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04 November 2008
The turmoil in the international financial markets and its impact on domestic regulated markets have led to calls for EU securities regulators to address certain aspects of the crisis. Short selling is one of the key areas that has been subject to tightened control by Europe’s regulators in a coordinated response between national authorities to restore investor confidence.
In Austria, the Stock Exchange Act was amended with effect from October 26 2008. The new amendment enables the Financial Market Authority (FMA) to prohibit short selling of any security or to impose restrictions with regard to short selling for a period of up to three months. Such period may be extended by up to six months with the minister of finance's consent. The restrictions may include requiring the seller to:
Consequently, on October 27 2008 the FMA issued a temporary prohibition that will expire on November 28 2008 on naked short selling in the cash market of shares of:
Only short-term naked short sale positions taken by market makers or specialists within the scope of their contractual obligations are exempt from this prohibition.
In addition, exchange of information and coordination between the FMA, the Vienna Stock Exchange (VSE) and the Austrian central clearing agent have been increased and short selling is addressed in the VSE’s trading rules and under the existing market manipulation regime.
The VSE has amended its trading rules to reflect that it is now in a position to prohibit short selling in a particular security or in all securities traded on the VSE, either temporarily or until further notice.
Before the amendment of the Stock Exchange Act, other than amendments to the VSE trading rules, short selling had been addressed only in the context of market manipulation. The FMA has recently published a circular, which remains effective following the implementation of the FMA's measures October 27 2008, on the obligation to report suspicious transactions that may qualify as market manipulation or illegal insider trading, in particular in respect of short selling.
With regard to short selling, the FMA has taken the view that net short positions may well constitute market abuse. Offsetting or aggregated positions in a financial instrument or in respect of an issuer will be considered to be net short positions.
The assessment of net short positions will be based on the entire financial interest of a natural person or legal entity in the price development of a specific financial instrument. This applies to equities and all equity derivatives. The FMA will consider a net short position of 0.25% or more of an issuer’s outstanding capital as a potential indicator of market abuse.
The FMA circular also applies to transactions that are carried out abroad, but involve financial instruments that are admitted to trading on a regulated market in Austria.
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