On 18 May 2010, the German Federal Financial Supervisory Authority (BaFin) issued general decrees (Decrees) prohibiting the naked short selling of:

The Decrees became effective as of 19 May 2010 and will remain in force until 31 March 2011.

The Decrees relate to different forms of short-selling:

In the context of the Decrees, short selling means the sale of a financial instrument by a person who is not the owner of the instrument or who does not have an unconditional right to acquire title to such instrument.

Consequently, the sale of a financial instrument by a person who has borrowed the instrument at the time when it enters into the sale, would not constitute naked short selling.

The Decree only applies to Euro Government Debt admitted to trading on a regulated market of a stock exchange in Germany. Currently only German and Austrian Government Debt is listed in Germany. The scope of application is thereby significantly limited, although BaFin would not be competent to issue restrictions on foreign markets.

To the extent that the respective transaction is necessary for the performance of its contractual obligations, trades by market makers (that is, persons who have undertaken by contract to buy or sell financial instruments on a continuous basis by way of trading for own account at prices defined by them) are exempted from the Decree.

The ban applies to liabilities of Euro Countries and liabilities where a Euro Country is at least a reference obligor. Further, it only applies to transactions entered into in Germany. This means that, for example, over-the-counter (OTC) trades in CDSs entered into between parties based outside of Germany are not affected by the ban.

Hedging of existing positions in a reference liability of the credit default or hedging of another existing position in another financial instrument whose value fell if the creditworthiness of the Euro Country debtor, which is the debtor of a reference liability, deteriorated are exempted from the ban.

In addition, transactions are exempt that either:

The naked short selling of shares of the issuers below is prohibited where such trade is carried out on a German stock exchange:

For naked short selling transactions the Decree of 18 March thus overrides the earlier Decree of 4 March which had introduced a two-tier transparency system with notification and publication obligations when certain thresholds were reached or exceeded.

To the extent that the respective transaction is necessary for the performance of its contractual obligations, trades by market makers (that is, persons who have undertaken by contract to buy or sell financial instruments on a continuous basis by way of trading for own account at prices defined by them) are exempted from the Decree.

Also, trading of related cash-settled instruments, such as CFDs or cash-settled options are not affected by the ban.

The background for the Decrees is:

BaFin thus considers that extraordinary circumstances exist which might result in disadvantages for the financial markets. Further massive naked short selling is expected to result in excessive price movements which could further jeopardise the stability of the financial system.

In addition, in the view of the BaFin, the volatilities in the debt markets result in uncertainties for the equities markets. The companies, whose shares have been made subject to the short selling ban are considered to be important for the aggregate economy and excessive price movements of their shares could jeopardise the stability of the financial markets.

The Euro Countries are currently:

Note that the Decrees are still subject to revocation under the German Administrative Procedures Act (Bundesverwaltungsverfahrensgesetz).

The German federal cabinet intends to introduce a bank stabilisation fund funded by all banks and to implement reorganisation procedures allowing for liquidation of banks of systemic importance without putting the financial markets at risk.

On 31 March 2010, the German federal cabinet passed a paper setting out the government's plans on how to stabilise the German banking system. The paper names five elements that each deal with separate issues the German government has identified as important for dealing with struggling banks.

The paper suggests new restructuring proceedings if a bank of systemic importance for the financial system is in financial difficulties. The banking crisis has shown that ordinary insolvency proceedings if applied to banks of systemic importance may lead to a dramatic loss of confidence in the banking system.

Therefore the government envisages the transfer of such parts of a bank of systemic importance that are essential for the stability of the financial markets to a third party or a government-owned bridge bank and to liquidate the parts that lack systemic importance.

The paper also announces additional supervisory powers in the German Banking Act that enable the supervisory authorities to intervene in an early stage if a bank of systemic importance for the financial system is threatened with insolvency.

Looking at an even earlier stage of a bank's struggle for survival, the second element the paper addresses aims at reorganisation way ahead of any need to consider insolvency proceedings. This should be achieved by introducing proceedings that allow for reorganisation and financial restructuring of banks of systemic importance by negotiation. These proceedings shall be accelerated by limited recourse to the courts. They shall include all shareholders to facilitate reorganisation and be preceded by restructuring measures allowing for the management to address counter financial difficulties early and decisively.

The government intends to collect money to introduce a new fund that can be used in the future to stabilise struggling banks. The government argues that, in the current crisis, enormous public funds had to be applied to achieve this goal and that the banks should be forced to contribute their share in efforts to prevent future crises and for restructuring of banks of systemic importance.

This stabilisation fund will be funded by a special charge on all German banks that varies in accordance with the threat the individual bank poses to the financial system, using indicators like "too big to fail" and "too interconnected to fail": the bigger the threat, the higher the charge.

Both the charge and the fund itself have been causes for discussion. The Association of German Banks (Bundesverband deutscher Banken) claimed it was unfair that privately held banks were to pay higher charges than savings banks backed by municipalities (Sparkassen) and co-operatives, and that insurance companies would not be subject to the charges at all. Others commented that the collected fund would be far too small to be able to prevent a future crisis. They pointed out that the rate suggested by the government has been estimated to amount to about EUR1.2 billion per year, whereas it had taken EUR18 billion only to stabilise Commerzbank.

In the light of latest developments in European politics, it actually appears doubtful if the fund will come as it was planned in March 2010. Latest press reports suggest that the individual European governments will instead investigate the possibility of introducing stock exchange transfer taxes, which is widely considered likely to collect far higher amounts and which some believe to be able to stabilise the financial markets.

The fourth element of the cabinet's paper deals with the question of which authority shall be in charge of the executive elements the paper contains (that is, supervising and supporting the reorganisation and restructuring of banks and administrating the stabilisation fund).

The government intends to extend the field of responsibility of the Federal Agency for Financial Market Stabilisation (Bundesanstalt für die Finanzmarktstabilisierung (FMSA), (set up in October 2008 to manage the Financial Market Stabilisation Fund (Sonderfonds Finanzmarktstabilisierung (SoFFin)) to supervision and administration of the new stabilisation fund and supervision of the restructuring and reorganisation of struggling German banks.

The fifth element of the paper does not directly aim at restructuring or stabilisation but at personal responsibility by addressing manager liability. At present, claims for compensation against members of the boards of listed stock corporations are time-limited by five years. The government intends to extend this limitation period to ten years to allow for compensation claims, even if they only become apparent after a longer period of time or on a change of persons in the relevant board.

The government expects to present a draft of the act implementing the elements of the paper in the second half of 2010.

For the first time in Germany the regional court (Landgericht) in Cologne held a court hearing in English on 10 May 2010. This hearing was flanked by a draft law of the German Federal Council (Bundesrat) providing for the choice of English as a language to be used in court proceedings dated 7 May 2010.

As a general rule the language to be used in German courts is German (section 184, German Judicature Act (Gerichtsverfassungsgesetz (GVG))). However, in light of the increasing number of transactions with an international connection and relevant agreements made in English, it appears that the exclusion of English as a language to be used in German courts results in the choice of Anglo-Saxon law and jurisdictions in transactions with an international connection but with their main focus on Germany.

Hence, in a pilot scheme aiming to foster the choice of German law and jurisdiction in international transactions the Cologne Higher Regional Court (Oberlandesgericht) and the ancillary regional courts (Landgerichte) in Cologne, Bonn and Aachen set up special court divisions authorised to hold oral hearings in English at the beginning of this year.

This pilot scheme is flanked by a draft law of the German Federal Council (Bundesrat) on the introduction of court divisions for international commercial matters (Gesetz zur Einführung von Kammern für internationale Handelssachen (KfiHG)) dated 7 May 2010. Under the draft law English may be used as a language in court proceedings on commercial matters provided that both:

In this case not only the court hearings will be held in English but also the court transcripts and court decisions are to be made in English (albeit together with a German translation if the relevant court decision contains enforceable matters).

Furthermore, any related proceedings and decisions by courts of higher instance may also be held and made in English. However, the relevant court may at any time decide to make use of a sworn interpreter or proceed in the German language.

The German Government (Bundesregierung) is expected to comment on the Federal Council's draft law within the next six weeks.

Although the full integration of the English language into German court proceedings will still take some time, we would consider the above measures as important steps to further improve the handling of English language documents in German courts.