Bonn cracks down on insider trading

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THE GERMAN authorities agreed yesterday on the outlines of new insider trading legislation to be enforced by an independent regulatory body for the securities industry. Horst Kohler, state secretary at the finance ministry, described the agreement, which includes prison sentences for insider trading offenders for the first time, as a 'breakthrough for Germany as a financial centre'.

The Bonn government has been anxious to bring the country into line with international standards and improve its attractiveness to investors. Frankfurt's image as a financial centre was tarnished by a series of trading scandals in 1991.

Prison terms for insider trading would range between two and three years and there would be fines under the new law for 'front- running', where a trader, having received a big order, buys or sells shares for his or herself before executing the client's business.

The law will also set out stricter disclosure rules for share transactions, along the lines of EC guidelines. And the Frankfurt exchange is to introduce a new computer program, similar to the American stockwatch, which will monitor price movements and identify unusual occurrences.

The law is expected to go through parliament this autumn and take effect as quickly as possible next year. The delay in introducing the changes has been due to stiff resistance from the regional states, notably those with their own stock exchanges, which sought to protect their traditional powers of supervision.

Mr Kohler made it clear yesterday that only an independent, centralised supervisory body would meet the standards now expected internationally. The result is that the most important watchdog powers are to be invested in a new, federal supervisory body, which will have a staff of 100.

But Frankfurt is far from sure of becoming the seat of the new supervisory body, even though that is where the focus of its activities will be. The new body may end up in eastern Germany.

Growth in Germany's money supply slowed to 8.8 per cent in December from 9.3 per cent the previous month, the Bundesbank said yesterday. Economists said this raised hopes of an easing of interest rates.