The Financial Services Agency said Tuesday it has again strengthened curbs on short selling of stocks to prevent investors from artificially bringing down the price of falling shares.

The new regulation bars investors from placing sell orders at a price lower than the stock’s latest price when prices in the market are generally heading downward.

The restriction concerns share transactions in which investors sell shares they do not own by borrowing them from securities financing companies. Investors can profit if they manage to buy the same stock later at a lower price, after driving down the stock price with a massive sale. The investor then returns the borrowed shares and pockets the difference.

Small-lot individual investors who sell less than 50 units of a company’s shares for a single transaction will be exempt from the new regulation.

The imposition of the regulation, announced beforehand, has drawn flak from some market players. One critic warned that the curb will “sap the market of liquidity.”

But the FSA has defended the measure as a method of deterring shady transactions and thus shielding the market. It points out that an identical regulation is in place in the United States.

The imposition of the regulation comes shortly after the Japanese stock market flirted with 19-year lows earlier this month.

In a related measure to bail out the market, the agency said it will authorize banks to let brokerages set up marketing counters starting this week to encourage more individual activity in the stock market, FSA officials said.

The agency said it will authorize brokerages to set up such counters at bank branches as long as they are clearly identified as belonging to the brokerages.

Securities review

Finance Ministry officials exchanged views Tuesday with officials of the Japan Securities Dealers Association on a possible review of special securities accounts to be introduced at brokerages in January, ministry officials said.

The ministry is currently seeking to make some modifications to the new tax system on securities transactions to be introduced next year because many investors are reportedly complaining about its complexity.

A team of tax officials from the Finance Ministry and the National Tax Agency is to examine a review of the new system.

The ministry plans to consider legal and procedural changes if necessary to gain investors’ endorsement for the new system.

Under the new tax system, withholding tax on capital gains will be abolished and investors will be required to pay capital gains taxes by filing tax returns.

Brokerages are allowed to offer special accounts through which they will assume the burden of filing tax returns on behalf of customers.

But as the account system is complicated due to the involvement of many case-by-case procedures, securities industry officials are concerned that the complexity of the system will scare individuals away from stock investment. They say the coming introduction of such a system is one reason for the recent plunge in stock prices.

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