Germany introduces insider trading law

TWO YEARS after the European Union's deadline, Germany finally outlawed insider trading with the passage yesterday of a law designed to raise its tarnished finance market practices to international standards. From 1 August, insider trading will be punishable by up to five years in jail.

The new law also introduces an American-style central supervisory authority to monitor trading on the stock exchange as well as cash and derivatives markets. It obliges companies to abide by stringent reporting regulations.

Theo Waigel, the Finance Minister, proclaimed 'a new era' was starting for Germany. The Association of German Banks said the competitiveness of Germany as a financial centre would be reinforced by the increased credibility of the German markets.

The new law implies a big adjustment for a business culture that has thrived in a cosy, clubby atmosphere, influenced by lax controls. Insider trading has been rife in a system where companies traditionally hand out sensitive information in exclusive chats with journalists or analysts, and where no walls separate the equity trading floor in banks from corporate finance departments.

But a rash of scandals in recent years, the latest being the downfall of Germany's flamboyant trade union boss, Franz Steinkuhler, knocked Frankfurt's reputation among international investors.

The law's passage has been lengthy and acrimonious because of the problem of creating a central supervisory body in a federal system.

Firms will be obliged to disclose all share price-sensitive information, as well as participations over 5 per cent in any listed company.