German insiders could face five years

FRANKFURT - Insider traders in Germany could face up to five years imprisonment under new proposals for a securities bill published yesterday in Bonn, writes John Eisenhammer.

In an effort to repair the lax reputation of German stock exchanges and to encourage international investment in German securities, the bill will create a federal supervisory office for securities trading and largely adopt European Community guidelines on trading. 'This law will radically change our securities market,' a senior finance ministry official said.

Despite the urgency to introduce insider legislation in Germany after the controversy surrounding the recent stock market speculation by Franz Steinkuhler, the disgraced trade union leader, there is little hope of the new law taking effect before next summer. Ernst Welteke, economics minister for the state of Hessen, which is responsible for the Frankfurt exchange, said it could be well into 1995 before the regulatory machinery was fully operational.

At present insider trading is not illegal in Germany. The reliance on an often-broken gentlemen's code of conduct has led to increasing caution among international fund managers towards the Frankfurt exchange.

The deadline for the application of EC directives on the regulation of securities trading expired last summer, underlining the slow pace of change in Germany. The finance ministry proposals also require investors to reveal holdings once they reach 5 per cent of a company's nominal capital.