GERMANY Law and Practice Contributed by: Stephan D. Meyer, Lars Fidan, Elisa Otto and Christian Meisser, LEXR
MiCA Title VI extends analogous prohibitions to cryp - to-asset markets. CASPs operating trading platforms must run surveillance systems to detect suspicious activity and report to BaFin. Issuers must publicly dis - close inside information that could affect token prices. For platforms operating across both asset classes, the practical consequence is that market integrity obli - gations now apply regardless of whether the traded asset is a traditional security or a crypto-asset. Build - ing unified surveillance infrastructure from the start is more efficient than maintaining parallel systems. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations High-frequency and algorithmic trading in Germany is regulated under MiFID II, transposed through the WpHG. Firms engaging in algorithmic trading must have effective systems and risk controls, including kill switches, maximum order-to-trade ratios and pre- trade risk limits. They must notify BaFin of their algo - rithmic trading activity. High-frequency trading firms using direct electronic access to German trading venues must be authorised as investment firms. These requirements apply uni - formly across asset classes traded on regulated mar - kets and MTFs. For crypto-asset trading, MiCA does not introduce specific algorithmic or high-frequency trading rules, but CASPs operating platforms must ensure fair and orderly trading, which may require analogous controls.
Under MiCA, there are no specific market-maker registration requirements for crypto-asset markets. However, a CASP dealing in crypto-assets on its own account must hold authorisation for the relevant ser - vice category. The absence of a formal market-maker label does not mean the activity is unregulated. 7.3 Regulatory Distinction Between Funds and Dealers The distinction is clear. Funds fall under the KAGB (implementing AIFMD/UCITS), with regulated man - agers, custody requirements and investor protection rules. Dealers fall under the KWG or WpIG, with own- funds requirements and market risk-focused organi - sational standards. Both face MiFID II algorithmic trading rules when trading on regulated venues. The practical choice between the two models depends on the business. Fund structures suit strategies that raise external capital and need regulated investor pro - tections. Dealer structures suit proprietary strategies where speed and operational flexibility matter more. The regulatory treatment follows from that choice, not the other way around. 7.4 Regulation of Programmers and Programming Programmers and software developers who create trading algorithms are not directly regulated as finan - cial service providers under German law, provided they do not themselves deploy the algorithms in a trading context or retain ongoing control over their deployment. The regulatory obligation falls on the investment firm or trading entity that uses the algo - rithm. That said, the firm deploying the algorithm must be able to explain its functioning to BaFin, maintain ade - quate testing and monitoring procedures, and ensure the algorithm does not contribute to disorderly trad - ing. Where a software provider effectively controls the trading decisions through its product, BaFin may examine whether the provider itself is performing a regulated activity. The line between tool provider and de facto decision-maker is not always obvious, and firms on both sides of that line should understand where it sits.
7.2 Requirement To Be Licensed or Registered as a Market Maker When Functioning in a Principal Capacity
Market makers operating on German trading venues need a licence as investment firms under the WpIG or as financial services institutions under the KWG. Regulated markets and MTFs may impose additional requirements on designated market makers, including minimum quoting obligations and maximum spread commitments.
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