Restrictions on short selling and purchase of stocks in Japan

Practical Law UK Legal Update 9-503-1134 (Approx. 2 pages)

Restrictions on short selling and purchase of stocks in Japan

by Atsumi & Partners

The regulatory measures on short selling of stocks

Currently, the following regulatory measures on short selling of stocks in listed companies apply in Japan:

The uptick rule which prohibits short selling at prices no higher than the latest market price.
The obligation of traders' to verify and/or flag suspected short sales.
The obligation of the exchange's to make daily announcements regarding the aggregate price of short sales with a breakdown by sector.

The temporary measures on short selling of stocks

In addition to the above, the Lehman shock caused the FSAJ to implement the following temporary measures which were intended to be effective until 31 July 2010:

A prohibition on naked short selling (in which stocks are not held at the time of sale).
A requirement on holders of short positions of a certain level or more (generally, 0.25% or more of outstanding issued stocks) to report to exchanges through securities companies.

The temporary measures on purchase of own stocks by listed companies

Restrictions on the purchase of own stocks by listed companies were temporarily relaxed during the period from 14 October 2008 to 31 July 2010, as follows:

The upper limit on the daily purchase volume was raised from 25% to 100% of average daily trading volume during the four weeks immediately preceding the repurchase.
Companies were required to repurchase their own stocks during hours other than the 30 minutes immediately before the close of trading. This restriction has been lifted.

The FSAJ decided to further extend these temporary measures until 31 October 2010. This extension is expected to stabilise the capital markets in Japan.

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