This translation is furnished for information purposes only. The original German text is binding in all respects.

1. Statutory definition of the operation of a multilateral trading facility

Section 1 (1a) sentence 2 no. 1b of the German Banking Act (Kreditwesengesetz – KWG) defines the operation of a multilateral trading facility as “the operation of a multilateral system that brings together the interests in the purchase and sale of financial instruments of a large number of persons within the system according to set rules in a way that leads to a purchase agreement for these financial instruments”.

This means that the statutory definition of the operation of a multilateral trading facility is met if:

• a multilateral system is operating that
• brings together the interests in the purchase and sale of financial instruments
• of large number of persons
• within the system according to set rules in a way that leads to a purchase agreement for these financial instruments.

a) Multilateral system

A system means an objective set of rules governing membership, the admission to trading of financial instruments, trading between the members, reports on completed trades and transparency obligations; a trading platform in the technical sense is not required (see Entwurf eines Gesetzes zur Umsetzung der Richtlinie über Märkte für Finanzinstrumente und der Durchführungsrichtlinie der Kommission (Draft Act on the Implementation of the Markets in Financial Instruments Directive and the Commission Implementing Directive), Bundestag printed matter 16/4928, pages 56 and 90).

In contrast to bilateral counterparty systems, multilateral means that the operator of the trading system merely brings together the parties to a potential transaction in financial instruments and does not itself become a counterparty. The operator is not itself permitted to become a counterparty under section 72 (5) of the Wertpapierhandelsgesetz (German Securities Trading Act – WpHG). If it nevertheless does so, the definition of proprietary trading by a systematic internaliser in accordance with section 1 (1a) sentence 2 no. 4 (b) of the KWG is met in all cases, if applicable in addition to the definition of the operation of a multilateral trading facility, depending on whether contracts are also concluded via the facility to which the facility operator does not itself become a counterparty.

b) Interests in the purchase and sale of financial instruments

“Interests in the purchase and sale” should be understood in a broad sense. It also includes indications of interest, orders and quotes.

In accordance with the statutory definition in section 1 (11) sentence 1 of the KWG, the term “financial instruments” includes

1. shares and other interests in German or foreign legal persons, partnerships and other entities that are comparable to shares, as well as depository receipts representing shares or interests comparable to shares,
2. investment products as defined in section 1 (2) of the Vermögensanlagegesetz (Capital Investment Act), with the exception of shares in a cooperative society as defined in section 1 of the Genossenschaftsgesetz (Act Concerning Industrial and Trading Cooperative Societies),
3. debt securities, profit participation certificates, bearer bonds, order bonds and other instruments comparable to these debt securities that by their nature are tradable in the capital markets, with the exception of payment instruments, as well as depository receipts that represent these debt securities
4. any other instruments that convey a right to purchase or sell instruments under numbers 1 and 3 above or that lead to a cash payment whose amount depends on such instruments, currencies, interest rates or other income streams, commodities, indices or benchmarks,
5. units in investment funds as defined in section 1 (1) of the Investment Code (Kapitalanlagegesetzbuch),
6. money market instruments
7. foreign exchange or units of account,
8. derivatives,Treibhausgas-Emissionshandelsgesetz
9. allowances under section 3 number 3 of the Greenhouse Gas Emissions Trading Act (Treibhausgas-Emissionshandelsgesetz), emission reduction units under section 2 number 20 of the Act on Project-based Mechanisms (Projekt-Mechanismen-Gesetz) and certified emission reductions under section 2 number 21 of the Act on Project-based Mechanisms, to the extent that they may be held in the emissions trading registry (emission allowances), and
10. crypto assets.

c) Large number of persons

This means in particular that there is no requirement for an order for case-by-case contract broking.

With regard to access to a multilateral trading facility (MTF), section 74 (1) of the WpHG sets out that the rules for access to a multilateral trading facility must, as a minimum, correspond to the requirements under section 19 (2) and (4) sentences 1 and 2 of the Stock Exchange Act (Börsengesetz).

This means that no retail investors may trade on an MTF, but as a rule only entities that have a proprietary trading, principal broking or contract broking licence.

d) Bringing together interests within the system according to set rules

Bringing together interests within the system according to set rules that may not be modified by the operator in individual cases (non-discretionary) means that the interests are brought together by the rules of the system, by internal operating procedures (for example, the software deployed) or by protocols. The interests must be brought together in accordance with the set of rules without the parties having any discretion to decide whether they want to enter into the transaction with a particular counterparty. This “matching” must be performed strictly according to the rules of the market. A contract must be concluded. The question whether the contract is subsequently processed inside or outside the system is immaterial.

Active listing systems in which participants post binding offers that can be accessed immediately by other market participants within the system at specified terms that result in a contract also fall within the definition of a multilateral trading facility.

2. Multilateral systems

The operation of a multilateral system within the meaning of point 19 of Article 4(1) of Directive 2014/65/EU – a system or facility in which multiple third-party buying and selling trading interests in financial instruments are able to interact in the system – also requires a licence to operate an MTF if a licence for the operation of an organised trading facility (OTF) or a regulated market within the meaning of point 21 of Article 4(1) No. 21 of Directive 2014/65/EU (MiFID II) cannot be considered. This is based on Article 1(7) of MiFID II, under which all multilateral systems in financial instruments are required to be operated either in accordance with the provisions of Title II of MiFID II concerning MTFs or OTFs or the provisions of Title III concerning regulated markets.

According to the authoritative interpretation by the European Securities and Markets Authority (ESMA), see sections 19 et seq. and 33 et seq. of ESMA70-156-6383 Final Report on ESMA's Opinion on the trading venue perimeter.pdf (europa.eu) dated 2 February 2023, ESMA70-156-6360, a multilateral system exists when two trading interests in financial instruments interact on a platform or system that is operated by a third party. According to the ESMA opinion, this also includes platforms that enable the users to communicate about the price and quantities of financial instruments, although the actual contract to buy or sell financial instruments is concluded bilaterally outside the platform.

3. Authorisation requirement to operate the multilateral trading facility

Under section 32 (1) sentence 1 of the KWG, anyone wishing to run a banking business or provide financial services in Germany commercially or on a scale that requires a commercially organised business undertaking needs written authorisation from the Federal Financial Supervisory Authority (BaFin). Satisfying one alternative is sufficient to establish the authorisation requirement for the business. The legal form of the entity (natural person, partnership, legal entity) is immaterial.
Even if the scope of these transactions does not objectively require a commercially organised business undertaking, banking and financial services transactions are deemed to be operated commercially if the operation is intended to last for a certain period of time and the operator conducts it with the intention of making a profit.

Alternatively, the requirement of a commercially organised business undertaking applies. It is immaterial in this case whether a commercially organised business undertaking is actually operated. The sole decisive factor is whether the prevailing opinion of the banking industry is that establishment of such an operation is objectively necessary to operate the business. This must be determined on a case-by-case basis and may be the case if several banking/financial services businesses are operated at the same time, even if the scale is relatively small.
Operating a multilateral trading facility normally requires a commercially organised business undertaking.

The business is only subject to the authorisation requirement under section 32 (1) of the KWG if it is (also) operated in Germany. The business is operated in Germany if the company has its registered office in Germany, even if it only targets business with non-residents of Germany. The business is also operated in Germany if the company establishes a legally dependent branch or maintains another physical presence here that it uses to conduct business operations – even if it only targets non-residents. Finally, the required connection with Germany exists if the services offered from abroad are also and specifically directed at persons who have their registered office or habitual residence in the Federal Republic of Germany. More detailed information can be found in the Guidance Notice “Notes regarding the licensing for conducting cross border banking business and/or providing cross-border financial services”.

4. Exemptions from the authorisation requirement

The operation of a multilateral trading facility is generally not subject to an authorisation requirement in the cases referred to in section 2 (6) sentence 1 of the KWG.

Section 2 (6) sentence 1 no. 16 of the KWG in particular applies here. This states that operators of organised markets that, other than operating a multilateral trading system, do not provide any other financial services within the meaning of section 1 (1a) sentence 2 of the KWG, are not classified as financial services institutions.

However, operators of organised markets whose registered office is outside Germany and whose sole financial service comprises the operation of a multilateral trading facility, and operators of a stock exchange in Germany whose sole financial service other than the regulated unofficial market (Freiverkehr) is to operate a multilateral trading facility, must comply with the requirements and obligations under section 2 (12) sentences 1 and 2 of the KWG, which are contained in the following provisions of the KWG:

• section 25a (particular governance duties of institutions),
• section 25b (obligations in the case of outsourcing),
• section 33 (1) nos. 1 to 4 of the KWG (resources needed for business operations; good repute of the managers; no objections to the holders of qualifying holdings; professional qualifications of the managers), although section 2 (12) sentence 3 of the KWG assumes that the senior managers of a stock exchange in Germany and persons who actually manage the business of an organised market outside Germany satisfy the requirements of section 33 (1) nos. 2 and 4 of the KWG.
• section 2c of the KWG (notification of qualifying holdings) and
• section 24 (1) nos. 1 and 2, and (1a) no. 2 of the KWG (notification of the intention to appoint a senior manager, of the departure of a senior manager, and qualifying holdings in other undertakings).

In addition, section 2 (12) sentence 4 of the KWG gives BaFin corresponding powers under sections 2c and 25a (2) sentence 1 of the KWG and sections 44 to 46h of the KWG (requests for information and inspections; measures in special cases). If facts justify the assumption that the undertaking also operates financial services outside the scope of the exemption or banking business that is not covered by another exemption, BaFin is directly entitled to exercise the rights under section 44c of the KWG and, if applicable, also under section 37 of the KWG.

Additionally, BaFin is authorised under section 2 (12) sentence 5 of the KWG to prohibit the operation of a multilateral trading system in the cases described in section 35 (2) nos. 4 and 6 of the KWG (no adequate own funds; persistent violation of the KWG, Securities Trading Act, Money Laundering Act, Regulation (EU) 2015/847, or regulations or orders issued to implement these legislative acts).

Finally, under section 2 (12) sentence 6 of the KWG, operators of organised markets whose registered office is outside Germany must notify BaFin without undue delay if they start operating a multilateral trading facility, so as to enable a review of the provisions applicable to the multilateral trading facility and its operators.

5. Notes and addresses

This Guidance Notice contains essential information about the statutory definition of the operation of a multilateral trading facility. It does not claim to be an exhaustive presentation of all issues relating to the definition and, in particular, does not replace any case-specific request to BaFin for authorisation.
A conclusive assessment of any potential authorisation requirements in a specific case will require comprehensive documentation of the contractual arrangements on which the operation of the multilateral trading facility is based.

The staff of BaFin and the Deutsche Bundesbank are obliged to keep all information confidential (section 9 of the KWG).

In cases of doubt, the question of whether an undertaking requires authorisation under section 32 (1) of the KWG will be decided by

If you have any questions about this Guidance Notice, please contact the Deutsche Bundesbank Regional Office responsible for your location.

For Berlin and Brandenburg:

For North Rhine-Westphalia:

For Hessen:

For the Free and Hanseatic City of Hamburg, Mecklenburg-Western Pomerania and Schleswig-Holstein:

For the Free Hanseatic City of Bremen, Lower Saxony and Saxony-Anhalt

For the Free States of Saxony and Thuringia:

For Rhineland-Palatinate and Saarland:

For Baden-Württemberg:

For the Free State of Bavaria:

The advantage for you is that the relevant regional office is familiar with the conditions in that region.

A conclusive assessment of any potential authorisation requirements in a specific case will require comprehensive documentation of the contractual arrangements on which the operation of a multilateral trading facility is based. In cases of doubt, the regional office will forward your question to BaFin, together with an opinion.