New rules introduced in Japan to make short selling easier will be made permanent later this year, according to a recent article from Bloomberg Businessweek. In November, investors selling borrowed securities will be allowed to make trades at any price, unless the stock has fallen 10% from a previous close. Currently, short sellers are not allowed to accept bids or offer to sell shares below the lowest price offered by long investors.
“The law is part of a package that will for the first time explicitly include trades made on alternative platforms that display prices, known as proprietary systems,” the article noted. Japan’s Financial Services Agency’s short selling regulations will be replaced by the new rules. Another aspect of the new package of rules is a provision requiring sellers to report short positions to regulators once they reach 0.2% of issued shares, and send public notice once they reach 0.5% of shares. Currently, reporting and public disclosure are required for short positions above 0.25%.
“The removal of the uptick rule will make it easier to take short positions and this will provide more liquidity in the market,” Makoto Kikuchi, chief executive officer of Myojo Asset Management Co., a Tokyo-based hedge fund advisory firm, told Businessweek. “The new reporting and disclosure rule may cause more work on administration and compliance side.”
Jessica Morrison, Asia Pacific head of market structure at Deutsche Bank AG, noted other benefits to the rules: “Making the rules clear and permanent provides greater business certainty, a key feature for investor confidence. Allowing short sellers to place orders outside the spread will encourage more participation at different price levels, reducing volatility while increasing crossing opportunities.”
Read the entire Bloomberg Businessweek article online here.