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Part of Austrian Stock Exchange Act ruled unconstitutional

Christian Temmel

In March 2011, the Austrian Constitutional Court passed a ruling by which a part of the Austrian Stock Exchange Act will be abolished as being in contradiction with the Austrian constitution.

Section 14 paragraph 1 of the Austrian Stock Exchange Act contains the preconditions for granting membership with the stock exchange. Section 19 of the Austrian Stock Exchange Act states that the membership with the stock exchange may be withdrawn if one or more of such prerequisites fall away. Such withdrawal may be based, among other things, on the fact that a manager of a stock exchange member has been finally convicted because of market manipulation.

In the case decided by the Austrian Constitutional Court, a member of a management board of an Austrian bank (who was and still is a member of the Vienna Stock Exchange) had been finally convicted to a fine of €2,000 ($2,800) for market manipulation. As a consequence, the Vienna Stock Exchange informed the bank of its intention to withdraw its membership with the stock exchange, unless the bank removed the convicted person from the management board. The bank appealed to the Constitutional Court against this decision as contradicting the Austrian Constitution.

The Austrian Constitutional Court held that the principle of freedom of business activity (Erwerbsfreiheit) is heavily violated by this provision since the bank only has the choice to remove the convicted person or otherwise lose its membership with the stock exchange. In addition, the stock exchange as such has no room to manoeuvre: there is no possibility for the stock exchange to evaluate whether a violation of the market manipulation rules has been justified (or is near to being justified), or whether the violation has been minor. Any limitation on the freedom of business activity as granted by the Constitution may be justified if it is in the public interest, adequate, and in accordance with unified justified principles.

The Austrian Constitutional Court found that it may be in the public interest to exclude a stock exchange member from membership if one of its managing directors has been finally convicted for market manipulation. The withdrawal of stock exchange membership may also be an adequate measure to restore public faith in the diligent conduct of a stock exchange member.

However, the threatened withdrawal of the stock exchange membership is a violation of the principle of freedom of business activity. The Constitutional Court held that market manipulation may be conducted in many different ways, and the sanction of withdrawal of the stock exchange membership does not differentiate between the various types of market manipulation, although they are very different in their severity. For this reason, the provision at hand constitutes a violation of the principle of freedom of business activity which is not justified by any other reasons.

In addition, the provision also violates the principle of equality, since a number of various types of market manipulation are dealt with equally, although they are materially different from their content and in their severity.

As a consequence, the Austrian Constitutional Court ruled that the final conviction "for market manipulation" in the provision which contains the prerequisites for the stock exchange membership and its withdrawal are to be abolished due to contradiction with principles of the Austrian Constitution.

The change will enter into force as of December 31 2011.

Christian Temmel

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