The Financial Services Authority (FSA) of Japan has extended its short-selling restrictions until November 31, at which point its planned permanent regulations will take effect.
The temporary short-selling rules have been continuously extended since the financial crisis in 2008. The restrictions include an uptick rule requirement; a requirement for traders to acknowledge whether their transactions are involved in short selling; a requirement for exchanges to make daily announcements regarding the aggregate price of short selling by sector; a ban on naked short selling; and a requirement for holders of 0.25% or more of outstanding stocks to report to exchanges, according to an assessment of the rules by RBC Investor Services.
The permanent regime, announced by the regulator last month, removes the uptick rule but introduces a trigger, which applies to a stock when the price declines by 10% from the previous trading day closing until the end of the next trading day. It also includes Private Trading System (PTS) trades in addition to on-exchange trades and improves and streamlines reporting and disclosure to exchanges and includes short positions outside exchange trades.
The permanent measures also solidify the ban on naked short selling and introduce a two-tier model on reporting and disclosure for holders of large short positions, with 0.2% as the reporting trigger and 0.5% as the disclosure trigger.
Full-out bans and varied restrictions on short selling and naked short selling have been implemented and revoked by markets around the globe since the outset of the financial crisis, on grounds that they would halt declines in stock markets.
But experts contend that bans actually do the opposite. Spanish regulator CNMV itself admitted last summer that its own bans on short selling had a detrimental effect on the markets.
For a brief history lesson on short selling, see "Don't blame the shorts," GC's Spring 2010 review of Robert Sloan's book of the same name.