This memorandum sets out why, under the UK ISA rules as amended in 2013, only German Regulierter Markt segments should be treated as ISA-eligible, while Freiverkehr / Open Market / Quotation Board segments operated by German recognised stock exchanges (RSEs) are not ISA-eligible.
The conclusion is that:
This memorandum summarises the statutory, regulatory and interpretative framework governing ISA eligibility for foreign-traded shares following The Individual Savings Account (Amendment No. 3) Regulations 2013 (SI 2013/1743), with specific reference to:
The objective is to establish a clear, evidence-based position on whether Freiverkehr-type markets qualify as a “market of a recognised stock exchange” for ISA purposes.
The 2013 Amendment (SI 2013/1743) revised the definition of qualifying investments to include:
“company shares admitted to trading on any market of a recognised stock exchange in the European Economic Area.”
Source: The Individual Savings Account (Amendment No. 3) Regulations 2013
https://www.legislation.gov.uk/uksi/2013/1743/made
HMRC’s Stocks and Shares ISA Manager Guidance (as published on GOV.UK) states that shares must:
“be officially listed on a recognised stock exchange, or be admitted to trading on a recognised stock exchange in the UK or the EEA.”
Source: ISA Manager Guidance – Stocks and Shares
https://www.gov.uk/guidance/stocks-and-shares-investments-for-isa-managers
HM Treasury’s published summary of the 2013 ISA amendments explicitly states that the measure was intended:
“…to designate as qualifying investments in a stocks and shares ISA company shares admitted to trading on any market of a recognised stock exchange in the European Economic Area (EEA).”
This wording provides the statutory basis for recognising “markets” of an RSE rather than only “official listings,” but it does not define which market types qualify. Interpretation therefore depends on regulatory classifications (MiFID RM/MTF), formal admission standards, and HMRC’s own guidance.
Source: HM Treasury – ISA Amendments 2013 Summary
https://assets.publishing.service.gov.uk/media/5a75ba6ce5274a436829983e/isa-aug2013.pdf
The 2013 Amendment does not define:
This lack of explicit definition requires interpretation by reference to:
The Explanatory Memorandum to SI 2013/1743 describes the policy intent behind the changes. In summary, it states that the instrument was intended:
“to extend the list of qualifying investments … to include company shares admitted to trading on a recognised stock exchange in the European Economic Area” and to enable investment in SME equity markets, thereby increasing the choice available to ISA investors and managers.
Source:
https://www.legislation.gov.uk/uksi/2013/1743/pdfs/uksiem_20131743_en.pdf
The memorandum does not indicate any intention to broaden ISA eligibility to unregulated, issuer-light dealer boards or OTC-style trading facilities. The policy focus is on formal markets with admission standards, including SME-oriented regulated or growth markets.
In German law and exchange rulebooks, Freiverkehr is consistently identified as an unofficial (“open”) market, distinct from the regulated market and subject to a much lighter regulatory regime.
German Regulierter Markt segments meet all of the criteria inferred from the ISA rules and HMRC policy:
Accordingly, shares admitted to trading on the Regulierter Markt of Frankfurt or Stuttgart are treated as ISA-qualifying.
Freiverkehr-type markets fail key elements of the eligibility test:
| Criterion | Regulierter Markt | Freiverkehr / Open Market / Quotation Board |
|---|---|---|
| MiFID status | Regulated Market | Not regulated market; not MTF |
| Admission to trading | Formal, rule-based admission | No full “admission to trading” in the listing sense |
| Prospectus requirement | Yes (or applicable exemption within regulated framework) | Generally no prospectus requirement |
| Ongoing issuer obligations | Yes, regulated-market level | Limited and lighter obligations |
| HMRC / platform stance (practice) | Treated as eligible | Treated as non-eligible |
For these reasons, German Freiverkehr, Open Market and Quotation Board segments are treated as ISA-ineligible for UK investors.
In correspondence with HMRC (held on file by the author and summarised here), HMRC provided additional interpretation that clarifies how the 2013 wording is applied in practice. The key themes from that correspondence are:
HMRC indicated that ISA eligibility requires securities to be admitted to trading on a market which applies rules governing the admission of securities. In other words, the market itself must have a meaningful admission process and rulebook for issuers; an entirely dealer-driven or informal facility would not suffice.
HMRC further indicated that eligibility depends on the functions, structure and admission arrangements of the market, rather than purely on the identity of the operator. The fact that a segment is operated by a recognised stock exchange does not automatically make that segment a qualifying “market” for ISA purposes.
HMRC also confirmed that the 2013 changes were not intended to extend ISA eligibility to markets that lack admission standards, but rather to modernise the rules and accommodate SME-focused markets that nonetheless have formal admission and ongoing obligations.
Finally, HMRC indicated that the presence of enhanced rules within an otherwise unregulated market (for example, “premium tiers” or “Scale-type” sub-segments of Freiverkehr) does not by itself convert the underlying market into a regulated market. As such, these enhanced tiers are not automatically treated as ISA-eligible unless the securities are also admitted to a regulated market or equivalent.
Note: The HMRC points above are presented as summaries/paraphrases of written correspondence retained by the author. They are not direct quotations from any public HMRC manual.
While Freiverkehr and related open markets are operated by recognised German exchanges, they do not meet the standards implied by the phrase “admitted to trading on any market of a recognised stock exchange in the EEA” when read in light of:
From a risk-management and compliance standpoint, treating Freiverkehr-only shares as ISA-eligible would require an aggressive interpretation that is not supported by statute, HMRC explanatory materials or current UK market practice.
Shares admitted to trading on the Regulierter Markt of Frankfurt or Stuttgart:
These shares should therefore be treated as ISA-eligible.
Shares traded only on Freiverkehr / Open Market / Quotation Board segments:
For UK ISA managers, platforms and custodians, a robust and defensible policy is:
This approach aligns with the conservative practice adopted by many UK platforms and custodians and is consistent with both the letter and the spirit of the 2013 amendments.