Japan temporarily bans "naked" short-selling
October 28, 2008 - 2:45am
By TOMOKO A. HOSAKA
Associated Press Writer
TOKYO (AP) - Japanese regulators on Tuesday imposed new restrictions on short-selling of stocks _ or bets that a stock's price will fall _ moving quickly to implement measures to ease stock market volatility.
Finanace Minister Shoichi Nakagawa announced a temporary ban on transactions known as "naked short-selling" a week ahead of schedule.
Slammed by a relentless slew of bad economic news, Japanese equity markets have retreated sharply over the past two weeks. The Nikkei 225 index fell to a 20-year low of 7,162.90 on Monday. It recovered some Tuesday, but the index has tumbled about 34 percent the last month.
In response, Japanese Prime Minister Taro Aso called an emergency meeting Monday where he told senior officials to formulate steps to fend off further fallout from the global financial crisis.
"Yesterday, we announced market stabilization measures, but stock prices continued to fall," Kyodo news agency quoted Nakagawa as saying.
Short-selling means betting that a stock's price will fall. Investors using this strategy have been blamed for widening the scope of the financial turmoil. The practice involves borrowing a company's shares, selling them, and then buying them when the stock falls and returning them to the lender. The short-seller pockets the difference in price.
So-called naked shorting entails selling a stock short without first borrowing the shares, a practice that could result in massive sell orders in an attempt to push down prices.
"U.S. and European authorities have introduced similar steps, and we lag behind them," Nakagawa said, according to Kyodo. "We decided (to move up the short selling ban) as we thought it could be dangerous for the Tokyo stock market if we do not take action immediately."
Starting mid-November, Japan will also demand more information from short-sellers. Investors with short-sale positions of more than 0.25 percent of outstanding shares in a company will need to report such postions to brokerages, according to the Financial Services Agency.
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