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Strategies & Market Trends : Making Money is Main Objective -- Ignore unavailable to you. Want to Upgrade?

To: Softechie who wrote (1963)	3/4/2002 12:04:29 AM
From: Softechie	Read Replies (1) \| Respond to of 2155

Brokerage Firms Rush to Prepare For Japan's New Short-Sale Rules By JASON SINGER Staff Reporter of THE WALL STREET JOURNAL TOKYO -- Stockbrokerage companies across Japan have been scrambling to reprogram computer systems as they prepare for new, tougher trading rules hastily established as part of a broad crackdown on short-selling. The abrupt imposition -- brokerage firms had just 10 business days to prepare for implementation of the new rules this Wednesday -- will almost certainly lead to fewer short-sales in the weeks ahead, say brokers, many of whom slammed the government's move as an attempt to nudge the stock market higher. Short sales are transactions in which investors sell borrowed stock, hoping the price falls so that they can profit by buying back the shares at a lower price. The practice isn't inherently bad for stock markets, because it adds to trading volume and thus can make markets more efficient, but it does typically push prices down. Shorting stocks has been an increasingly popular bet in Japan , as the business cycle weakens and the government shows few signs of fixing the two problems that are driving the nation's economic crisis: its feeble banks and price deflation. The level of the stock market is particularly critical between now and the end of this month, when Japanese banks close their books for the fiscal year. Japanese banks are among the nation's biggest shareholders, and if stock prices fall too low, many people worry that weaker banks would be forced into insolvency, because banks' shareholdings are a core source of their capital. The Financial Services Agency, which regulates banks and brokerage companies operating in Japan , denies that its effort to limit short-selling is intended to buoy stock prices. Instead, it accuses brokerage firms and investors of taking advantage of Japanese short-selling rules. "I know people say this is related to the fiscal year end, but that's not the case," says Shigeru Ariizumi, an FSA deputy director. He says the agency had been working on the new rules for months, and was spurred to act after it sanctioned a foreign brokerage firm, Morgan Stanley, on Feb. 3 for allegedly manipulating the market during a short-sale on Dec. 4. "When the rules have been taken advantage of, it's not right to just leave them [as is] in the market," Mr. Ariizumi says. Morgan Stanley declined to comment. Still, traders suspect that the FSA's intention was to push up stock prices. If so, it's working. Since Feb. 27, when details of the new rules were disclosed, the benchmark Nikkei 225 Stock Average has rallied 6%. Most traders say the gains are from investors buying stocks to cancel short-sales. The FSA says it had been concerned about the rising level of short selling even before it imposed the new rules. By Feb. 20, the volume of short-sales and similar margin sales totaled as much as 28% of all trading, Mr. Ariizumi says, a level he says is much higher than aggregate U.S. short positions. Executives at some of the biggest investment banks in Japan , all of which declined to be named, say they don't object to the nature of the rules, some of which bring Japan into line with the U.S. The key regulation that comes on line Wednesday is the so-called uptick rule, which mandates that a short-sale can only be made after a stock's price trades up, which is standard in the U.S. and elsewhere. But the brokerage executives complain of the speed at which the new rules are being introduced. Because the FSA has also been cracking down on short-sale violations-including punishing firms for minor clerical breaches-brokerage executives say the swiftness of their application has made all firms fearful of accidentally breaking the rules, and therefore reluctant to take short-sale orders. They say advance notice of two or three months would be required to smoothly prepare for the rule change. Even the Tokyo Stock Exchange says it won't have its computer systems ready in time for the new rules. Spokesman Shuya Iimura says the exchange aims to have its system updated by the end of May or early June. That puts the onus on the brokerage firms to make sure their trades comply with the rules. Traders say that even if they fully comply, and their emergency patches to their computer systems work flawlessly, the exchange could still process an order that winds up violating the new rules through no fault of the broker. The FSA says it has clearly told all industry firms that it will be flexible in applying the regulations until the stock exchange is able to update its system. Write to Jason Singer at jason.singer@wsj.com Updated March 4, 2002