The 1997 Guide to Germany: Securities lending

The German securities lending and repo market

The development of the securities lending market in Germany was boosted in 1990 by the establishment of one of the most efficient options and futures markets in Europe. The access to the German options and futures exchange (DTB) was widely open to banks who then started to develop their securities lending operations. Short selling became legal according to German regulations and the domestic securities lending market became one of the most liquid and most efficient markets in Europe. Today, most of the German banks are quoting on public screens (Reuters), introducing a level of transparency unique in this market. The substantial interest of other kinds of institutions such as investment funds and insurance companies, backed by regulation modifications, contributed considerably to the liquidity of the market and consequently to the drop of the fees.

On the other hand, in Germany, the repo market is unfortunately undeveloped because of major legal constraints. The minimum reserve introduced by the central bank penalizes all banks entering into a repo transaction.

Legal framework

In Germany, all securities lending transactions or repo transactions are covered by a very clear and dedicated regulation.