Corona crisis on the capital markets


***** Updated on 26 March 2020: Information from BaFin on the handling of ad hoc obligations under Article 17(1) Market Abuse Regulation in the coronavirus crisis*****


On 20 March 2020, Germany’s Federal Financial Services Supervisory Authority (BaFin) published on its website a list of FAQs in which it comments, in the context of the Covid-19 pandemic, on the obligation to disclose inside information under Article 17(1) of the Market Abuse Regulation (Regulation (EU) No 596/2014 of 16 April 2014) (see below).

I. Postponing the general meeting: is this an inside information requiring ad hoc disclosure?

Recent events pose major challenges to companies with regard to annual general meetings (see here). BaFin addresses the question of whether there is a case of inside information requiring mandatory ad hoc disclosure when the general meeting is postponed:

  • The mere postponement of the date of the dividend payment resolution resulting from the postponement of the general meeting does not constitute inside information requiring ad hoc disclosure in respect of the shares issued by the issuer, in the absence of a significant potential to influence the share price. However, it may be the case with derivatives related to those shares.
  • On the other hand, inside information may exist if the coronavirus crisis affects not only the timing of the dividend resolution but also the (planned) amount of the dividend payment, in particular if at the time of postponement of the general meeting, it is already very likely that a significant reduction in dividends will occur.
  • In addition, inside information may exist if the date is of particular importance to certain other resolution items. For example, postponing a resolution on much-needed capital, on changes of the articles of association, or on the amount of compensation payments to outside shareholders in the event of a squeeze-out, can have a significant impact on the issuer’s assets, financial position and profitability.

II. Changes of the forecast as inside information and ‘withdrawing’ an outdated forecast from the market

In principle, forecasts may be inside information if they are produced on the basis of concrete indications of the future course of the business and are specific enough to allow a conclusion to be drawn on the potential impact of this forecast on the price of the relevant financial instrument. A forecast generally has considerable price-influencing potential if it deviates significantly from market expectations or, in the absence of such market expectations, from past operating results. BaFin provides specifics on this in view of the coronavirus crisis:

  • Any change in the forecast is to be published only if it is sufficiently likely. If the impact of the coronavirus is not yet foreseeable, the issuer can maintain its old forecast. However, it is not necessary that the exact effects on the assets, financial position and earnings situation already be fully identifiable.
  • If the issuer concludes that figures are sufficiently likely to be significantly below an existing forecast, the existence of inside information is to be presumed, even if the issuer is not yet able to make a specific new forecast. In this case, it is permissible until further notice that only the old forecast be ‘withdrawn from the market’ by means of an ad hoc disclosure without already indicating a specific new forecast.
  • If the issuer has withdrawn its old forecast and formulates a specific new forecast at a later date, this is normally to be published immediately as an ad hoc disclosure.

III. Assessment of business figures as inside information in volatile markets

Particular challenges in determining ad hoc disclosure obligations arise from the current strong fluctuations in prices, also with regard to the criterion of ‘price-influencing potential’. BaFin com-ments on this in the context of quarterly figures:

  • In view of the increased volatility, the scale of what is to be considered as a ‘significant’ deviation in benchmarks may be subject to stricter requirements in certain cases.
  • Share-price relevance is to be based on an ex ante forecast. A sharp fluctuation in the share price following the disclosure of business figures does not mean that the information is automatically to be classified as relevant to the share price.   

IV. Exceptionally, the exclusion of certain analyst estimates where there is an existing ‘consensus estimate’

The share-price relevance in the disclosure of business figures is given if the information in question deviates substantially from the relevant reference figures. This is determined (if necessary) in a three-stage process: (i) First, the issuer’s own published forecast is used. In the absence of a forecast or if it is so vague or unspecific that a comparison with the business figures is not possible for the purpose of assessing the price-influencing potential, (ii) the relevant quantitatively reasonable market expectation must be used as the basis. Finally, if such a market expectation cannot be ascertained, (iii) the business figures of the comparable period of the previous year are to be used as the basis.

  • BaFin calculates the market expectation by using the average of the relevant analyst fore-casts. In this consensus, adjustments for any possible deviations are generally not permissible.
  • Exceptionally, in the light of the current impact of the coronavirus, it is acceptable in certain cases to adjust the existing consensus by disregarding forcasts which are obviously old and which do not take account of the current situation in an appropriate and objectively reasonable manner, for example by using up-to-date press reports.
  • Since it may be difficult to determine the average in certain cases, for example because there are too few estimates, a different determination of the market expectation is allowed if it is derived plausibly by other means.


***** Updated on 18 March 2020; 19.00 hours: Impact on the preparation of public takeover bids and other transactions *****


The corona crisis is also impacting the preparation of public takeover bids and other transactions; here the conclusion of a MAC clause should be considered (see section 1 below). Anyone speculating on (further) falling share prices by short selling has to observe the actions taken by ESMA and the national supervisory authorities with respect to short sales (see section 2 below). If the annual general meeting is postponed this year in connection with the corona crisis, the question is whether this can trigger any ad hoc disclosure obligation. Please refer to the article on the 2020 general meeting in this regard.

1. Public takeover bids under the German Securities Acquisition and Takeover Act

As with other M&A transactions, considering the inclusion of a MAC (Material Adverse Change) clause is also worthwhile in public takeovers under the German Securities Acquisition and Takeover Act (“WpÜG”). In voluntary public takeover bids under the German Securities Acquisition and Takeover Act, it is at a bidder’s discretion to decide whether the bid submitted by the bidder is subject to certain conditions being fulfilled, provided that the bidder has no control over the fulfilment of such conditions. In public mandatory and delisting offers, on the other hand, conditions are not an option due to the impermissibility of conditions which is prescribed by law.

A bidder can use MAC clauses to prevent the takeover offer from being implemented when material adverse circumstances occur or become known with regard to the market or the target company. Although such MAC clauses are not common practice in public takeover bids, they were recently also used in medium to high volume takeover bids such as those submitted to the shareholders of PNE AG, Axel Springer SE, Scout24 AG, VTG Aktiengesellschaft, Grammer AG and innogy SE. According to BaFin’s administrative practice, MAC clauses have to be fulfilled by the end of the acceptance period which the bidder, as a rule, can set at between a minimum of four and a maximum of ten weeks at the bidder’s discretion. In light of the persisting uncertainties regarding the development of the economic situation as a result of the coronavirus, the inclusion of MAC clauses therefore appears to be an interesting option for bidders especially in the event of extended acceptance periods.

In connection with the effects of the coronavirus on the target company, the following MAC clauses are possible:

  • No material adverse change of the market environment (market MAC), for example no suspension of trading on the Frankfurt Stock Exchange and no stock index such as the German DAX or any other appropriate index falling below a certain level;
  • No material adverse change in the target company (business or company MAC) such as disclosure of inside information by the target company or the occurrence of circumstances which the target company would have been required to disclose as inside information or in respect of which the target company decided to postpone disclosure.

In drafting MAC clauses, particular attention must be paid to them being specific, for example by defining the applicable reference parameters in a business MAC clause such as EBITDA. BaFin also requires that an independent expert be involved in the assessment of the above business MAC to confirm the occurrence of the material adverse change. In light of this, business MAC clauses in particular are often rather complex.

2. Short sales

On 16 March 2020, ESMA lowered the reporting threshold for net short positions from 0.2% to 0.1%. This step is intended to enable the national competent authorities to identify short positions in the market and, if appropriate, react more quickly. Some competent authorities (for example in Italy, France, and Spain) have already prohibited short sales in order to prevent share prices from sinking further or faster as a result. ESMA welcomed the measures adopted by the Italian CONSOB and the Spanish CNMV.


***** News published on 09.03.2020 *****


The corona crisis has hit the capital markets hard. Companies not only need to handle the significant challenges which their operations face as a result of the coronavirus, but also have to check their transparency obligations under capital markets law in connection with the coronavirus (see section 1 below) and scrutinise their communications to the capital markets (see section 2 below). Finally, the coronavirus also has to be considered when issuing securities (see section 3 below). While the SEC made available guidance to US issuers on how to deal with the crisis, German financial regulator BaFin has not published any such guidelines up to now. In the light of this, the guidelines below are intended to provide initial advice.

1. Ad hoc publicity under Article 17(1) of the Market Abuse Regulation

Due to the effects of the coronavirus, issuers may be obliged to make one or several ad hoc disclosures in accordance with Article 17(1) of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (Market Abuse Regulation – “MAR”). For example, the following circumstances may give rise to an obligation to make an ad hoc disclosure in this context:

1.1 Impact on business operations

For example, there can be “significant transactions” which constitute inside information. This applies, for instance, in the event of an impairment of production capacity. One likely example would be that a company is directly and substantially affected and has to stop its production or business operations in key areas. Individual cases of illness do not suffice for this. Staff bottlenecks, for instance due to quarantine periods or illness of many employees, however, can lead to production shortages or production losses which may affect the share price. This applies all the more to sanitary measures such as mandatory closures of major production facilities or establishments. In addition, circumstances occurring outside the issuer’s immediate area of activity may also be of relevance. This especially concerns companies whose production capacity relies heavily on supplies from regions where the coronavirus has spread widely. Such companies have to examine if there is a risk of impairment of the supply chains and whether this might have consequences on their own production capacity which would affect the share price.

Inside information may also result from a generally negative business development, e.g. a significant decline in sales resulting from reluctant consumer behaviour. According to a joint survey by the German and European chambers of commerce abroad among their member companies in China, almost 90 per cent of the members expect the coronavirus to have “medium to severe effects”. Nearly every second business also expects a low two-digit percentage drop in sales. Even though it is unclear whether and to what extent the coronavirus will have a direct impact on the German market up to now, companies subject to ad hoc disclosure obligations should carefully observe the development of their sales (as well as the development of other key figures). An ad hoc disclosure obligation already has to be considered if there are foreseeable deviations from market expectations. Such a disclosure obligation may in particular apply if it is necessary to adjust forecasts as a result of the expected deviation in the development of the business.

The companies concerned usually cannot argue that in the light of the public debates surrounding the crisis it is already public knowledge that their business is also affected, meaning that this cannot be considered inside information anymore.

Where inside information stems from the fact that a company subject to ad hoc disclosure obligations has to adjust its previously published forecasts, it is usually not possible to delay disclosure under Article 17(4) MAR. This results from the guidelines provided by the European Securities and Markets Authority (“ESMA”) on delaying disclosures of inside information, which the German Federal Financial Supervisory Authority (BaFin) has also undertaken to apply.

1.2 Illness or incapacity of executive staff

Information on illness or (permanent) incapacity of executive staff due to the coronavirus can also be inside information. Whether this applies in an individual case depends on the severity and duration of the illness and on such person’s importance for the company’s revenues and strategic alignment. As a rule, it is not just the illness of board members in key roles that may constitute inside information. Illnesses of other key people, i.e. persons who have a decisive influence on the course of business, can be relevant, too.

While delaying disclosure is not possible with regard to the development of the business, it is generally an option when an executive becomes ill. This results from the requirements set out in the EU Charter of Fundamental Rights (“CFR”). The personality rights laid down in Articles 7 and 8 CFR protect those concerned, among other things, from publication of personal data, which also includes information pertaining to their health status. However, the interference in personal rights which is associated with a publication of their health status can be justified. The personality rights of the person concerned have no absolute priority over ad hoc disclosure requirements. Companies subject to ad hoc disclosure obligations therefore have to balance the fundamental rights of the person concerned and the capital market’s interest in being informed.

2. General disclosures and investor relations work

In addition to ad hoc disclosures which only apply to information affecting the share price, listed companies also have to consider the changes in conditions resulting from the coronavirus in their general disclosures. Capital market-oriented companies have to include a management report in their annual reports which must contain statements as to the major opportunities and risks in the future development of the business. The same applies to half-year financial reports.

  • The objective of risk reporting is to convey to the capital markets a well-balanced image of a company’s risk profile. For this, it is necessary not only to describe the risks, but also to make the significance of such risks transparent and to categorise them. The effects which the coronavirus may have on future business development will strongly depend on the relevant company’s business. The intensity of reporting therefore depends on the individual case. In many cases, the risk in this regard is already covered by the general economic risk. However, that is not always sufficient. Some companies already explicitly referred to the coronavirus in their risk reports with regard to the specific effects, for example on their markets in China.
  • A management report also contains a forecast. In the forecast, the management has to discuss and explain its opinions and expectations regarding expected developments and events. For this, publicly available information on the development of the global economy and the industry should be included only to the extent such information is required to understand the statements regarding the company’s expected future development. This also applies to the effects of the coronavirus. However, in addition to qualitative assessments, quantitative company-specific statements are also required. For example, companies have to address expected changes in forecasted performance indicators compared to the corresponding actual figure in the reporting year, illustrating the direction and intensity of the change. Because of the insecurities in connection with the coronavirus in the current reporting season, great caution is required in this respect to ensure consistency in capital markets communications and avoid profit warnings if conditions deteriorate.

Besides ad hoc and general disclosures, proactive investor relations work constitutes an integral part of capital markets communications. Legally, any other type of communication with shareholders is permissible which is intended to bind investors to the company by providing information. Investor relations and public relations work go hand in hand. The objective is to ensure the continuing confidence of investors and markets, and also of business partners and customers, by means of transparent and ongoing communication, including in times of crisis. From the perspective of capital markets law, companies have to ensure that all investors are treated equally in terms of information. This means that large institutional investors may not be given any preferential treatment over small investors through selected disclosures. Of course, manipulating share prices by providing false information or by unlawfully disclosing inside information is also prohibited.

3. Securities issue

Finally, the effects of the coronavirus may also have an impact on the preparation of a prospectus when securities are issued. The duty to publish a prospectus has applied since 21 July 2019 pursuant to the new EU prospectus regulation (Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 – “Prospectus Regulation”) which as directly applicable law applies in all EEA states. If a company has plans for an offer of securities to the public or an admission of securities to trading on a regulated market which requires the publication of a prospectus, there may be an obligation to include the coronavirus as a “risk factor” in the prospectus (see section 3.1 below). In addition, the effects of the coronavirus may also have to be published in other parts of the prospectus (see section 3.2 below). If issuers have already published a prospectus and the offer is still valid, a changed risk assessment of the coronavirus may trigger a duty to publish a supplement to the prospectus (see section 3.3 below).

3.1 The coronavirus as a risk factor

Prospectuses have to contain a special part in which the risks associated with the investment decision have to be individually described and explained as “risk factors”. For the inclusion of such risk factors in a prospectus, the Prospectus Regulation provides new and stricter requirements which issuers have to observe. ESMA issued detailed guidelines in this connection. The risk associated with corona which concerns all issuers to various degrees is virtually a textbook example by which to illustrate how important it is to provide a prudent risk description in a prospectus.

3.1.1 Specificity and materiality of the risk

According to the Prospectus Regulation, the primary purpose of including risk factors in a prospectus is to ensure that investors make an informed assessment of the risks and thus take investment decisions in full knowledge of the facts. Risk factors should therefore be limited to risks which are material and specific to the issuer and the securities. A prospectus may not contain any risk factors which are generic and only serve as disclaimers. Relevant risk factors of which investors should be aware may not get lost in a mass of generic and unspecific risk factors. BaFin’s practice shows that, when reviewing prospectuses, BaFin gives particular attention to the specificity and materiality of the risk factors. In the light of this, formulating risk factors is a challenging and complex task.

In view of BaFin’s practice it is therefore not sufficient to include a generic risk factor in the prospectus relating to the coronavirus and its impact on the common welfare. In fact, the Prospectus Regulation explicitly refers to environmental, social and governance circumstances – such as the coronavirus – which may have to be included as a risk factor. However, this only applies if the coronavirus constitutes a specific and material risk for the issuer and its securities.

Whether the coronavirus constitutes a specific and material risk for the issuer and its securities depends on the individual case, especially on the type of business and the sector in which the company operates. Specificity can exist, for example, where the coronavirus could have a negative impact on production because of restrictions in the supply of upstream products or in the availability of staff. In addition, there may be difficulties on the sales side because of a collapse in the demand for the products or services provided by the issuer. Indirect impairments at suppliers or customers or on the financial markets are also possible. If, for example, the crisis breaks through to the general financial markets, specific risks may arise on the financing side. Besides the question of whether a company’s operations in crisis areas are affected, potential future scenarios also have to be taken into account in this context. The adverse effects which the coronavirus has on the issuer’s assets, liabilities, financial condition and profits must in any event be specifically described.

Prior to the inclusion of a risk factor relating to the coronavirus, it is therefore necessary to analyse in detail the (potential) effects of the coronavirus on the company and the securities. Such effects have to be specifically described in the risk factor. It is in no event sufficient to copy a risk factor relating to the coronavirus from a prospectus already published by another issuer and to include it in a prospectus without changes.

3.1.2 Risk factor categorisation and presentation

If a risk factor relating to the coronavirus is included in the prospectus, the risk factor must be assigned to one of the categories to be defined for the risk factors. According to the Prospectus Regulation, all risk factors have to be presented in a limited number of categories depending on their nature. ESMA suggests creating a category for environmental, social and governance risks. The coronavirus would probably also have to be included in such a category or in a similar category. It may be necessary to include several risk factors which explain the various aspects.

Within one risk category, the most material risk factors have to be presented first. When preparing a prospectus, the issuer therefore has to assess with its advisors the materiality of the risk factors based on the probability of their occurrence and the expected magnitude of their negative impact. On that basis, the risk factor relating to the coronavirus has to considered in relation to other risks of the same category. If, according to this analysis, the risk factor relating to the coronavirus is one of the most material risks within the relevant category, it has to be presented in a prominent position. In addition, the assessment of the materiality of the risk factors may be disclosed by using a qualitative scale of “low”, “medium” or “high” with regard to the probability of their occurrence and the expected magnitude of their negative impact. However, the issuer is not obliged to do so. The materiality of a risk factor in any event has to be evident from the description of the risk factor itself. In view of the dynamic development of the crisis, it is necessary to permanently monitor the situation and to constantly review the risk assessment.

3.2 Mentioning the coronavirus in other prospectus sections

In addition to the inclusion of one or several risk factor(s), the relevance of the coronavirus has to be reviewed for the following required information in a prospectus:

  • statement of all known trends, uncertainties, requests, obligations or incidents which, in the issuer’s reasonable discretion, will have a material effect on the issuer’s prospects at least in the current financial year,
  • description of any environmental issues which could have an influence on the issuer’s use of property, plant and equipment,
  • information on important factors including unusual or rare incidents or new developments which have a material adverse effect on the issuer’s revenues, and on the extent in which revenues were influenced in such manner, as well as
  • information on the business situation and the financial condition (“MD&A”).

3.3 Necessity of a supplement to a prospectus

If issuers recently published a prospectus for a public offer which is still valid and did not consider the impact of the coronavirus in that context, they should check whether they are required to publish a supplement to the prospectus under Article 23 Prospectus Regulation. A duty to publish such a supplement exists when current developments lead to a new risk assessment which constitutes a new relevant factor for the issue. This is the case if the potential effects of the coronavirus on the issuer might have an influence on the investment decision of an informed investor. This, too, has to be reviewed in the individual case for each issuer.