On December 21, 2001 the Financial Services Agency of Japan released
their plan to strengthen their measures for short selling in the
"Comprehensive Measures for Short-Selling of Stock." As part of this
plan, revisions to the enforcement order of the Securities and Exchange
Law will be carried out on March 6, 2002.
Under these revisions, the prices for regulated short selling will
change. Further information follows below.
1.Outline of the Revisions 
There are two types of short selling. The first is short selling with
unregulated prices, under which margin transactions are categorized.
The second type is short selling with regulated prices. The short sale
of actual borrowed stocks falls under this variety of short selling,
on which the new revisions are to concentrate.
Prices for regulated short selling.
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Pre-revision
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Prior to this revision, permissible prices for regulated short
selling excluded anything below the prices most recently
announced by the securities exchange (henceforth called 'current
price'). For example, if a stock price was formed at 1,000 yen
and a stock exchange announced that price, short selling could
not take place below 1,000 yen, but it could take place at 1,000
yen.
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Post-revision
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After this revision, permissible prices for regulated short
selling will exclude anything at or below the current price.
However, when the current price is greater than the previous
price, short selling may take place at the current price.
Therefore, in principle, investors may not conduct short sales
at the current price unless the stock price is rising.
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The difference between pre-revision and post-revision transactions is
the ability to sell at the current price. This change is summarized in
the chart below.
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Current price > previous price
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All other cases
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Post-revision
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Short sales not permitted below current price (same as
pre-revision)
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Short sales not permitted at current price or below (different
than pre-revision)
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Pre-revision
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Short sales not permitted below current price
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2.Examples
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(1)
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Rising price example
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(The current price is higher than the previous price)
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Price (time)
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Compared with previous price
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102 yen (9:25)
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-
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100 yen (9:26)
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101 yen (9:27)
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101 yen (9:27)
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Price regulations for short selling
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Selling at current price (101 yen)
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Post-revision
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Selling not permitted below 101 yen
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Pre-revision
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Same as the above
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The current price of 101 yen is greater than the
previous price of 100 yen
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As the current price is higher than the previous price,
investors can sell short at the current price of 101
yen (short selling is not permitted under 101 yen).
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(3)
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Pre-opening price formation example
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Price
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Compared with previous price
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101 yen
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(base price)
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Price regulations for short selling
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Selling at current price (101 yen)
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Post-revision
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Selling not permitted at 101 yen or below
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Pre-revision
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Selling not permitted below 101 yen
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Before the opening price is formed, short selling
cannot take place at the pre-opening base price of 101
yen or below.
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*
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Regardless of the previous day's closing
price trend (in both cases of rising and
declining prices), short selling is not
permitted at the base price or below.
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(4)
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Single quotation example
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Price (time)
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Compared with previous price
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101 yen
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(base price)
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101yen (9:00)
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No change
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101 yen (9:01)
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No change
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Price regulations for short selling
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Selling at current price (101 yen)
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Post-revision
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Selling not permitted at 101 yen or below
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Pre-revision
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Selling not permitted below 101 yen
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Since there is only a single quotation available for
the day to that point (101 yen), the current contract
price is neither higher nor lower than the base price.
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In this case, short selling cannot take place at or
below the current price (101 yen)
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If, however, the single quotation price (for
example, 102 yen) is above the base price, the
case is classified as a rising price and short
selling may take place at, but not below, the
single quotation (current price). (Conversely,
a single quotation price below the base price
would constitute a declining price, and
therefore short selling at and below the
single quotation price would not be
permitted).
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(5)
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Others
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Concerning prices for regulated short selling before
the opening price of the afternoon session has been
determined, the above rules revisions will apply
accordingly based on the previously announced price.
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For example, when the final price of the morning
session to trading was a rising price, short selling
can take place at the current price (i.e. final price
of the morning session) before the opening price of the
afternoon session is decided. When the final price of
the morning session to trading was a declining price,
short selling cannot take place at the current price
before the opening price of the afternoon session is
decided.
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3. Points of Caution for Placing Orders
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Price regulations for short selling apply to both those who
place orders (investors) and those who receive orders
(securities companies) in accordance with the relevant laws
and ordinances.
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Margin transactions, as they constitute short selling without
price regulations, are not affected by these revisions to the
enforcement order of the Securities and Exchange Law.
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