Which parameters apply to online stock trading
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This text - which you can also download as a brochure - is not a reference work for stock exchange trading or traded values, but is intended to give private investors who want to trade in securities an initial overview. Take these notes as a Instructions to ask questionsIn order to be able to make independent, responsible decisions about your investment. You can obtain basic information on the individual forms of investment, risks and processing securities transactions from your bank, savings bank or financial service provider. Ask about it and read the information carefully.
Basically: First, think about wich goals Track you with the security investment and whether these are in line with your financial needs. What is the value of the security, profitability and liquidity of the investment to you? These considerations should always play a role in your decisions, especially if you want to invest in securities as part of asset protection rather than speculating. Before making an investment, review your investment strategy critically and Inform yourself incoming - via the contractual partner and the capital investment offered.
What should you pay attention to before opening a securities account?
Would you like to invest your money in securities - for example in stocks, bonds, certificates or investment fund shares? Then you have to open a custody account, for example at your house bank. If you want to invest in mutual funds without exception, then in many cases you also have the option of opening your custody account directly with the capital management company. You can also buy shares in the investment funds of other companies from individual management companies.
You don't trust the recommendations of your advisor alone and prefer to choose your securities yourself? Then it is important that you clarify which securities you can buy in which markets before opening a securities account. For example, ask your institute whether you can buy units in investment funds on the stock exchange and what the fees are.
Please note: Nobody is obliged to carry out securities transactions for you free of charge. This also applies to the safekeeping of your securities. You should therefore carefully read the cost information that you receive from your institute. It can also be helpful to read the price list. Compare different offers, for example reputable consumer magazines that publish price comparisons on a regular basis can help you with this.
Are you no longer satisfied with your bank? Then you can have your securities transferred to another bank. Note that such a deposit transfer takes a little longer than a money transfer. But ask if not all securities have been transferred after three to four weeks.
Are you wondering what your rights would be if your custodian bank went bankrupt? The securities that your bank holds in a custody account for you generally remain your property or in an equivalent legal position. If the custodian bank becomes insolvent, you have the right to segregation according to the insolvency regulations. So you are entitled to the surrender of the securities. You must register this claim in writing with the insolvency administrator.
The same applies if you have invested your assets in investment funds and have the investment units held in custody by the capital management company. If the capital management company becomes insolvent, the investment units held for you in your fund custody account do not fall into the company's insolvency estate, but must be surrendered to you. The same applies here: You must submit your claims to the insolvency administrator in writing.
What (information) obligations apply to securities transactions?
The obligations of companies in the securities business - for example with regard to questions of information - are not uniformly regulated. That is why it is very important for you to know who you are dealing with.
Investment services company
If it is an investment services company - this includes banks, savings banks and financial services institutions - the following applies: Your counterpart must provide you with a wide range of information that will enable you to make an informed investment decision. This includes, for example, information about the functionality and risks of the various types of financial instruments, i.e. above all of securities or investments (e.g. limited partnerships, profit participation rights), but also information about costs.
You need to be informed about all the costs of your investment and their effects on the return. Donations that are paid by third parties must also be disclosed. The investment services enterprise must also break down the costs for you according to the individual items, if you request this.
Talk about it openly if you are inexperienced or do not understand something. Check the costs and sales commissions and consider what sales interest your counterpart has in doing business with you. This is especially important if you want to decide whether you want to take advantage of commission-based investment advice or independent fee-based investment advice.
With commission-based investment advice, the investment advisor may only accept donations from the provider or issuer for a recommended financial product if the donation is designed to improve the quality of your service, it does not conflict with the proper provision of the service in your best possible interest and it is clear to you is disclosed.
In the case of independent fee-based investment advice, however, only you as the customer pay the investment advisor. If the consultant still receives benefits from providers or issuers, he must pay you these in full and immediately. In order to avoid hidden costs and to find out the most cost-effective option for you, it is imperative that you obtain detailed information on all the details of the remuneration. In principle, the advisor is obliged to inform you before the beginning of the consultation whether the advice will be provided as an independent fee-based investment advice or not. BaFin keeps a close eye on the investment services companies meeting their obligations.
Lists of banks, savings banks and financial services companies that are licensed by BaFin can be found in our company database. Companies that provide independent fee-based investment advice are listed in a fee-based investment adviser register.
Investment services companies may only recommend securities to you that meet your investment objectives and are designed in such a way that you can bear the risks and understand them with your knowledge and experience. In order to assess which securities are suitable for you, your investment advisor will ask you a few questions: about your investment goals including your risk tolerance, your financial circumstances, especially your ability to bear losses, and your knowledge and experience of securities transactions.
Take the time to answer the questions and be honest. Don't gloss over anything - neither your financial circumstances nor your knowledge and experience in the securities business. Above all, make sure that you and your advisor speak the same language when it comes to your risk tolerance. Make it clear what exactly “safe”, “balanced” etc. mean for you and urge that this is also documented in this way. Your data is usually collected when you open your securities account. It should repeat itself when your personal circumstances change. Make your advisor aware of such a change.
In good time before entering into a transaction, your investment advisor must provide you with a brief and easy-to-understand information sheet about the financial instruments that he recommends for you to buy. When it comes to units in investment funds, the investment services company must instead provide you with the key investor information. In the case of packaged investment products, such as certificates and structured bonds, you have to be provided with a basic information sheet; in the case of investments, for example limited partnerships and profit participation rights, an investment information sheet. All of these information sheets summarize the main features and risks of the product.
Investment services companies must also provide you with a declaration of suitability for any investment advice - whether in a branch, on the phone or at your home. This declaration must be made available to you either in paper form or electronically. This statement explains how the advice has been tailored to your preferences, investment objectives and other characteristics. This should give you an overview of the recommendations made. These must correspond to your investment purpose, your investment horizon, your risk tolerance, your financial circumstances and your knowledge and experience. In order to rule out discrepancies right from the start, you should read the suitability declaration carefully upon receipt. Think again carefully about the recommended investment. If the declaration is incomplete or incorrect, contact your institute immediately, preferably in writing.
Financial investment broker
Financial investment brokers who broker or advise on units or shares in certain investment funds (open and closed domestic, EU and foreign investment funds) or investments are not subject to supervision by BaFin. You need a permit from the responsible trade supervisory authority. You can find out which rules apply there.
Where can you find information?
Public offering of securities or investments
For securities that are publicly offered or admitted to stock exchange trading (e.g. shares, bonds, certificates) and investments (e.g. limited partner participation, profit participation rights), companies must generally publish a prospectus and / or information sheet (securities information sheet, asset investment information sheet or key information sheet). This includes more detailed information on investments, the underlying business model and the associated risks.
BaFin approves the prospectus and thus allows the public - on-exchange or over-the-counter - offer if the prospectus contains the minimum information required by law and is written in an understandable manner. The supervisory authority also ensures that the prospectus does not contain any contradicting statements. The publication of a securities information sheet or an investment information sheet is permitted by BaFin if the applicable legal requirements are met. On the other hand, it is not one of the tasks of BaFin to permit or approve basic information sheets on packaged investment products.
What investors need to be aware of: When BaFin checks prospectuses, securities information sheets and investment information sheets, it does not analyze the seriousness of the issuer or its business model, and it does not check the investment offered. BaFin is not legally authorized to do this. Advertising that leads you to believe otherwise and that can deceive you about the scope of the examination and supervision is expressly prohibited.
BaFin advises you: Read brochures and information sheets carefully and remember to include them in your records, as these are central liability documents. This means: If essential information is incorrect, incomplete or misleading, you may be able to claim damages from the provider or from those who have assumed responsibility for the document. You have to assert possible claims before the civil courts.
The issuer of an investment must also provide you with the latest published annual financial statements and management report on request, also in paper form if you wish. However, there are also exceptions to this obligation, for example if no more than 20 units of an investment are offered.
Are you considering buying a mutual fund share? Then the provider has to observe numerous information obligations towards you - before the purchase. Before concluding the contract, you must at least provide you with the latest key investor information for each managed fund, but sometimes also the sales prospectus and the most recently published annual or semi-annual report.
In any case, ask for the most recently published annual or semi-annual report and for the sales prospectus with the investment conditions and, if applicable, the articles of association or the partnership agreement. If a trust limited partner is involved, ask for the trust agreement. These documents must also be made available to you free of charge. Most of them can also be found on the company's website.
The key investor information and the sales prospectus must contain all the information necessary to be able to properly assess the investment and the associated risks. The key investor information contains - in a summarized and simplified form - the most important information from the sales prospectus, especially with regard to the management company, the depositary, the investment objectives and investment policy, the risk and return profile and the costs and fees of the investment.
The sales prospectus is more detailed than the key investor information and contains a number of additional information. It also contains the investment conditions and, if applicable, the articles of association or the articles of association of the investment fund and - if a trust limited partner is involved - the trust agreement or a reference to where you can obtain it free of charge.
The investment conditions, the articles of association or the articles of association regulate the legal relationship between the company and the investors and determine, for example, the principles according to which the assets of the respective investment fund are selected, the conditions under which you can request the redemption or exchange of your units, whether income is distributed or reinvested, whether shares with different rights are issued, or whether investment funds may be merged.
When the contract is concluded, you must also be given a copy of the contract or a purchase invoice must be sent. This contains information on the amount of the front-end load and the redemption fee and instructions on the conditions under which you can assert a right of objection. In the case of fund of hedge funds, you must also be expressly advised of the particular risks of the investment before concluding the contract.
There are capital management companies with varying degrees of regulation that are allowed to manage public investment assets: on the one hand, capital management companies that have BaFin approval and that have to comply with many legal regulations, for example equity capital requirements, reporting and reporting obligations, as well as general behavioral and organizational obligations. On the other hand, there are capital management companies that are only registered and, depending on their design, have to comply with almost no or only some of the legal requirements. So they are less regulated than the capital management companies that have a license. Before making your investment decision, consider whether you would prefer a fully regulated, licensed capital management company, and if in doubt, seek advice.
Please also note that the extent to which the BaFin checks documents varies greatly: While the investment conditions of a mutual fund usually have to be approved by BaFin, the sales prospectus and the key investor information are either only submitted to it or only on checked for completeness.
Issuers of financial instruments such as stocks and bonds have to meet numerous disclosure obligations under capital market law. An example: the ad hoc disclosure requirement. According to this, companies must immediately publish information that affects them directly if this information can significantly influence the price of their financial instruments and is not yet known to the public (inside information).
If executives (e.g. management board, supervisory board) of the issuer deal with shares in their company (directors' dealings), they must also publish these transactions.
Since July 2016, these disclosure requirements apply not only to companies admitted to an organized market, but also to companies whose shares or bonds are included in the open market.
Shareholders are obliged to notify if they hold significant shares in voting rights in a company admitted to an organized market. The threshold values that trigger a reporting requirement are three, five, ten, 15, 20, 25, 30, 50 and 75 percent. It is then one of the obligations of the companies concerned to publish this notification of voting rights. In addition, they must make their financial reports (annual and half-yearly financial reports, payment reports) available online and inform them in advance of when and where they can be accessed - usually on their own website.
In order for you to be able to exercise your rights arising from securities, listed companies must provide you with all the information you need to do so. The company appoints a financial institution in Germany as the paying agent for the entire duration of the admission of the securities, at which you can assert all rights from the papers free of charge, for example in the case of profit distributions, interest payments, conversions and the purchase of new shares. If the company has issued shares, it sends the voting shareholder together with the invitation to the Annual General Meeting or, upon request, a form for granting a power of attorney for the meeting. The same applies to approved debt instruments such as profit participation certificates and bearer bonds when inviting the creditors' meeting.
The convening of the general meeting and the notification of the distribution of dividends, the issue of new shares or the agreement of exchange, subscription, redemption and subscription rights must also be published in good time in the electronic Federal Gazette.
Ad-hoc notifications, directors' dealings, voting rights notifications, financial reports and the information you need to exercise your rights from the securities can be accessed online free of charge in the company register. Ad-hoc announcements must also be displayed on the issuer's website for at least five years.
Directors' dealings, voting rights notifications and information on permitted prospectuses can also be found on the BaFin website.
You can usually obtain prospectuses and information sheets for securities and investments from the provider, possibly also from the issuer, applicant for admission or paying agent. Key information sheets must be made available by the manufacturers - or the persons who advise on the packaged investment product or sell it.
What are the rules for placing orders and pricing?
Execution principles and instructions
Banks, savings banks and financial services institutions must take sufficient precautions when executing their orders in order to usually achieve the best possible result for you (best execution). The criteria for the best possible execution are above all costs, speed and probability of order execution and processing.
At which trading venues and according to which criteria your bank basically executes the securities orders, you can find out their execution principles. Depending on the trading venue, you have the option of adding special instructions to your order. For example, you can specify a maximum purchase price and stipulate that your securities are only sold above a certain minimum price. In addition, you can protect yourself against price drops to some extent by setting a stop-loss level. The sale is automatically triggered when the price reaches or falls below the set mark. Talk to your advisor if you are not yet familiar with these order additions. Direct banks in particular will expect you to determine for yourself at which trading venue your securities order will be executed. However, you will then receive information on the relevant trading venues that will make this decision easier for you.
Depending on the trading venue and the size of your securities order, your order may not be executed in one go. Your bank has no influence on this. Therefore, before placing an order, check whether your bank charges the (minimum) fee for the order execution for each individual partial execution or only once in such cases.
Pricing for certificates and warrants
To improve the tradability of warrants and certificates, market makers often place bid and ask bids. These offers can be made in on-exchange and over-the-counter trading. There is no legal requirement to set the prices of the offers according to a certain financial mathematical model. The pricing on the stock exchanges is based on the orders or quotations available there, taking into account the relevant stock exchange rules. The trading surveillance offices monitor proper pricing on the stock exchanges. You can contact them if you suspect irregularities. Depending on the trading venue, under certain conditions, transactions can be subsequently canceled that were concluded at a price that was not in line with the market. The details of this can be found in the mistrade rules of the respective trading venue.
Cut-off times for investment funds
If you do not purchase your fund units on the stock exchange, the cut-off times are important to you. These indicate by when you have to place your buy or sell order so that your order can still be executed at the next issue or redemption price. The cut-off times set by the capital management companies can be found in the fund's sales prospectus.
What should you watch out for in securities transactions?
Be careful when buying unknown stocks
Find out about companies before you buy their stocks! If you cannot find meaningful information about a stock (or other financial instrument), extreme caution should be exercised.
In the past few years, many companies have been set up with the sole aim of getting hold of investors' money. It is not uncommon for these companies to have a German website, but are located in other countries. After their inclusion in stock market trading, the stocks are touted and recommended for purchase by stock market letters, spam e-mails, faxes and by persistent telephone sellers. When sales and price increase due to the artificially generated demand, the market manipulators sell their blocks of shares. The investors bear the damage.
The open market requires informed and committed investors
The trading segments on the stock exchange are regulated to different degrees. In the open market, lower requirements apply than in the organized market. For example, there are only limited publication obligations there, such as the obligation to publish ad hoc announcements, which only apply if the security has been included in the open market with the consent of the issuer.
Illiquid securities and investments have special risks
The stock exchange price of illiquid, i.e. little traded shares, which are often only listed on the open market, can change rapidly and significantly. This also and especially applies to penny stocks (quoted in the cent range). Penny stocks often lead to herd behavior - for example due to a recommendation in a stock market letter: Many investors buy the stock at the same time. As a result, their price shoots up quickly, only to fall into the abyss a short time later. Selling the shares again is difficult - no matter what the price. Many investors have already lost their money this way.
Stock market letters: Beware of “hot air”!
Stock market letters reflect the opinion of their authors. How the author came to his assessment, he should prove with comprehensible facts. If there is a lack of such facts and the author merely gives an unsubstantiated, but extremely positive opinion, the alarm bells should ring for you.
Anyone who makes recommendations is obliged to disclose their conflicts of interest. Even if these tips are small print and boring to read: take them seriously. Because if the author himself is trading in the stock or the recommendation was paid by a third party, you cannot expect an independent recommendation. If such a notice is missing, this can be criminal market manipulation.
You should be particularly careful if the supposedly good advice is free - or is even sent to you unsolicited. There is seldom selfless behavior on the stock market. Most of the time, the senders have their own tangible financial interests. You then run the risk of losing your money.
Share spam: delete emails immediately!
A large part of the unsolicited e-mails (spam) sent around the world advertise stocks. It doesn't matter what is in these emails, their sole purpose is to trick you into buying so the senders can benefit from rising stock market prices. Spam faxes follow the same pattern. Only one thing can help: if you don't even read the spam, destroy it immediately. Those who follow the recommendations have already lost. Worse still: By buying the advertised shares, you may even be liable to prosecution for attempted insider trading. Also, check that you have adequately protected your computer from such unsolicited email.
The general rule is: don't buy anything you don't understand! This simple basic rule applies to private investors as well as to professionals. The following tips should help you not to fall for rip-offs. With them you also protect yourself against manipulation and fraud.
Be careful if ...
- You are recommended to buy securities or derivatives in a screaming manner - no matter by whom.
- the market price of a share is low - even that price is not necessarily worth it.
- someone recommends you to buy securities without justifying this recommendation with comprehensible facts.
- You receive an unsolicited call and the caller urges you to buy securities or you receive faxes or e-mails from strangers about supposed bargains.
- the profits that are promised to you are extremely high. There are high profits only with high risks, in the worst case you risk total loss!
When buying options, participation certificates and other bonds, always keep in mind that you are initially only given one promise for your money - unlike with shares, with which you acquire a valued company share. This promise is only as good as the one who gives it to you. Don't let glossy brochures fool you.
Before you buy, take action yourself by ...
- Check that the source from which the recommendation to buy securities comes is reputable and that a real business address is given.
- Check what other known reputable sources say about the security.
- check whether the numbers and statements are plausible or hot air.
- Pay attention to the conflicts of interest in the fine print of the recommendation.
- Find out about the recommended company, its solidity and its business policy. Ask for a securities prospectus or securities information sheet, an investment sales prospectus or investment information sheet or - in the case of packaged investment products - a key information sheet. Serious providers will usually be able to meet your request. If you cannot find sufficient information or do not understand what is being explained to you about the investment on offer, leave it alone.
What can BaFin do for you?
BaFin's goal is to ensure the functionality, stability and integrity of the German financial market.
BaFin supervises banks, savings banks, financial services institutions, insurers, pension funds, capital management companies and investment funds. It takes action against companies that conduct these businesses without the required authorization or registration. Please let us know if you have any clues.
In addition, BaFin monitors securities transactions in order to uncover prohibited insider trading or market manipulation. One speaks of insider trading when someone who has knowledge of inside information buys or sells papers of the company concerned on the basis of this knowledge in order to gain an economic advantage.
We speak of market manipulation if, for example, someone deliberately provides false information about circumstances that are relevant to the valuation or withholds information that is required to be published, and this is likely to influence the stock exchange or market price of certain securities. If you have any indications that someone has violated the prohibition of insider trading or market manipulation, please also contact us.
If you feel that you have been badly advised in connection with the purchase of securities or investments and have lost money as a result, or if you suspect an offer, please write to us. If we have any indications that a complaint could be well founded, we contact the company concerned and follow up. Your information helps us to discover violations of supervisory regulations and to take action against them.
You can find more information on how to lodge a complaint with BaFin on our website. There you can also find out more about the arbitration board at BaFin and the finance ombudsman.
BaFin has also set up a consumer hotline (phone number 0800 2 100 500 and +49 (0) 228 299 70 299 for calls from abroad) that you can use with your questions.
If you feel that you have been made a fraudulent offer or have fallen for a fraudster, report it to the police or public prosecutor as soon as possible. The criminal prosecution of (investment) fraud is the task of these investigative authorities.
Can BaFin help me if I, as a shareholder, do not agree to the resolution being passed at the Annual General Meeting?
No. It is not the job of BaFin to protect the interests of shareholders against society. Legal recourse is open to the shareholder.
When the XYZ share was issued, I came away empty-handed. Who decides on the allocation of shares?
When new shares are issued, the issuer, in cooperation with the issuing syndicate, decides on the allocation of the shares. As a rule, you do not have a legal claim to an allocation. Credit institutions offering new shares are obliged to inform you about the allotment procedure upon request.
What applies to short sales?
Short sales are sales of securities that are not owned by the seller. The sellers expect prices to fall and speculate on being able to purchase the sold securities at a lower price at a later point in time. The price difference between the selling and buying price is the short seller's profit. One speaks of “uncovered” short sales when the seller has neither ownership of the securities in question nor an unconditional right to their transfer nor a locate arrangement. Uncovered short sales in shares, sovereign debt and credit default swaps (CDS) on sovereign debt are prohibited by law (Article 12ff. EU Short Selling Regulation). In addition, there are statutory transparency obligations for net short positions in shares, sovereign debt and, if applicable, CDS (Article 5 et seq. Of the EU Short Selling Regulation). More details can be found here.
Can BaFin give me information about the seriousness and creditworthiness of individual securities offers?
No, BaFin can only provide information on whether a provider has filed a prospectus. You can call up an overview of the prospectuses for securities and investments stored at BaFin in a database.
Where can I get information about directors' dealings?
You can call up the reported transactions for the past twelve months in a database. There you will find all the necessary information as well as general information on the reporting obligation. In the database you can search for the name of the reporting person, the name of the issuer and the time period.
When will the additional shares be posted after a share split?
A posting of the shares after a share split by your custodian bank can usually only take place when the respective depository has received the shares and has notified your custodian bank of this delivery. Since several parties are regularly involved in processing, especially in the case of foreign capital measures, delays can occur here. Experience has shown that it can take more time than with domestic corporate actions until your custodian bank has received the new shares and all relevant data and can process them accordingly.
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