In view of current developments in international financial markets and their impact on domestic regulated markets, the Austrian Financial Market Authority (Finanzmarktaufsichtsbehörde, FMA) has taken action to stop short selling constituting market abuse.
In a circular dated 22 September 2008, FMA defines in detail the obligation to report suspicious transactions laid down in section 48d par. 9 in conjunction with section 48e par. 5 Stock Exchange Act in accordance with the EU’s Market Abuse Directive. Under this Directive, anyone transacting business in financial instruments professionally has the duty to promptly report to the FMA any justified suspicion that a transaction that might qualify as market manipulation or an illegal insider trade. In its circular, the FMA advised how this provision applies to short selling:
- Taking on or holding net short positions may constitute market abuse. A net short position is defined as offsetting and/or aggregated positions in a financial instrument.
- To determine whether a “net short position” exists, the entire financial interest in the price development of a specific financial instruments has to be assessed. This includes equities as well as all equity derivatives (options, futures, convertible bonds, CfDs, for example).
- A net short position of more than 0.25% of an issuer’s capital outstanding is regarded by the FMA as a significant indicator of a situation of market abuse.
- In addition, the Vienna Stock Exchange and the central clearing agent CCP.A, in co-ordination with FMA, have reduced the period allowed for covering deliveries not made on time by 8 days.
- FMA points out once again that market manipulation includes the spreading of rumours as well as of false and misleading information. Under the law, such situations must likewise be reported to FMA without delay.
- These provisions also apply to transactions that were carried out abroad but involve financial instruments admitted to trading on a regulated market in Austria.
At EEA level, national actions are co-ordinated by the Committee of European Securities Regulators (CESR). The exchange of information and data has already been intensified.
Market manipulation is subject to an administrative penalty of up to EUR 50,000, illegal insider trading carries prison sentences of up to 5 years. In both cases, illegally earned profits are forfeited.
In addition, FMA specifically alerts the custodian banks to the relevant provisions of the Safe Custody Act (Depotgesetz) under which they are also required to monitor their clients’ compliance with delivery obligations. Using third-party securities as security for delivery obligations is also illegal. Violations of these rules are punished by FMA in accordance with the penal provisions of the Austrian Banking Act (BWG).
For further information please contact
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516