To ensure an orderly exchange and securities trading various bodies are involved in the market surveillance, whose responsibilities however are clearly delineated from each other.
At a glance
Trading Surveillance Office
The Trading Surveillance Office (HÜSt) is acting in the public’s interest only and has acc. to Sec. 7 para. 1 German Exchange Act (BörsG) as a separate and independent body of the exchange the legal mandate to monitor the exchange trading and settlement of exchange transactions as well as to carry out necessary investigations.
Exchange Supervisory Authority
The competent highest authority of the state (Exchange Supervisory Authority) is supervising the exchange in accordance to the provisions of the German Exchange Act (BörsG). In Germany the exchange supervisory authorities are incorporated in the ministries of economic or financial affairs – or in the senate administrations for economic or financial affairs of the Laender respectivly. In Baden-Wuerttemberg the Ministry of Economic Affairs is exerting the market and legal supervision over the Stuttgart Stock Exchange (Baden-Württembergische Wertpapierbörse).
Federal Financial Supervisory Authority (BaFin)
The BaFin (Federal Financial Supervisory Authority) is unifying the supervision of banks and financial services providers, insurance undertakings and securities trading under one roof. Its primary objective is to ensure the proper functioning, stability and integrity of the German financial system. It for example operates according to the German Securities Trading Act (WpHG).
Tasks of the Trading Surveillance
Central regulation for the activities of the Trading Surveillance Office is Sec. 7 of the German Exchange Act. Thereafter, the exchange has to set up and operate a trading surveillance office as an exchange organ, which monitors trading on the stock exchange and the settlement of exchange transactions. It is responsible for the systematic and complete recording and analysis of all data generated in the context of trading and settlement of exchange transactions, and for the conduct of necessarily investigations.
The Trading Surveillance Office monitors compliance with all regulations and stock exchange laws and orders and shall ensure that no other irregularities exist which may impair the orderly conduct of trading at the exchange or the settlement of exchange transactions.
Specifically, the Trading Surveillance Office monitors that the stock prices are effected properly and reflect the real market situation, as well as a variety of obligations of the parties involved in trade arising from the specific regulations for the various trading segments. These include for example compliance with the best-price principle, according to which the order of the investor has to be executed at least equal to the price offered by the market maker or to the price of the reference market at the time of the order execution.
The Trading Surveillance Office itself is not sanctioning. If violations of the German Exchange Act, the exchange rules or other rules of the Stuttgart Stock Exchange are identified, the Trading Surveillance Office informs the Exchange Supervisory Authority and the Board of Management of the Exchange immediately. The Board of Management is responsible for taking immediate measures and if necessary to convene the sanctions committee, that may impose appropriate sanctions against a trading participants.
If matters are falling within the competence of the BaFin (in particular market manipulation and violation of insider dealing) the Trading Surveillance Office will according to the German Exchange Act promptly inform the BaFin on these matters. Here, a formal submission is made to the BaFin, which if necessary will file a claim with the responsible criminal authorities.
The staff of the Trading Surveillance Office has access to all trade-related IT systems of the exchange. Due to the specific requirements at the trading venue very large amounts of accumulating data arise, that have to be fully stored and analyzed by the mostly own developed and operated surveillance systems. This enables, first, to execute a prompt analysis of data and rapid detection of violations and abuses. Second, the Trading Surveillance Office is by their surveillance systems capable of react quickly and flexibly to developments in the stock market.
In addition, the staff of the Trading Surveillance Office is in order to carry out the statutory duties mandated with the powers of the Exchange Supervisory Authority according to Sec. 3 para. 4 sent. 4 to 5 German Exchange Act that empowers the Trading Surveillance Office to require information from anyone. Where a case is suspected, the information included in particular, the identity of entities, the submission of existing phone records of trading transactions and all necessary information on the transactions executed on the exchange.
The head of Trading Surveillance Office shall report regularly to the relevant Exchange Supervisory Authority. In addition, there is a regular exchange with other trading surveillance offices, exchange supervisory authorities, the BaFin and other bodies charged with combating financial crime, to promote to the all-encompassing market surveillance.