taker).
Section 34 (1) sentence 1 no. 8 of the WpHG differs from the allocation of voting rights under no. 3 in that, in the case of no. 3, the party subject to the notification obligation is the collateral provider and the shares are lodged as collateral with the third party as collateral taker, i.e. the shares are held by the third party, whereas in the case of no. 8, the party subject to the notification obligation holds the shares (as collateral). Section 34 (1) sentence 1 no. 8 of the WpHG should be regarded as specific law that overrides attribution under section 34 (1) sentence 1 no. 6 of the WpHG. In contrast to section 34 (1) sentence 1 no. 6 of the WpHG, lodging of the shares to which the voting rights are attached as collateral is specifically not necessary.

Equal status of subsidiaries (section 34 (1) sentence 2 of the WpHG)

Under section 34 (1) sentence 2 of the WpHG, all voting rights that are attributed to the subsidiary itself under sentence 1 nos. 2 to 8 are also attributed in full to the party subject to the notification obligation.³⁶

Acting in concert (section 34 (2) sentences 1 and 2 of the WpHG)

Attribution of voting rights based on a common understanding on the coordinated conduct, better known as “acting in concert”, is covered by section 34 (2) of the WpHG.³⁷

Under section 34 (2) sentence 1 of the WpHG, voting rights attached to shares in an issuer whose home country is the Federal Republic of Germany that are owned by a third party with which the party subject to the notification obligation or its subsidiary coordinates its conduct in respect of the issuer on the basis of an agreement, or otherwise, are attributed to the party subject to the notification obligation, although agreements in individual cases shall be exempted. Under section 34 (2) sentence 2 of the WpHG, acting in concert in this context requires the party subject to the notification obligation or its subsidiary and the third party to reach an understanding on the exercise of voting rights or otherwise collaborate with the aim of bringing about a lasting and material change in the issuer’s business strategy.

For the attribution of voting rights on the basis of acting in concert, it does not matter whether the party subject to the notification obligation itself holds shares with voting rights attached or whether voting rights are attributable to it by reason of other attribution criteria. This is because the effective influence of the party subject to the notification obligation to be captured by attribution under section 34 (2) of the WpHG, even without the influence conferred under company law by shares held by or attributable to the party subject to the notification obligation, may otherwise arise on the basis of sufficiently established coordination and subsequently take effect through the involvement of a third party as a shareholder of the issuer.³⁸

Forms and substance of acting in concert

The first condition to be satisfied for acting in concert under section 34 (2) of the WpHG is a communication process between at least two persons that culminates in an agreement being reached or in policy being otherwise coordinated.³⁹

Section 34(2) sentence 1 of the WpHG covers both forms of acting in concert: voting and pooling agreements certainly fall under the definition of “agreements” (first alternative); as a general rule, however, it encompasses all forms of contract under civil law. The second alternative (“otherwise” acting in concert), by contrast, is designed to capture those instances where a common understanding is reached without any formal agreement being concluded (such as a gentlemen’s agreement). Section 34 (2) sentence 2 of the WpHG refers to the substance of acting in concert: acting in concert may relate on the one hand to an understanding between the party subject to the notification obligation or its subsidiary and a third party on the exercise of voting rights at the issuer's general meeting. However, it is irrelevant whether the voting rights are actually exercised, and the corresponding intention of the parties acting in concert is sufficient. In addition, the subject of acting in concert is any other collaboration with the aim of bringing about a permanent and material change in the issuer’s business strategy.

The types of acting in concert described in section 34 (2) sentence 1 of the WpHG (“agreement” or “otherwise”) also apply to the two contexts of acting in concert provided for in sentence 2 (“understanding on the exercise of voting rights” and “otherwise collaborate with the aim of bringing about a lasting and material change in the issuer’s business strategy”).

As a result, any agreement on the exercise of voting rights, regardless of its substance and significance, constitutes a corresponding understanding on the exercise of voting rights within the meaning of sentence 2; in this context, the specific understanding may be classified as an agreement or as otherwise acting in concert within the meaning of sentence 1.

The criterion of otherwise acting in concert with the aim of bringing about a lasting and material change in the issuer’s business strategy is also designed to cover acting in concert outside the general meeting.⁴⁰ The term “business strategy” in any case covers the purpose of the company as defined in its articles of association as well as its company policy. The latter defines the essential features of the company’s future activity, meaning the elaboration and implementation of objectives and actions relating to the company as a whole.⁴¹ It is only designed to cover cases in which the influence exerted on the company’s business strategy is also the actual objective of acting in concert.⁴²

There is a lasting change in respect of the issuer if it is not possible to foresee when the effects will end. For example, if one or more members of the management board resign as a result of influence exerted by the shareholders, this can at all events be qualified as a lasting change. The materiality of a change can only be assessed in relation to the company’s parameters. It is important in this regard to consider differences in economic holdings, among other aspects, since what is ultimately decisive is the overall assessment of the changes with regard to the company. An abstract individual enumeration of material and non-material changes is not possible.⁴³ According to the explanatory memorandum to the Risk Limitation Act⁴⁴, there are no grounds for attribution in the case of acting in concert that opposes changing a company’s business strategy (i.e. aimed at preserving the status quo) by rejecting planned corporate measures such as utilising authorised capital or acquiring treasury shares. This is because cases in which the status quo is maintained are not based on a longer-term strategy, since preventing changes does not (help) shape company policy.

The attribution criterion of section 34 (2) applies to those persons who are party to the agreement or act in concert coordinatedly (see I.2.5.10.4).⁴⁵ Under the terms of an administrative trust for the benefit of others, voting rights of a third party who acts in concert with the trustor are therefore not attributed to the trustee under section 34 (2) of the WpHG, subject to the trustee’s own involvement in acting in concert.⁴⁶

Derogation in individual cases

Under section 34 (2) sentence 1 2nd half-sentence of the WpHG, an attribution of voting rights is expressly exempted in the case of agreements in individual cases. When clarifying the concept of individual cases, what is decisive is the distinction between a “longer-term strategy for the joint pursuit of corporate objectives” and mere “selective influence exerted on the issuer”.⁴⁷ Otherwise acting in concert with the aim of bringing about a lasting and material change in the company’s strategy does not constitute a derogation in individual cases since this is more than merely selective influence exerted on the issuer. Nor is it decisive whether the change in strategy is the result of only a single general meeting of the issuer or is based on many individual resolutions. Strategies are fundamental decisions defining the basic strategy for the company’s business by the company.⁴⁸ The legislator believes that selective influence is not generally held to constitute acting in concert if there are individual agreements on different matters or repeated decisions on the same matter. Merely agreeing a policy on several items to be resolved at the general meeting is not in itself deemed to result in attribution of voting rights.⁴⁹ In turn, it is necessary to examine on a case-by-case basis the impact this will have on the company. An abstract enumeration of individual cases within the meaning of the provision is not possible. The following criteria can be used for the assessment in this context: (the impact on) the purpose of the company, revenue, profit, debt, headcount, membership of governing bodies, business units, sales areas, etc.⁵⁰

Legal succession: mutual attribution of voting rights

A consequence of section 34 (2) of the WpHG is the mutual attribution of all voting rights included in acting in concert. This means that each party subject to the notification obligation involved in acting in concert by reason of an agreement or otherwise is attributed all voting rights of the other parties involved in acting in concert. It is not generally decisive for an attribution under all possible variants of acting in concert whether the party subject to the notification obligation itself holds shares to which voting rights are attached or whether voting rights are attributable to it by reason of other attribution criteria (i.e. section 34 (1) sentence 1 nos. 1 to 8 of the WpHG). As a result, attribution only under section 34 (2) of the WpHG may give rise to notification obligations under section 33 (1) sentence 1 of the WpHG.

Attribution does not depend on the actual ability of a party involved in acting in concert to exert an influence on the decision on the concerted exercise of voting rights. There are no indications in the WpHG supporting the view, sometimes held in the literature, that voting rights are only attributable (unilaterally) to a person controlling a pool of voting rights.

Attribution must be reciprocal since it follows from the wording (“all”) that all voting rights of the other parties involved must be attributed.

As a rule, the number of attributable voting rights is determined on the basis of the underlying agreement or otherwise acting in concert: if the parties involved hold a great number of shares and voting rights and commit only some of them to acting in concert, only such committed voting rights will be attributed. However, if no such quantifiable restriction has been agreed between the persons or entities, all shares and voting rights of the respective person will be assumed to have been committed for acting in concert.⁵¹

Notification obligations of the parent undertaking if a subsidiary is party to a voting agreement or both companies are parties to a voting agreement

Under section 34 (2) sentence 1 of the WpHG, voting rights of a third party with which the party subject to the notification obligation or its subsidiary agrees its voting policy are attributed to the party subject to the notification obligation. Thus, the parent undertaking is also attributed the voting rights of the third party with which its subsidiary agrees its voting policy under section 34 (2) of the WpHG, whereas the voting rights of the subsidiary are attributed to the parent undertaking under section 34 (1) sentence 1 no. 1 of the WpHG.⁵²

If the parent undertaking itself is also party to a voting agreement in addition to its subsidiary, not only the voting rights of the third party but also the voting rights of the subsidiary are attributed to the parent undertaking under section 34 (2) of the WpHG. In addition, the voting rights of the subsidiary are also attributable to the parent company under section 34 (1) sentence 1 no. 1 of the WpHG. In this respect, the subsidiary is itself a “third party” for the parent undertaking within the meaning of section 34 (2) of the WpHG.

In the case of a voting agreement exclusively between a parent and a subsidiary, we recommend contacting BaFin in advance.

Discontinuation of subsidiary status (section 35 (2) to (6) of the WpHG)

Subsidiaries (section 35 (1) of the WpHG)

Section 35 (1) of the WpHG defines subsidiaries as companies that are classified as subsidiaries within the meaning of section 290 of the HGB (no. 1) or companies that can be controlled (no. 2), irrespective of their legal form and registered office (for more details see I.2.5.1.1 on section 34 (1) no. 1 of the WpHG).

Discontinuation of subsidiary status (section 35 (2) to (6) of the WpHG)

The discontinuation of subsidiary status is governed uniformly by section 35 (2) to (6) of the WpHG in conjunction with sections 2 and 3 of the TranspRLDVO.

The exemption from the subsidiary status applies solely to investment services enterprises and management companies and requires independence from the parent undertakings with regard to the exercise of voting rights in listed issuers.⁵³ If the individual independence conditions in section 35 (2) to (4) of the WpHG in conjunction with sections 2 and 3 of the TranspRLDVO are satisfied, the consequence for the notification obligations under sections 33 et seq. of the WpHG are that voting rights held or managed by the investment services enterprise or management company are not (or no longer) attributed to the parent undertaking.

Statement of independence issued to BaFin

The specific independence conditions for investment services enterprises and management companies whose registered office is in the EU or the EEA are given in section 35 (2) and (3) of the WpHG in conjunction with sections 2 and 3 of the TranspRLDVO. In particular, the parent undertakings must submit a written declaration to BaFin giving the name of the investment services enterprise or the management company and the authority responsible for its supervision according to which the conditions for independence have been met. This statement of independence states that:

1. the parent undertakings and other companies controlled by it do not influence exercise of the voting rights through direct or indirect instructions or by other means, and that the company is free in every respect to exercise the voting rights attached to shares it manages independently from any influence of the parent undertaking;
2. the company manages the investments in accordance with Directive 2009/65/EC (UCITS Directive) or manages them in accordance with conditions that are equivalent to Directive 2009/65/EC;
3. the organisational structures of the parent undertaking and the company are such that the voting rights can be exercised independently from the parent undertakings;
4. the persons who decide how the voting rights will be exercised act independently; and
5. in the event that one of the parent undertakings or another company controlled by the them is a client of the company or holds an interest in the assets managed by the company, there is a clear written mandate governing an independent client relationship between the parent undertakings or the other companies controlled by them and the company, or there will be for any such case in future.

The parent undertakings must continuously update the list with the names of the investment services enterprises or management companies and the authority (or authorities) supervising them, i.e. in the event of changes, and must submit the list to BaFin.
The aforementioned statement must be filed together with an organisational chart of the or of each individual parent undertaking of the investment services enterprise or management company; note that it is possible for the statements to be made by one parent undertaking in its own name and on behalf of the other (individually named) parent undertakings.

Where the conditions as described above are satisfied only at a later time (i.e. after the parent undertakings have become subject to the notification obligation and notifications have already been submitted), the voting rights of the investment services enterprise or management company are no longer attributable to the parent undertakings. If in these cases the parent undertakings fall below thresholds, they are in turn subject to the notification obligation under section 33 of the WpHG.

If one of the conditions described above no longer applies, section 35 (2) or (3) of the WpHG is no longer applicable and the investment services enterprise or management company is classified again as a subsidiary under section 35 (1) of the WpHG. In this case, the notification obligation for the parent undertakings of the investment services enterprise or management company is restored.

Partial independence in groups of companies

When the TRL-ÄndRL-UmsG came into force on 26 November 2015, BaFin modified its administrative practice such that partial independence in groups of companies is possible (abandonment of the all-or-nothing principle). For example, the ultimate group parent undertaking can even declare that all of its subsidiaries are independent if they are subject to instructions between each other. In this case, voting rights of the management companies are no longer attributable under section 34 (1) sentence 1 no. 1 of the WpHG to the ultimate parent undertaking.

Exception from discontinuation of subsidiary status (section 35 (5) of the WpHG)

Despite the applicability of the aforementioned conditions of section 35 (2) or (3), however, an investment services enterprise or asset management company/EU management company is classified as a subsidiary under section 35 (5) of the WpHG if

1. the parent undertaking or another company controlled by it holds an interest in common funds of the investment services enterprise or management company and
2. the investment services enterprise or management company cannot exercise the attached voting rights at its discretion, but only on the basis of instructions.

In such cases the investment services enterprise or management company remains a subsidiary with regard to this common fund (section 35(1) of the WpHG). These units of the investment services enterprise or management company must therefore be attributed to the parent undertaking under section 34 (1) sentence 1 no. 1 of the WpHG:

Companies whose registered office is in a third country (section 35 (4) of the WpHG)

For a company whose registered office is in a third country and that would require authorisation for financial portfolio management under section 32 (1) sentence 1 in conjunction with section 1 (1a) sentence 2 no. 3 of the KWG or permission under section 20 or section 113 of the KAGB if its registered office or head office was in Germany, the conditions in section 35 (4) of the WpHG in conjunction with sections 2 and 3 of the TranspRLDVO apply.

Accordingly, the parent undertakings must submit a written declaration to BaFin indicating the name of the company and the authority responsible for supervising it, according to which:

• the legislation of the company’s home country sets out that the company must in all cases be able to exercise the voting rights it manages freely and independently, and that it is not required to consider the interests of the parent undertakings or of other undertakings controlled by them in the event of conflicts of interests,
• under the legislation in the company’s home country, the company at all events exercises the voting rights it manages freely and independently from the parent undertakings or from any other company controlled by the parent undertakings, and it is not required to consider the interests of the parent undertakings or of the other companies controlled by the parent undertakings in the event of conflicts of interests,
• the organisational structures of the parent undertakings and the company are such that the voting rights are exercised independently from the parent undertakings,
• the persons who decide how the voting rights are to be exercised act independently,
• in the event that one of the parent undertakings or any other company controlled by the parent undertakings is a client of the company or is invested in the assets managed by it, there is a clear written mandate governing an independent client relationship between the parent undertaking or another company controlled by the parent undertakings and the company, or there will be for any such case in future.

In this case as well, the parent undertakings must update the list with the names of the companies and the authority (or authorities) supervising them on an ongoing basis, i.e. in the event of changes. Equally, a parent undertaking can submit the statements in its own name as well as in the name of and on behalf of the other parent undertakings. The exception to the discontinuation of subsidiary status (section 35 (5) of the WpHG) applies mutatis mutandis.

Notification obligations in connection with collective investment undertakings

Voting shares are often held by collective investment undertakings, which can be organised in a wide range of forms. As soon as the collective investment undertaking holds a notifiable holding of voting shares, it must be examined which parties may be subject to reporting requirements. The collective investment undertaking itself, the management company and the investors are to be considered.⁵⁴

Notification obligations of the collective investment undertaking (sections 91 et seq. of the KAGB)

A collective investment undertaking can only itself be subject to a notification obligation under sections 33 et seq. of the WpHG if it is a separate legal entity (for example an investment stock corporation). The question of whether this is the case must be decided on the basis of the relevant applicable jurisdiction⁵⁵, and it may be difficult to make this distinction in individual cases. The assets belonging to the collective investment undertaking can only be “owned” by it and it can only be the addressee of a notification obligation if the rights and obligations are attributable to the collective investment undertaking.

By contrast, if the collective investment undertaking is not legally dependent, it is a common fund in accordance with sections 92 et seq. of the KAGB only notification obligations for the management company and for the investors can be considered.

Notification obligations of the management company

The management company, which manages the voting shares or instruments belonging to the collective investment undertaking and exercises the voting rights attached to the shares, is always subject to the notification obligation:

• If the collective investment undertaking is a separate legal entity, the collective investment undertaking “owns” the assets and its notification obligation results already from sections 33 and 38 of the WpHG. In the case of an external asset management company (section 18 of the KAGB), the voting rights belonging to the collective investment undertaking are attributed to the management company under section 34 (1) sentence 1 no. 6 of the WpHG.
• If the collective investment undertaking is not a separate legal entitiy, the question is whether the management company holds the voting rights as fiduciary owner for the account of the investors (“trust solution”), or whether the assets held by the collective investment undertaking belong to the investors as co-owners (“co-ownership solution”).⁵⁶ If the management company acts legally as a trustee, it notifies the corresponding voting rights as the direct owner of the voting rights. In the case of the co-ownership solution, legal title to the shares is attributed to the investors, and the voting rights are attributed to the management company (just as in the case of the collective investment undertaking being a separate legal entity) under section 34 (1) sentence 1 no. 6 of the WpHG.

Notification obligations of the investors in collective investment undertakings

Because of the derogation in section 1 (3) of the WpHG, investors in retail investment funds are generally not subject to any notification obligation with regard to voting rights of the collective investment undertaking. The following remarks on notification obligations therefore relate only to investors in special investment funds. To determine the potential notification obligation applicable to investors, a distinction must be made in turn whether the investment fund is a separate legal entity or not:

• If the special investment fund is a separate legal entity and hence itself the owner of the notifiable voting shares, these can be attributable to an investor under section 34 (1) sentence 1 no. 2 of the WpHG, because the investment fund holds the voting rights for the account of the investors (by analogy with section 1 (10) KAGB), or under section 34 (1) sentence 1 no. 1 of the WpHG, if the investor holds the majority of the shares or units in the investment fund (in the case of non-voting shares of an investment stock corporation (section 109 (3) of the KAGB), for example, control by an investor cannot be considered because non-voting shares do not convey any voting rights).
• By contrast, if the special investment fund is not a separate legal entity, the notification obligations applicable to the investors depend on the chosen allocation of title in the assets of the investment fund (trust or co-ownership solution): If the investors are co-owners of the voting shares, they are subject to a notification obligation under section 33 (1) of the WpHG from their proportionate share of voting rights held in the investment fund (direct holding); if the management company is the fiduciary owner of the voting shares, the investors receive a proportionate attribution as beneficial owners under section 34 (1) sentence 1 no. 2 of the WpHG. In both cases, there is therefore a proportionate attribution to the investors of the voting rights held in the investment fund.

Notification obligations in the case of collective investment undertakings established in other jurisdictions

The above remarks apply to foreign management companies (EU/EEA and third countries) mutatis mutandis. In this case, too, the starting point for examining any notification obligation is always the question of the extent to which the collective investment undertaking is a separate legal entity and who is the legal owner of the shares. Some typical fund structures under other jurisdictions are examined in the following with respect to notification obligations under sections 33 et seq. of the WpHG.

Société d'Investissement a Capital Variable (SICAV)

A SICAV (Société d'Investissement à Capital Variable) is comparable to an investment stock corporation (Investmentaktiengesellschaft) with variable capital under German law. In this case, too, a fund has the legal form of a company that may either manage itself or appoint an external management company. The shares with voting rights attached are owned by the SICAV.

Its notification obligations are therefore determined by section 33 of the WpHG. In many cases, the voting rights in such cases are exercised by investment managers. Since they can normally exercise the voting rights at their own discretion, attribution in this case is governed by section 34 (1) sentence 1 no. 6 of the WpHG (see externally managed investment stock corporation).

In addition, attribution to investors under section 34 (1) sentence 1 no. 2 of the WpHG may be considered because the (special) SICAV normally holds the shares for the account of the investors. At the same time, the SICAV units represent the company’s shares, with the result that, in the event of a share of more than 50% in the SICAV being the asset management company, attribution under section 34 (1) sentence 1 no. 1 of the WpHG is also conceivable.

Funds with own legal capacity

Funds in Anglo-American jurisdictions often have own legal capacity (e.g. in the legal form of a limited company) and are therefore themselves subject to the notification obligation under section 33 of the WpHG if they trigger a threshold. In the case of these funds, management is usually performed by management companies, which also exercise the voting rights among other things. Since they can normally exercise the voting rights at their own discretion, the voting rights are also attributed to these companies under section 34 (1) sentence 1 no. 6 of the WpHG. Likewise, voting rights may be attributed to investors under section 34 (1) sentence 1 no. 2 of the WpHG because the funds with legal capacity commonly hold the shares for the account of the investors. At the same time, the fund units represent the company’s shares, with the result that, in the event of a share in the fund of more than 50%, attribution under section 34 (1) sentence 1 no. 1 of the WpHG is also conceivable.⁵⁷

Special case: Investment compartments (subfunds)/umbrella funds

Foreign funds with legal capacity are sometimes subdivided into subfunds. Since these subfunds generally do not have any legal capacity of their own and hence cannot be subject to the notification obligation, only their legal owner, the (umbrella) funds with legal capacity, can be subject to the notification obligation. In such cases, the sum of the units held by the investors in the relevant subfunds corresponds to the shares in the (umbrella) funds, which means that there are no differences for investors in subfunds compared with investors in funds without subfunds. These statements apply to umbrella investment stock corporations mutatis mutandis.

Excursus: Prime brokerage

Prime brokerage is the term used for a bundled package of services that a bank offers to an investor, often a (hedge) fund; the concrete legal structures used for this may differ considerably. BaFin’s experience is that regularly if a prime broker is engaged, it is important to precisely examine the legal ownership of the shares and the rights and obligations agreed between the parties (bank and client) in this context, including the applicable national legislation, in order to identify any existing notification obligations. The following remarks also apply to arrangements that the parties involved do not regard as prime brokerage, or as non-typical prime brokerage.

In prime brokerage, the client generally grants the custodian bank a right of use (which, as an instrument, is generally subject to a notification obligation) to the shares belonging to the client, in other words the right to use shares of the client in its portfolio for the bank’s own transactions and to acquire them for this purpose. However, the bank is partly also the formal legal owner (of the shares it holds in custody), with the result that the client is “only” the beneficial owner of the shares. In this case, the right of use is not subject to any notification obligation as an instrument of the bank, because the bank is already the owner of the shares held in custody and has to file a notification under section 33 of the WpHG.

If the bank exercises its right of use, the client normally has the right to require the account to be replenished. As a general rule, this right is an instrument subject to a notification obligation for the client under section 38 of the WpHG, whereas the client’s holding of voting rights under section 33 of the WpHG is correspondingly reduced. To comply with its notification obligation, the client is reliant in this respect on correct information from the bank about its current custody account balance.
As an additional service, prime brokers often offer their clients hedging transactions in which the bank sells a put option and in return the client sells a call option to the bank (collar). Notification obligations for instruments in this context depend on whether the bank is to be regarded as the owner of the shares held in custody.

It has emerged in practice in this context that banks and clients do not pay sufficient attention to the notification obligations of the parties in the case of prime brokerage. As a result, both the banks – which cannot make use of the depositary exemption (see I.2.6.5) because of their own economic interest in the shares held in custody – and the clients notified the shareholdings as “direct” holdings. In such cases, consulting BaFin in good time is advisable.

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