The Financial Services Agency on Wednesday ordered five securities houses to improve their business practices regarding short selling.
The securities companies are Merrill Lynch Japan Securities Co., the Tokyo branch of KBC Financial Products UK Ltd., Okasan Securities Co., Credit Suisse First Boston Securities (Japan) Ltd. and Nippon Global Securities Co.
Short selling involves transactions in which shares are borrowed from a brokerage house or institutional investor and then sold with the hope they can be bought back less expensively at a later date. This way, the stock can be returned to the lender and the borrower can pocket the difference.
Under the securities law, traders are required to declare these transactions, but in November, the FSA said, the five companies repeatedly failed to declare their short sales.
The administrative order obliges the companies to take measures such as strengthening in-house management systems.
Japanese securities exchange authorities are tightening their supervision of short selling, postulating that the practice may be distorting the stock market, which has been falling almost continuously for 12 years.
Late last month, tighter regulations on short-selling were introduced as part of efforts to prop up the sagging stock market.
Under the new rules, the FSA is requiring securities firms to charge fees for all loaned shares. It also is requiring investors to give advance notice when they borrow at least 300,000 shares, making it harder for them to take large short-selling positions.
Charge for short sales
Japan Securities Finance Co. will charge brokerages when they borrow shares for short sales.
The move, announced Tuesday, comes in response to a request by the Financial Services Agency to tighten regulations on short selling.
The loan fee will be set at 0.4 percent and will be charged on contracts starting May 7.
Meanwhile, the Tokyo Stock Exchange said it will revise part of its regulations on margin and loan transactions, asking brokerage firms to set appropriate fees when they lend stocks to customers.
The revision, aimed at improving the use of margin-trading, will also be implemented May 7, the bourse said.
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