As a result of the transposition of the European Union's (EU) Market Abuse Directive into Austrian law in 2005, comprehensive amendments were introduced to the Stock Exchange Act and the 1996 Securities Supervision Act, which was last revised in 2007. Furthermore, the EU Transparency Directive was incorporated into Austrian law in April 2007. The International Monetary Fund's (IMF) 2004 Financial System Stability Assessment benchmarked securities regulation practices in Austria against the International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation. The report concluded that the overall quality of the supervisory framework for Austria's securities markets was very good and that the general preconditions for effective securities regulation were in place. Austria's Financial Market Authority (FMA) was established in 2002 as an integrated financial supervisory authority for the securities, banking, insurance, and pension funds sector. However, shortcomings were identified regarding the FMA's independence from the Federal Ministry of Finance, and shortage of staff to conduct direct supervision. The IMF report also noted that the FMA relied heavily on the use of external auditors for supervision. Citing the IMF's update of its original 2004 assessment, the FMA reported in a 2007 press release that the regulatory and supervisory framework in Austria was at a high level, and had continued to improve. The FMA further noted that the financial market supervision reform, which entered into force on January 1, 2008, would contribute toward effective and efficient supervision.

General Overview

The International Monetary Fund (IMF) conducted a Financial System Stability Assessment in 2004, in which securities regulation practices in Austria were benchmarked against the International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation. The IMF report found that the overall quality of the supervisory framework for securities markets in Austria was "very good" (p. 36), and the general preconditions for effective securities regulation were in place. However, shortcomings were identified regarding the independence of the supervisory authority -- the Financial Market Authority (FMA) -- from the Federal Ministry of Finance (Bundesministerium für Finanzen, or BMF). The IMF also notes a shortage of staff to conduct direct supervision. Furthermore, administrative fines were too low, and the definition of price manipulation was too broad. The IMF recommended increasing the FMA's staff to conduct on-site inspections, and allowing higher administrative fines imposed by the FMA. It further advised strengthening the supervisory framework "by broadening the definition of price manipulation, and increasing maximum fines" (p. 21). These issues were expected to be addressed with the implementation of the European Union's (EU) Market Abuse Directive No. 2003/6/EC and EU Directive No. 2004/39/EC on Markets in Financial Instruments (MiFID). Writing in 2007, Birkner and Hasenauer noted that after the transposition of the EU Market Abuse Directive No. 2003/6/EC into Austrian law in 2005, comprehensive amendments were introduced to the Stock Exchange Act (Börsegesetz, or BörseG) and the 1996 Securities Supervision Act (Wertpapieraufsichtsgesetz, or WAG) with regard to market abuse, insider trading, and ad hoc disclosure requirements. Furthermore, the EU Transparency Directive No. 2004/109/EC was incorporated into Austrian law in April 2007. Citing the IMF's update of its original 2004 assessment, the FMA reported in a 2007 press release that the regulatory and supervisory framework in Austria was at a high level, and had continued to improve.

The FMA was established in 2002 under the 2001 Financial Market Authority Act (Finanzmarktaufsichtsbehördengesetz, or FMABG), as an independent, autonomous and integrated financial supervisory authority, consolidating the supervisory agencies for securities, banking, insurance, and pension funds. An amendment to the Act (Finanzmarktaufsichtsänderungsgesetz, or FMAÄG) entered into force in 2005. According to a 2008 press release from the FMA, the financial market supervision reform came into force on January 1, 2008 with the aim of strengthening supervision in Austria. The reform significantly increases staff for securities supervision in order to meet the more extensive requirements resulting from the BörseG, and the revised WAG, which entered into force in November 2007. The press release further stated that on-site inspections will be conducted more frequently and thoroughly.

In its 2004 assessment, the IMF noted that capital markets in Austria were divided into the equity market, the bond market, the derivatives market, warrants, and other listings. According to the 2007 U.S. Department of Commerce (DoC) Country Commercial Guide report, the Vienna Stock Exchange (Wiener Börse, or VSE) is connected to Deutsche Börse's electronic trading system (Xetra). Furthermore, Austria's central securities depository and settlement agency -- the Oesterreichische Kontrollbank Aktiengesellschaft (OeKB) -- acts as the clearing house for the VSE. In March 2005, per the same report, the VSE, with 103 listed companies and €118 billion in market capitalization, acquired a majority share in the Budapest Stock Exchange with the aim of establishing a broader "Central European Stock Exchange" alliance. The VSE also concluded Memoranda of Understanding (MoUs) for closer cooperation with stock exchanges in Banja Luka, Belgrade, Macedonia, Montenegro, and Sarajevo, and signed a cooperation agreement with the Zagreb Stock Exchange.

The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The Ontario Securities Commission website explains that IOSCO members who complete the screening process but are found to lack the legal authority to fully comply with the terms of the IOSCO MMOU will be invited to become signatories to Annex B of the IOSCO MMOU, provided that they express their commitment to obtaining the necessary legal authority to become full signatories. The IOSCO website lists the FMA as a signatory to Annex B.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

The FMA was established in 2002 under the 2001 FMABG, as an independent, autonomous and integrated financial supervisory authority, consolidating the supervisory agencies for securities, banking, insurance, and pension funds. Prior to the formation of the FMA, the banking, insurance, and pension funds sectors were under the supervision of the BMF, and the Austrian Securities Authority (Bundeswertpapieraufsicht) was responsible for securities supervision. According to the IMF's 2004 report, the FMA's functions and powers were exercised in an independent manner, and were secured under the FMABG, as noted in the IMF's 2004 report. However, the BMF had the authority to mandate the FMA to conduct audits of financial institutions, and was entitled to nominate the exchange commissioner, which has supervisory responsibilities in exchange trading. In its 2004 assessment, the IMF recommended shifting the latter responsibility to the FMA. The assessment does not, however, directly address Austria's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

The FMA's functions and powers were exercised in an independent manner, and were secured under the FMABG, as noted in the IMF's 2004 assessment. However, the IMF report questioned the FMA's independence in light of the BMF's right to mandate the FMA to conduct audits of financial institutions. Furthermore, the BMF was entitled to nominate the exchange commissioner, which has supervisory responsibilities in exchange trading. In its 2004 assessment, the IMF recommended shifting the latter responsibility to the FMA. The assessment does not, however, directly address Austria's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

According to the IMF's 2004 report, the FMA's functions and powers were exercised in an independent manner, and were secured under the FMABG, as noted in the IMF's 2004 report. However, the size of administrative fines that can be imposed by the FMA was relatively low, limiting the role of sanction tools. The IMF report also noted that the FMA relied heavily on the use of external auditors for supervision. In its 2004 assessment, the IMF recommended increasing the FMA's staff to conduct on-site inspections, and allowing higher administrative fines imposed by the FMA. It further advised strengthening the supervisory framework "by broadening the definition of price manipulation, and increasing maximum fines" (p. 21). Responding to the IMF's 2004 assessment, Austrian authorities stated that the maximum size of administrative fines was being discussed between the FMA and the BMF in light of the implementation of the EU Market Abuse Directive No. 2003/6/EC. Birkner and Hasenauer reported in 2007 that as a result of the transposition of the EU Market Abuse Directive No. 2003/6/EC into Austrian law in 2005, comprehensive amendments were introduced to the BörseG, and the 1996 WAG with regard to market abuse, insider trading, and ad hoc disclosure requirements. According to a 2008 press release from the FMA, the financial market supervision reform which entered into force on January 1, 2008 comprehensively increases staff for banking supervision in order to meet the more extensive requirements resulting from the revised 2007 WAG, and the BörseG. The press release further states that on-site inspections will be conducted more frequently and thoroughly. However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to these changes.

4. The regulator should adopt clear and consistent regulatory processes.

II

There is insufficient information publicly available addressing Austria's compliance with this Principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

There is insufficient information publicly available addressing Austria's compliance with this Principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

As stated in the 2004 IMF report, there were no self-regulatory organizations in the securities markets in Austria.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

See Principle 6.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

According to the 2004 IMF report, "the FMA is provided with necessary inspection, investigation and surveillance powers" (p. 36). Furthermore, the FMA had the authority to conduct investigations and take appropriate measures to fight insider trading. However, the IMF report noted that the FMA relied heavily on the use of external auditors for supervision. The IMF recommended increasing the FMA's staff to conduct on-site inspections. It further advised to increase the size of administrative fines which can be imposed by the FMA. Responding to the IMF's 2004 assessment, Austrian authorities stated that the maximum size of administrative fines was being discussed between the FMA and the BMF in light of the implementation of the EU Market Abuse Directive No. 2003/6/EC. Birkner and Hasenauer reported in 2007 that as a result of the transposition of the EU Market Abuse Directive No. 2003/6/EC into Austrian law in 2005, comprehensive amendments were introduced to the BörseG, and the 1996 WAG with regards to market abuse, insider trading, and ad hoc disclosure requirements. According to a 2008 press release from the FMA, the financial market supervision reform which entered into force on January 1, 2008 ensures that on-site inspections will be conducted more frequently and thoroughly. However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to these changes.

9. The regulator should have comprehensive enforcement powers.

II

See Principle 8.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

See Principle 8.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

II

According to the 2004 IMF report, the FMA was given legal powers to exchange confidential information with other relevant stock exchange supervisory authorities. Furthermore, the FMA had the authority to share both public and non-public information with foreign counterparts, including on an unsolicited basis and in insider trading cases. However, the FMA's right to exchange confidential information in the case of market manipulation was unclear. The IMF report recommended ensuring "full cooperation in all matters that the FMA is responsible for, including the conducting of investigation on behalf of a foreign authority" (p. 38). Responding to the IMF's 2004 assessment, Austrian authorities stated that these issues would be addressed following the implementation of the EU Market Abuse Directive No. 2003/6/EC. The Directive was transposed into Austrian law on January 1, 2005. However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to the transposition.

The IOSCO MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Austria's FMA is a signatory to the MMoU and an ordinary member of IOSCO.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

II

See Principle 11.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

II

See Principle 11.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

As stated in the IMF's 2004 report, Austrian legislation was in line with international best practices with regards to the full, accurate and timely disclosure of financial results and other information that is material to investors' decisions. The IMF report encouraged the FMA to be responsible for the depositing of prospectuses for public offering. According to the FMA's 2006 Annual Report, ad hoc disclosure requirements pursuant to the Stock Exchange Act ensure the provision of financial information. Furthermore, as a result of the transposition of the EU Market Abuse Directive No. 2003/6/EC into Austrian law in 2005, comprehensive amendments were introduced to capital market legislation, as well as legal changes related to ad hoc disclosure requirements. However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to these changes.

15. Holders of securities in a company should be treated in a fair and equitable manner.

FC

According to the IMF's 2004 report, Austrian legislation was in line with international best practices regarding requirements that holders of securities in a company should be treated in a fair and equitable manner. Furthermore, Birkner and Hasenauer reported in 2007 that the Corporate Governance Code is based on the concept that "all shareholders must be treated equally under the same conditions." Per a 2008 press release from the FMA, the financial market supervision reform which entered into force on January 1, 2008, provides for a comprehensive corporate governance package.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

II

As stated in the IMF's 2004 report, Austrian legislation was in line with international best practices regarding requirements that accounting and auditing standards should be of a high and internationally acceptable quality. Listed companies were also required to prepare their financial statements in accordance with the International Accounting Standards or U.S. GAAP. The IMF report recommended improving the implementation of accounting standards by auditors. As of January 1, 2005 all listed European companies, including Austrian companies, were required to prepare consolidated accounts following the International Financial Reporting Standards (IFRSs) endorsed by the EC. However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to these changes.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

According to the IMF's 2004 report, the supervision of collective investment schemes and their operators was "generally of a high standard" (p. 37). Furthermore, licenses were required for marketing or operating a collective investment scheme. The latter are regulated under the 1993 Investment Funds Act (Investmentfondsgesetz, or InvFG), which was last amended in 2007. The IMF report noted that governance would be strengthened once quality standards had been made fully compulsory in 2004. The IMF report further encouraged the FMA to "impose an explicit obligation to disclose any pending legal proceedings involving the fund, the operator or its management which may be material to the decision to invest" (p. 38). However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to these changes.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

See Principle 17.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

There is insufficient information publicly available addressing Austria's compliance with this principle.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

As stated in the IMF's 2004 report, "unit certificates may only be offered in Austria if a comprehensive prospectus has been published and deposited with the OeKB" (p. 37). Collective investment schemes, as well as requirements for related asset valuation of assets, are regulated under the 1993 InvFG, which was last amended in 2007. Per the same report, governance would be strengthened once quality standards had been made fully compulsory in 2004. Nevertheless, the IMF assessment does not directly address Austria's compliance with this principle.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

According to the IMF's 2004 report, the supervisory system in Austria was characterized by a "high standard" (p. 37) in the area of market intermediaries. The IMF report noted that the FMA had the authority to license market intermediaries with minimum capital requirements, as well as refuse a license application if legal requirements were not fulfilled. Nevertheless, the IMF assessment does not directly address Austria's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

According to the IMF's 2004 report, the supervisory system in Austria was characterized by a "high standard" (p. 37) in the area of market intermediaries. The IMF report encouraged market intermediaries to be "properly organized, have appropriate internal control systems and adequate security precautions for electronic processing... and act with the necessary expertise, diligence and conscientiousness in the best interest of the customers and minimize conflict of interests" (p. 37). The IMF report further noted that commodities futures were not regulated under Austrian law. Responding to the IMF's 2004 assessment, Austrian authorities stated that a license from the FMA would be required for investments services related to commodities futures following the implementation of the EU MiFID. Nevertheless, the IMF assessment does not directly address Austria's compliance with this principle.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

See Principle 22.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

There is insufficient information publicly available addressing Austria's compliance with this principle.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

FC

As stated in the IMF's 2004 report, "exchange operating companies require approval, have to fulfill requirements concerning initial capital and the fitness and propriety of the management, and undergo ongoing supervision by the FMA" (p. 37).

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

As noted in the IMF's 2004 report, "exchange operating companies require approval, have to fulfill requirements concerning initial capital and the fitness and propriety of the management, and undergo ongoing supervision by the FMA" (p. 37). However, the IMF report noted that the supervisory framework relied partly on self-supervision by the stock exchange, which could give rise to conflicts of interest. In its 2004 report, the IMF suggested giving an independent status to the stock exchange's surveillance department, as well as a mandate to the FMA to instruct the department. Nevertheless, the IMF assessment does not directly address Austria's compliance with this principle.

27. Regulation should promote transparency of trading.

FC

According to the IMF's 2004 report, regulations which promote transparency of trading were in place. Birkner and Hasenauer reported in 2007 that the EU Transparency Directive No. 2004/109/EC was incorporated into Austrian law in April 2007.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

In its 2004 report, the IMF recommended broadening the definition of price manipulation, as well as increasing maximum fines. These issues were expected to be addressed following the implementation of the EU Market Abuse Directive No. 2003/6/EC. The Directive was transposed into Austrian law on January 1, 2005. However, there is insufficient information publicly available regarding Austria's compliance with this principle subsequent to the transposition.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

FC

In its 2004 report, the IMF noted that regulations designed to ensure the proper management of large exposures, default risk and market disruption were in place.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

FC

In its 2004 report, the IMF noted that systems for clearing and settlement of securities transactions were "subject to regulatory oversight, to ensure that they are fair, effective and efficient, and reduce systemic risk" (p. 37).