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Short selling measures

In Austria, the government has announced its intention to amend the Austrian Stock Exchange Act (BörseG) in order to create a legal framework for an outright prohibition of short selling, even if only for a limited period of time. The first plenary session of the newly elected Austrian parliament is scheduled to take place on October 28 2008. Therefore, the intended amendments cannot be enacted before such date. No draft or any further details of the proposed changes to the law have been published yet.

For the time being, exchange of information and coordination between the FMA, the Vienna Stock Exchange (VSE) and the Austrian central clearing agency has 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 in such a way 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, regarding short selling in particular.

With respect to short selling, the FMA has taken the view that net short positions may well constitute a market abuse. Offsetting and/or aggregated positions in a financial instrument or regarding an issuer will be considered net short positions.

The existence of net short positions will be assessed based on the entire financial interest of a natural person or a legal entity in the price development of a specific financial instrument. This applies to equities and all equity derivatives (such as options, warrants, futures, convertible bonds and CFDs, among others). In assessing the financial interest regarding derivative instruments, the delta value of the financial instrument would be taken into account.

The FMA would consider a net short position of 0.25% or more of an issuer's outstanding capital as a potential indicator of market abuse.

It is to be noted that the FMA circular also applies to transactions carried out abroad but involving financial instruments admitted to trading on a regulated market in Austria.

Adi Winter

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