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28 October 2008
The current turmoil in the international financial markets and its impact on domestic regulated markets have led to calls for the EU securities regulators to take action and address key aspects of the financial crisis that are under their competence. 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 the markets.
The Committee of European Securities Regulators (CESR) has already taken first steps to coordinate national decisions adopted by its members. Further actions are under review in order to promote the further possible convergence of national decisions and reinforce cooperation between members in respect of concrete enforcement cases relating to the short-selling ban. This review will be conducted by CESR-Pol and chaired by Kurt Pribil, one of the managing directors of the Austrian Financial Market Authority (FMA).
In Austria, the government has announced its intention to amend the Stock Exchange Act in order to create a legal framework for an outright prohibition on short selling, even if only on a temporary basis. However, the first plenary session of the newly elected Parliament is not scheduled to take place until October 28 2008 and accordingly, the intended amendments cannot be enacted before this date. No draft or any further details of the proposed changes to the law have yet been published.
For the time being, 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.
The FMA recently published a circular 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 and/or aggregated positions in a financial instrument or in regards to an issuer will be considered to be net short positions.
The existence of net short positions will be assessed 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 (eg, options, warrants, futures, convertible bonds and contracts for difference). In assessing the financial interest in regards to derivative instruments, the delta value of the financial instrument will be taken into account.
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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