VZCZCXRO3972
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHVI #1454/01 2731401
ZNR UUUUU ZZH
P 291401Z SEP 08
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 1016
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 VIENNA 001454 
 
SIPDIS 
 
TREASURY FOR FTAT AND OCC/EILEEN SIEGEL 
TREASURY ALSO FOR OASIA/ICB/VIMAL ATUKORALA 
TREASURY PASS FEDERAL RESERVE, FINCEN, SEC/E.JACOBS 
 
E.O. 12958: N/A 
TAGS: EFIN AU
SUBJECT: Austria Restricts Short Selling, But No Ban; 
No Immediate Prospect for Further Reform 
 
REF:  VIENNA 1120 
 
¶1.  SUMMARY:  On September 22, Austria's Financial 
Market Supervision (FMA) restricted short-selling by 
defining stricter parameters for market manipulation 
and insider trading.  Regulators are unhappy that 
they cannot ban short sales outright since a 
legislative motion approved by the outgoing 
parliament is now void and must be reintroduced in 
the new parliament.  In August, the supervisory 
authorities presented a package for improving 
financial market supervision but there is little 
prospect of quick action.  END SUMMARY. 
 
Financial Market Authority Restricts Short Selling 
--------------------------------------------- ----- 
 
¶2.  In a September 22 circular, the Austrian 
Financial Market Authority (FMA) restricted short 
selling that constitutes market abuse or insider 
trading, with detailed reporting requirements.  In 
its circular, the FMA refers to the Austrian Stock 
Exchange Act paragraph 48d/9 (market manipulation) 
and paragraph 48e/5 (covering actions carried out 
both in Austria or abroad) and to the EU's Market 
Abuse Directive.  The main points of the FMA's 
circular as they apply to short sales: 
 
-- 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 instrument has to 
be assessed.  This includes equities as well as 
derivatives (e.g., options, futures, convertible 
bonds). 
 
-- A net short position of more than 0.25% of an 
issuer's capital outstanding is regarded 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 by 8 days the period allowed for 
covering deliveries not made on time. 
 
-- Market manipulation includes the spreading of 
rumors as well as false and misleading information. 
Under the law, such situations must 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. 
 
¶3.  The FMA has reportedly intensified the exchange 
of information and data with the Committee of 
European Securities Regulators (CESR).  The FMA has 
alerted 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 illegal, the FMA reconfirmed. 
 
Parliamentary Action Void Due to Elections 
------------------------------------------ 
 
¶4.  In the final plenary session of Parliament's 
Lower House (Nationalrat) September 24, the OVP and 
BZO filed a motion asking the Finance Minister to 
strengthen financial market supervision and restrict 
manipulative short-selling. The motion, based on an 
initiative of the Austrian Financial Market Authority 
(FMA) and the Austrian National Bank (OeNB), was 
approved with a majority, except for votes of the 
SPO.  The FMA and OeNB are unhappy that the motion 
was not accepted unanimously, because short selling 
reportedly is a widely used practice on the Vienna 
Stock Exchange, which due to its low market 
capitalization could become a serious danger for 
companies and the Austrian economy as a whole. 
Moreover, Austria is not following the example of 
 
VIENNA 00001454  002 OF 002 
 
 
many important financial markets, including the U.S., 
UK and Germany, where short selling has been banned, 
at least temporarily.  The September 24 motion is now 
void must be reintroduced in the new Parliament. 
Since its constitutive session is not scheduled until 
October 28 -- and Austria will probably still have a 
caretaker government then -- any new motion must wait 
until at least November. 
 
COMMENT 
------- 
 
¶5.  The untimely collapse of the last government and 
the dissolution of Parliament are only partly to blame 
for the weak response to the financial crisis.  In 
recent months, the authorities have not responded to 
the international financial crisis, an issue which also 
failed to gain traction during the September election 
campaign.  As reported (reftel), the financial market 
reform that took effect January 1 was limited by party 
politics, a point driven home by the fact that barely 
eight months later (August 8), the FMA and OeNB 
presented a joint package for further reform of 
financial market supervision on issues including off- 
balance positions, supervision of trusts, balance sheet 
regulations for derivative products and hedging, 
regulations for guarantees, and additional powers for 
the supervisors such as search/seizure and higher 
penalties.  In the near term, Austrian regulators must 
make the best of their limited powers. 
 
GIRARD-DICARLO