Equity derivatives—Germany—Q&A guide
Equity derivatives—Germany—Q&A guide

The following Financial Services practice note provides comprehensive and up to date legal information covering:

  • Equity derivatives—Germany—Q&A guide
  • 1. Other than transactions between dealers, what are the most typical types of over-the-counter (OTC) equity derivatives transactions and what are the common uses of these transactions?
  • 2. May market participants borrow shares and sell them short in the local market? If so, what rules govern short selling?
  • 3. Describe the primary laws and regulations surrounding OTC equity derivatives transactions between dealers. What regulatory authorities are primarily responsible for administering those rules?
  • 4. In addition to dealers, what types of entities may enter into OTC equity derivatives transactions?
  • 5. Describe the primary laws and regulations surrounding OTC equity derivatives transactions between a dealer and an eligible counterparty that is not the issuer of the underlying shares or an affiliate of the issuer? What regulatory authorities are primarily responsible for administering those rules?
  • 6. Do securities registration issues arise if the issuer of the underlying shares or an affiliate of the issuer sells the issuer’s shares via an OTC equity derivative?
  • 7. May issuers repurchase their shares directly or via a derivative?
  • 8. What types of risks do dealers face in the event of a bankruptcy or insolvency of the counterparty? Do any special bankruptcy or insolvency rules apply if the counterparty is the issuer or an affiliate of the issuer?
  • 9. What types of reporting obligations does an issuer or a shareholder face when entering into an OTC equity derivatives transaction on the issuer’s shares?
  • More...

Equity derivatives—Germany—Q&A guide

This Practice Note contains a jurisdiction-specific Q&A guide to equity derivatives in Germany published as part of the Lexology Getting the Deal Through series by Law Business Research (published: April 2020).

Authors: Latham & Watkins LLP—Frank Bierwirth; Dirk Kocher; Axel Schiemann; Vanessa Sekker

1. Other than transactions between dealers, what are the most typical types of over-the-counter (OTC) equity derivatives transactions and what are the common uses of these transactions?

Typical issuer equity derivatives products include the following:

  1. equity swaps to hedge an issuer’s obligations in respect of the relevant issuer’s employee benefit plan, which entails shares or share price related benefits;

  2. call options entered into by an issuer to hedge its payment obligations in respect of cash-settled convertibles, known as ‘equity neutral’ or non-dilutive convertible bond transactions’;

  3. share loans and share repurchase transactions in the context of convertibles to facilitate hedging by investors in convertible bonds; and

  4. derivative-based share buy-back transactions.

 

Typical equity derivatives products that allow a shareholder to acquire a substantial position in a publicly traded equity or to monetise or hedge an existing equity position include the following:

  1. call options, put options, collars, forwards and total return swaps to hedge any equity price risk; and

  2. margin loans and margin bonds where shares are used as collateral for a leveraged loan bond, usually in the context of an acquisition;

 

Furthermore, equity derivatives transactions are

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