Market Making by an AIFM – A Contradiction?

The market maker is an established institution of exchange-based and over-the-counter trading structures. There is hardly any investor who has not interacted with market makers in one way or another. From a legal perspective, however, market making remains a field that is still largely underexplored. An interesting case is currently pending before Germany’s highest administrative court, which has referred the European law aspects of the case to the Court of Justice of the European Union (CJEU) for a preliminary ruling. The issue concerns whether an internally managed alternative investment fund management company under the AIFMD is authorised to engage in market making activities.

A German version, which also covers specific aspects of German AIFM regulation, was published in Zeitschrift für Bank- und Kapitalmarktrecht (BKR) 2024, pages 601 to 607.

This article first examines a number of common incentive mechanisms provided by trading venue operators to promote market makers (Section I), before outlining the key elements of the reference decision of the Federal Administrative Court (Sections II to IV). It then analyses the limits of “other activities” within the meaning of Annex I No. 2(c) AIFMD (Section V).

I. Incentive Mechanisms for Market Makers at Trading Venues

Market makers increase the liquidity of securities trading by continuously signalling to the market their willingness to act as counterparties for executions. The provision of liquidity is widely regarded as desirable, as it gives rise to a number of positive effects. These include, inter alia, a reduction in transaction costs [1], an improvement in the informational efficiency of market prices [2], and a reduction in volatility [3]. In addition, the provision of liquidity is attributed a positive contribution to financial stability, which is of particular interest from a regulatory perspective [4].

Due to the positive effects of market making on trading liquidity, competing trading venue operators typically have a strong interest in creating favourable framework conditions for market makers [5]. In markets in which securities with high trading volumes are traded, for example on Xetra [6] at the Frankfurt Stock Exchange (FWB), trading venue operators usually implement incentive mechanisms designed to attract as many competing market makers as possible.

One of several Xetra models is the so-called Designated Sponsor Programme. Within this framework, trading participants may commit themselves to continuous quoting subject to compliance with minimum quoting duration and quality requirements [7]. If the contractual requirements are met, the Designated Sponsor benefits from a discount on transaction fees charged for passive orders [8]. A similar model is the Liquidity Provider Programme, which is currently also structured in such a way that trading participants commit to quoting and may benefit from a rebate scheme [9]. With the additional Regulated Market Maker Programme, the FWB fulfils the requirements pursuant to section 26c of the German Stock Exchange Act (BörsG) relating to market making systems; registered trading participants subject to quoting obligations also benefit from rebates, in particular in the case of so-called stressed market conditions [10].

However, the imposition of quoting obligations on market makers is not mandatory, at least outside the framework of the market making systems regulated in section 26c BörsG. For example, trading participants at Eurex Deutschland may obtain transaction fee rebates under the Liquidity Provider framework if they meet certain quoting parameters, without being required to quote continuously; with the additional Regulated Market Making Programme, Eurex Deutschland also fulfils the requirements of section 26c BörsG [11].

In addition to the market making models described above, which provide incentives subject to the fulfilment of certain quoting requirements, with or without a mandatory quoting obligation, so-called maker-taker models should also be mentioned. These provide incentives for every passive order without minimum requirements, for example in the form of a discount on transaction fees [12].

Where a rebate scheme applies to a trading participant, its trading costs are reduced. This enables it to offer more competitive prices and to increase trading volume and trading profits. Trading participants whose trading strategy already involves the continuous submission of passive orders will therefore regularly have an interest in participating in such rebate schemes – as is the case for the claimant in the pending proceedings.

II. Proceedings before the Federal Administrative Court and the Preliminary Ruling Procedure

The proceedings are pending before the Federal Administrative Court under case number 8 C 1.24. On 2 July 2025, the court stayed the proceedings and requested a preliminary ruling from the Court of Justice of the European Union pursuant to Article 267 TFEU. Before the CJEU, the preliminary ruling procedure is registered under case number C-801/25.

The core question referred is as follows:

Is the concept of “activities related to the assets of the AIF” in Annex I No. 2(c) of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 (OJ EU L 174/14) to be interpreted as including the assumption of an obligation vis-à-vis a trading venue to continuously provide firm, simultaneous bid and offer quotes of comparable size at competitive prices in respect of one or more financial instruments for at least 50 per cent – in the case of Designated Sponsors at least 90 per cent – of the daily trading time of continuous trading on the relevant trading venue?

III. The Facts of the Case

The parties are in dispute as to whether the claimant is permitted to carry out activities as a market maker and designated sponsor.

The claimant is an AIF management company within the meaning of Directive 2011/61/EU (AIFMD). The licence granted to it in 2007 for the conduct of its business authorised it, subject to certain conditions, to operate as a market maker or designated sponsor. The claimant carried out this activity until 2014. Following the entry into force of the German Capital Investment Code (Kapitalanlagegesetzbuch – KAGB) of 4 July 2013 (Federal Law Gazette I, p. 1981), the defendant, the German supervisory authority BaFin, granted the claimant, upon application, authorisation to operate as an internally managed alternative investment fund management company (AIF-KVG). The operative part of the decision of 28 November 2014 stated in its final paragraph:

“Furthermore, the authorisation is limited to the activities set out in section 20(7) KAGB. The previous activity as market maker or designated sponsor, which […] had been permitted as an ancillary activity, may no longer be carried out.”

The claimant brought an action against this decision. It intends to apply for admission as a Regulated Market Maker on Eurex. In addition, it seeks admission as a Designated Sponsor in the electronic trading system Xetra operated by Deutsche Börse AG. Regulated Market Makers on Eurex and Designated Sponsors on Xetra continuously provide firm, simultaneous bid and offer prices (quotes) of comparable size at competitive prices. They are subject to different quoting obligations. On Eurex, exchange traders acting as Regulated Market Makers must continuously submit binding quotes in at least one derivative instrument during at least 50 per cent of daily trading hours on a monthly average basis. A Designated Sponsor must, measured over a month, participate in a security in at least a specified percentage of all regular auctions, opening auctions and volatility interruptions and must quote for at least 90 per cent (80 per cent for ETFs and ETPs) of the effective trading time on a monthly average basis.

The Administrative Court set aside the final sentence of the operative part of the authorisation. On appeal by the defendant, the Higher Administrative Court amended the judgment and dismissed the action. Market making within the meaning of MiFID II and its national implementing provisions was not covered by the management of the company’s own AIF pursuant to section 20(7) KAGB. This also applied to the activity as a Designated Sponsor as a specific form of market making. This followed from a comparison of the rules applicable to internally managed AIFs with those applicable to externally managed AIFs under Article 6(2) and (4) of Directive 2011/61/EU (AIFMD). The directive clearly distinguishes between the fundamental restriction of activities to collective asset management pursuant to Annex I and the additional services within the meaning of MiFID II that Member States may permit at their discretion. The permissible activities within the framework of collective asset management are exhaustively listed in Annex I AIFMD. The activity as a market maker or designated sponsor does not fall within that list.

The claimant’s appeal on points of law is directed against this decision. It takes the view that both activities fall within portfolio management because they are designed to deploy collectively managed capital. Investment or financial services and portfolio management do not necessarily exclude each other. What is decisive, rather, is who provides the service. If a financial services institution acts for an individual client, the activity constitutes an investment or financial service; if the activity – as in the case of the intended market making – is carried out by the portfolio manager for the investor collective, it constitutes collective portfolio management. The distinction between investment activities involving the deployment of capital and services not involving the deployment of capital can also be derived from MiFID II. Pursuant to Article 1(1) MiFID II, the directive applies to the provision of “investment services or investment activities”. The latter include activities involving the investment of capital. The systematic structure of the directive also shows that banking transactions and investment or financial services may be carried out within the framework of collective asset management, for example the granting of loans for the account of an AIF or high-frequency trading by a management company that carries out algorithmic trading within the scope of collective asset management.

IV. The Legal View of the German Federal Administrative Court

According to the binding factual findings of the appellate court (see above, para. 4), the activities intended by the claimant as market maker and designated sponsor do not fall within the scope of section 20(7) KAGB. Under this provision, internally managed AIF management companies may not carry out any activity other than the management of their own assets. Pursuant to section 17(1), sentence 2 KAGB, the management of an investment fund exists where at least portfolio management or risk management is provided for one or more investment funds. In addition, section 20(7) KAGB includes other forms of collective asset management which, pursuant to section 1(19) no. 24 KAGB, also comprise administrative activities, the distribution of own investment units and, in the case of AIFs, activities related to the assets of the AIF.

According to the Federal Administrative Court, the activity sought by the claimant as market maker or designated sponsor does not constitute a permitted activity related to the assets of the AIF within the meaning of Annex I No. 2(c) AIFMD for an internally managed AIF management company. That provision permits services required for the performance of the fiduciary duties of the AIFM, facility management, real estate management, advice to undertakings on capital structure, industrial strategy and related matters, advisory and other services relating to mergers and acquisitions, and other services connected with the management of the AIFs and the undertakings and other assets in which the AIFs have invested.

The Senate is inclined to deny that a service connected with the management of the AIF and the assets in which it has invested – which is the only category potentially relevant here – is present. The wording alone suggests that only services related to the management of existing holdings are covered. The German, English and French language versions refer to assets already acquired by the AIF and capable of being managed by it. Activities related to the acquisition of the asset itself are therefore not covered.

However, doubts as to this interpretation of Annex I No. 1(a) and No. 2(c) AIFMD may arise from the subsequently adopted MiFID II. If Article 1(5) of that directive were to imply that AIF management companies are also permitted to engage in market making, this could lead to a broader interpretation of the concept of portfolio management or a broader understanding of the ancillary activities under Annex I No. 2(c) AIFMD.

Pursuant to Article 1(5) MiFID II, Articles 17(1) to (6) also apply to members or participants of regulated markets and MTFs which, pursuant to Article 2(1)(a), (e), (i) and (j) MiFID II, do not require authorisation under that directive. This includes internally managed AIF management companies as a form of collective investment undertaking (Article 2(1)(i) MiFID II). According to the wording, their obligation to comply with Articles 17(1) to (6) MiFID II also applies to Article 17(3) MiFID II. That provision stipulates that an investment firm which engages in algorithmic trading in pursuit of a market making strategy must, taking into account the liquidity, size and nature of the relevant market and the characteristics of the traded instrument, comply with the requirements set out in points (a) to (c) of that provision concerning trading volume, the conclusion of an agreement and the control mechanisms to be maintained.

The Senate doubts whether the reference in Article 1(5) to Articles 17(1) to (6) MiFID II implies that internally managed AIF management companies are always permitted to act as market makers. The blanket reference does not differentiate between the areas of activity of the various market participants. This suggests that it should be understood as an instruction to apply mutatis mutandis the requirements laid down for investment firms. If an entity covered by Article 1(5) MiFID II fulfils the factual requirements of one of the paragraphs of Article 17(1) to (6) MiFID II, the obligations set out therein apply to it. Under this interpretation, Article 1(5) in conjunction with Article 17(3) MiFID II does not confer authorisation to engage in market making, but rather presupposes that such authorisation is granted under other legal provisions. It ensures that entities not subject to MiFID II which, on the basis of other authorisations, pursue market making strategies in algorithmic trading must comply with the regulatory requirements applicable to investment firms in this respect. No entitlement to be authorised as a market maker arises from this, just as the reference in Article 1(5) to Article 17(5) MiFID II does not give internally managed AIF management companies a right to provide other participants with direct electronic access to a trading venue.

V. Commentary

1. Market Making as Merely One of Several Trading Strategies

Market making is a short-term investment strategy [13], i.e. a trading strategy [14]. It is commonly presented as one of several classical trading techniques, including arbitrage [15].

The trading strategy of market making is aimed at continuously buying and selling financial instruments and generating returns from sometimes very small price differentials [16]. The market maker continuously signals to the market its willingness to act as a counterparty to executions. In this way, it can achieve better prices, as market participants who lack such “patience” are prepared to pay a premium for immediate execution (so-called immediacy) [17]. In order book trading systems [18], such as those operated by the Deutsche Börse Group, this willingness to execute is displayed by submitting passive orders to the order book. These orders are not executed immediately in the absence of a matching order but are entered into the order book and await the arrival of a matching order from another trading participant. In this way, the market maker inevitably improves liquidity in the order book. By contrast, aggressive orders are not suitable for implementing a market making trading strategy, as they access liquidity already present in the market, i.e. limit orders in the order book. Although aggressive orders are executed immediately, they are executed at less favourable prices.

Market making necessarily gives rise to risk positions. At a given price level, the sum of purchases will not, over time, correspond to the sum of sales. Due to its risk aversion, the market maker is therefore generally interested in reducing market risks as quickly as possible. One way of doing so is by adjusting the prices it offers [19]. For example, in the case of long positions, it may reduce its prices in order to make sales more likely and purchases less likely. However, due to the high degree of interconnectedness of markets, the market maker cannot simply deviate from general market pricing without adverse effects, for example because arbitrageurs (as liquidity takers) could exploit such deviations to its detriment or because market conditions, in the market maker’s assessment, require an immediate reduction of risk. Consequently, another means of reducing risk positions is always the so-called offsetting transaction, by which the market maker actively accesses liquidity in another market in order to reduce its market risk. This necessary link between market making and offsetting transactions is even reflected in the statutory definition of market making activity in Article 2(1)(k) of Regulation (EU) No 236/2012 (Short Selling Regulation – SSR), according to which such activity explicitly includes the hedging of positions arising from market making. Depending on its individual risk tolerance, the market maker may carry out the offsetting transaction immediately or only after exceeding internally defined threshold values.

The continuous purchase and sale of financial instruments for the account of the investor collective using a short-term passive order strategy constitutes a permissible investment strategy within the framework of collective asset management within the meaning of section 1(19) no. 24 KAGB. When defining the investment strategy within the investment policy, the KAGB grants asset managers a wide margin of discretion. In particular, they may determine whether to pursue a long-term “buy and hold” strategy or a short-term strategy exploiting minimal price differentials [20]. The investment strategy does not necessarily have to be based on a qualitative valuation assessment by an asset manager but may also be implemented on the basis of predefined quantitative parameters by means of algorithmic trading. The legislator has implicitly recognised the permissibility of implementing “fast” investment strategies by referring in section 28(1), sentence 3 KAGB to the provisions of the German Securities Trading Act (WpHG) on algorithmic trading. According to Recital 61 MiFID II, market making is a typical algorithmic trading strategy.

As a purely passive order strategy, market making is, in principle, not a service. To the extent that the Higher Administrative Court of Kassel, drawing on references in the legal literature, describes the assumption of quoting obligations as an essential characteristic of a market maker, this is simply incorrect. Fundamentally, market making is a free trading strategy. A market maker may assume quoting obligations (see below), but it is not required to do so.

Nevertheless, market making inherently contains a certain service element, as the market maker continuously creates or improves transaction opportunities for other market participants, i.e. provides immediacy [21]. However, the market maker does not pursue the objective of creating transaction opportunities for other market participants, but rather seeks to achieve better prices for its own executions. The mere side effect that the market becomes more liquid, which is generally regarded as desirable, is only a factual benefit for “the market”. Through the mere execution of trades, a market maker concludes purchase and sale contracts, but no other types of contracts, in particular no service contracts.

Accordingly, market making is, in principle, a permissible trading strategy within the framework of portfolio management under the AIFMD.

2. Market Making as a Civil Law Service

Not only trading venue operators may have an interest in engaging market makers to provide liquidity. Such an interest may also arise on the part of issuers, as increasing liquidity is generally associated with higher valuations [22]. The engagement of market makers for continuous liquidity provision has become established market practice, which is now in part also supported by statutory requirements.

It can hardly be disputed that an obligation to provide liquidity to a third party constitutes a service and must be distinguished from the pure trading strategy of market making. The decisive question, however, is whether such a service still falls within the scope of collective asset management.

a) Assumption of Quoting Obligations Not Part of Portfolio Management

The concept of portfolio management is not defined by statute [23]. By reference to the concept of an investment fund, collective portfolio management permitted for internally managed AIF management companies may be understood as the acquisition and disposal of assets or the generation of profits from assets by the AIF management company using capital collected from investors for the benefit of the investor collective, at the discretion of the AIF management company and within the framework of its predefined investment strategy.

This understanding is also shared by the Federal Administrative Court. Accordingly, the Senate is correct in taking the view that liquidity provision as a civil law service cannot be regarded as portfolio management.

b) Assumption of Quoting Obligations as a Permissible Ancillary Activity of an AIFM

n addition to portfolio management, Annex I No. 2(c) AIFMD provides that the other functions which an AIFM may perform in the context of collective management of an AIF include “activities related to the assets of the AIF, including services necessary to meet the fiduciary duties of the AIFM, facility management, real estate management, advice to undertakings on capital structure, industrial strategy and related matters, advice and services relating to mergers and acquisitions and other services connected with the management of the AIFs and the undertakings and other assets in which the AIFs have invested”. For the present case, the final category is of particular relevance.

The provision on ancillary activities is intended to take account of the specific characteristics of certain asset classes [24]. For example, it refers to facility management and real estate management, which are particularly relevant for real estate funds. For private equity funds, advice to undertakings on capital structure and industrial strategy, as well as services relating to mergers and acquisitions, are of particular importance.

Unlike real estate and private equity funds, specific requirements associated with trading strategies that focus on passive order execution are not explicitly addressed in Annex I No. 2(c) AIFMD. However, the need to provide additional services may also arise in this context. With regard to the execution of passive orders, all trading participants compete with each other. Passive orders at better prices are executed first. Trading participants that are unable to quote competitive prices will inevitably achieve fewer executions. It may therefore be important for trading participants to assume quoting obligations in order to benefit from financial incentives, usually in the form of transaction fee rebates, up to the complete waiver of transaction fees. It is self-evident that trading participants benefiting from such rebates incur lower costs and can therefore quote better prices. If an AIFM were prohibited by supervisory law from participating in rebate programmes that require quoting obligations, it would be structurally disadvantaged and would therefore be unable, in particular, to implement fast passive order strategies in an economically viable manner.

Against this background, and in light of the purpose of Annex I No. 2(c) AIFMD to take account of the specific characteristics of asset classes, it is appropriate to recognise the assumption of quoting obligations by an AIFM as a “service connected with the management of the AIF” [25]. This should apply at least where the investment strategy defined in the fund rules includes a passive order strategy, which may also be the case for arbitrage strategies [26].

Consequently, the assumption of quoting obligations may constitute an ancillary activity within the meaning of Annex I No. 2(c) AIFMD and thus form part of collective asset management without exceeding the statutory limits applicable to AIF management companies.

c) Market Making as a Regulatory (Supervisory Law) Service

Pursuant to Article 4(6) AIFMD, an AIFM may be authorised to provide investment services within the meaning of MiFID II. However, this possibility exists only with regard to the services expressly listed therein. In particular, an AIFM is not authorised to deal on own account within the meaning of Annex I Section A No. 3 MiFID II. It follows from this that an AIFM may also not engage in market making within the meaning of Article 4(1) No. 7 MiFID II. That provision defines a market maker as a person who holds himself out on the financial markets on a continuous basis as being willing to deal on own account by buying and selling financial instruments against that person’s proprietary capital at prices defined by that person.

The statutory definition of a market maker requires, inter alia, trading on a continuous basis [27]. This can generally be assumed where a trading firm has contractually committed under civil law to provide liquidity, since the agreed minimum requirements for liquidity provision will normally entail “continuous” trading. However, this is not strictly necessary, as an obligation to quote is not a statutory constitutive element of market making [28].

In order, however, to qualify the implementation of market making as a regulated investment service, all constitutive elements of at least one of the statutory definitions of proprietary trading must be fulfilled, in particular the element of trading “on own account”. This is because regulated investment services are not structured around risk exposure, but around specific types of business activity [29].

In the case of an external management company managing an investment fund, for example in the form of a Sondervermögen (segregated fund), the element of “trading on own account” is clearly not satisfied, since the management company does not trade on its own account, but on the account of the (external) investment fund. The situation is different in the case of an internally managed management company, where the investment fund itself is authorised as the management company. Here, the question arises whether, and under what conditions, the management company can be regarded as trading on its own account.

As a general rule, it can be assumed that corporations (not: management companies as such) and commercial partnerships trade on their own account when they manage their own corporate assets [30]. Accordingly, in the view of BaFin, acting “for others” within the meaning of financial portfolio management is generally excluded in such cases, although other regulatory categories, such as proprietary trading, may be fulfilled [31].

This assessment would in principle also apply to an internal management company which, under German law, may be organised either as an investment stock corporation with its own legal personality or as an investment limited partnership with partial legal capacity. However, this does not yet take into account the possibility of establishing segregated sub-funds (Teilgesellschaftsvermögen). A German internal investment stock corporation may segregate different investment sub-funds raised through the issuance of investment shares [32], as well as investment sub-funds and operating assets raised through the issuance of corporate shares, in terms of assets and liability, which is particularly relevant in the event of insolvency of the management company. As between shareholders, each segregated sub-fund is treated as a separate pool of assets. Moreover, in external legal relations, the investment stock corporation is even expressly required to disclose that it is acting for the relevant segregated sub-fund.

By establishing segregated sub-funds, a legal structure is created that is comparable to a Sondervermögen. An external management company does not manage a Sondervermögen on its own account [33], but in its own name, which is a recognised principle of German law [34]. Like segregated sub-funds, a Sondervermögen is separated from the assets and liabilities of the management company, including in the event of insolvency of the management company.

In addition to the structural comparability of segregated sub-funds and Sondervermögen, the general conceptual understanding of asset management also supports the view that the concept of an internally managed management company is closer to acting “for investors” than to acting on its own account. It is undisputed that internally managed management companies may also carry out portfolio management, which, in general understanding, denotes management on behalf of investors [35]. Furthermore, the internal management company itself constitutes an investment fund, with the investment fund being “invested for the benefit of investors” [36]. Finally, with regard to financial portfolio management, i.e. individual asset management, such activity is likewise carried out “for others”, which in principle excludes acting on one’s own account [37].

Ultimately, the question of whether a person acts on its own account or on behalf of others does not depend on the external appearance of the transaction, but on the arrangements governing the internal relationship. What matters is who bears the economic benefits and disadvantages of a transaction [38], which, for example, in the case of a commission relationship, follows from the internal contractual arrangements between the commission agent and the principal [39]. In the case of segregated sub-funds, an internal rule governing asset attribution can, in principle, be derived from section 117(2), sentence 2 KAGB, pursuant to which, as between shareholders, each segregated sub-fund is treated as a separate pool of assets.

For these reasons, in particular due to the situation comparable to a Sondervermögen, not only an external management company but also, and in particular, an internally managed management company does not trade on its own account within the meaning of the statutory definitions of proprietary trading and therefore does not infringe Article 4(6) AIFMD when trading on behalf of a segregated sub-fund to which exclusively investment assets are allocated.

d) Interim Conclusion

The results derived above draw a clear line between, on the one hand, the legitimate interest of investors to participate, within the framework of collective asset management, in short-term passive investment strategies, in particular the classical trading strategy of market making, and, on the other hand, the statutory restrictions on permitted activities. They integrate coherently into the regulatory system and do not conflict with the objectives of investor protection and financial stability. In particular, management companies are also subject, in relation to the implementation of market making strategies, to the conduct of business and organisational requirements of the KAGB, which are further tightened, especially for fast trading strategies implemented by means of algorithmic trading, through specific MiFID II requirements. Market making is an investment strategy that is typically implemented using algorithmic systems (cf. Recital 61 MiFID II).

3. Overall Conclusion

In principle, market making is merely a short-term passive trading strategy which a management company may implement within the framework of portfolio management. To the extent that the claimant seeks to assume quoting obligations in order to benefit from rebate programmes, this constitutes a permissible service within the meaning of Annex I No. 2(c) AIFMD and forms part of collective asset management. Furthermore, neither an internally nor an externally managed management company carries out proprietary trading within the meaning of MiFID II, which they would not be authorised to perform.

Market making is of particular importance for the provision of liquidity to financial markets. This is a principle recognised by the European legislator in various contexts. Against this background, the forthcoming decision of the Court of Justice of the European Union is awaited with considerable interest.

Footnotes

[1] Glosten/Harris, Journal of Financial Economics 1988, 123, 137; O’Hara, Market Microstructure Theory, 1995, p. 54; Harris, Trading and Exchanges, 2003, p. 289 et seq.

[2] Mildenstein, Kurspolitik der Marketmaker, 1982, p. 20 et seq.; Stefanski, Eigenhandel für andere, 2008, p. 39.

[3] ASIC, Australian Equity Market Structure, 11/2010, p. 109; Mildenstein, Kurspolitik der Marketmaker, 1982, p. 19; Recital 6 of Commission Delegated Regulation (EU) 2017/578; contra Liu/Williams/Jorda, Market-Making Behaviour in Futures Markets, 2001, p. 12.

[4] ESRB, Market Liquidity and Market-Making, 10/2016, p. 21; ESMA, Discussion Paper MiFID II/MiFIR, ESMA/2014/548, p. 259; ECB, CON/2014/83, para. 3.3.

[5] Müller-Lankow, Market-Making, 2018, p. 137 et seq.

[6] “Xetra” refers to the trading model “continuous trading with intraday auctions” within the meaning of sections 69 and 91 of the FWB Exchange Rules (BörsO-FWB), version of 8 April 2024.

[7] Section 82(1) sentences 1 and 3 BörsO-FWB, version of 8 April 2024, in conjunction with the Deutsche Börse AG Designated Sponsor Agreement, version of 26 June 2017.

[8] Deutsche Börse AG Connectivity Agreement, version of 7 April 2023, in conjunction with the T7 Fee Schedule, version of 20 May 2024, section 2.2.3.2.

[9] Deutsche Börse AG Xetra Liquidity Provider Programme Agreement, version of 1 June 2023, in conjunction with the T7 Fee Schedule, section 2.2.3.3.

[10] Section 80(1) BörsO-FWB, version of 8 April 2024, in conjunction with the T7 Fee Schedule, sections 2.2.3.4 and 2.2.3.5.

[11] Eurex Circular 102/17 of 26 September 2017.

[12] Müller-Lankow, Market-Making, 2018, p. 174 et seq.

[13] Nebel, DCF-Prinzipien, 2023, pp. 10 et seq. (on the fundamental distinction between short-term and long-term investment strategies).

[14] Cf. Recital 61 MiFID II.

[15] Gomber et al., High-Frequency Trading, SSRN, https://ssrn.com/abstract=1858626, pp. 24 et seq.; ASIC, Australian Equity Market Structure, November 2010, pp. 47 et seq.

[16] Nebel, DCF-Prinzipien, 2023, p. 11.

[17] Demsetz, Quarterly Journal of Economics 1968, 33, 35 et seq.

[18] Müller-Lankow, Market-Making, 2018, pp. 93 et seq.

[19] Harris, Trading and Exchanges, 2003, pp. 283 et seq.

[20] Nebel, DCF-Prinzipien, 2023, pp. 10 et seq.

[21] Demsetz, Quarterly Journal of Economics 1968, 33, 35 et seq.

[22] Venkataraman / Waisburd, Journal of Financial and Quantitative Analysis 2007, 735, 753 et seq.

[23] Wieland, in: Assmann / Wallach / Zetzsche, 2nd ed. 2022, KAGB § 17 para. 14; Beckmann, in: Beckmann / Scholtz / Vollmer, 4th update 2024, KAGB § 17 para. 25.

[24] Volhard / Jang, in: Dornseifer / Jesch / Klebeck / Tollmann, 1st ed. 2013, Directive 2011/61/EU, Art. 6 para. 20.

[25] In substance also Stabenow, in: Assmann / Wallach / Zetzsche, 2nd ed. 2022, KAGB § 26 para. 44, deriving this from the obligation of the management company to act exclusively in the interests of investors.

[26] On the purpose and function of fund rules and investment policies, see Nebel, DCF-Prinzipien, 2023, pp. 92 et seq.

[27] Müller-Lankow, WM 2017, 2335, 2339 et seq.

[28] Müller-Lankow, WM 2017, 2335, 2337 et seq.; FCA, MiFID II Implementation, CP15/43, Appendix 1, p. 206 (Q41).

[29] Federal Administrative Court (BVerwG), judgment of 8 July 2009 – 8 C 4.09, BeckRS 2009, 39212.

[30] Federal Administrative Court (BVerwG), judgment of 22 September 2004 – 6 C 29.03, BeckRS 2004, 27675.

[31] BaFin, Guidance Notice on Financial Portfolio Management, version of 25 July 2018, section 1.c.

[32] On the non-mandatory allocation of exclusively investment assets to segregated sub-funds, see Wallach, in: Assmann / Wallach / Zetzsche, 2nd ed. 2022, KAGB § 117 para. 13.

[33] Argument derived from German Bundestag printed paper BT-Drs. 13/8933, p. 127; see also section 93(2), sentence 1, second half-sentence KAGB.

[34] Cf. section 1(1) KAGG (old version), Federal Law Gazette I 1957, p. 378.

[35] See fn. reference in original text to portfolio management doctrine (implicit consensus in German supervisory practice).

[36] Nebel, DCF-Prinzipien, 2023, pp. 114 et seq.

[37] BaFin, Guidance Notice on Financial Portfolio Management, version of 25 July 2018, section 2.b.

[38] BaFin, Guidance Notice on Commission Business, version of 4 May 2017, section 1.d.

[39] German Federal Court of Justice (BGH), judgment of 21 July 2016 – I ZR 229/15, BeckRS 2016, 110120; Häuser, in: Münchener Kommentar zum HGB, 5th ed. 2021, § 383 para. 21.

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Your contact person: Dr. Hendrik Müller-Lankow.