Published On: Sat, Mar 9th, 2013

Chi-X Japan: Revision of Short Sell Rules by FSA

Yasuo Hamakake, CEO, Chi-X Japan

Yasuo Hamakake, CEO, Chi-X Japan

On March 7, 2013 the FSA announced there would be a public comment period for the FSA’s short sell rule amendment proposal. Details are yet to be finalized, however the current key points are:

• Uptick Rule will be moved to a circuit breaker based model such that there is no need to validate uptick rule until a downward price movement of 10% or more from the previous day’s closing price
• Circuit breaker rule will be applied for stock exchange and PTS under the same condition
• Public comment open until April 8th and FSA are targeting for the new short sell rule to be effective November 2013.

CXJ will take this opportunity to discuss with FSA expanding short sell rule exemptions to promote fair & equal access and promote healthy competition between stock exchanges and PTS.

The FSA have only published the announcement in Japanese at this point. See – http://www.fsa.go.jp/news/24/syouken/20130307-1/01.pdf. For your information only, our English summary of the announcement is below. We’ve attempted to follow the FSA announcement numbering where possible.

Current short sell rules

1. As a permanent measure
a. Price restriction on the occasion of short selling (Uptick rule)
b. Duty for manifestation and confirmation on the occasion of short selling

2. As a temporary measure
c. Ban on naked short selling
d. Report to / announcement by stock exchange of short sell position over 0.25% of all issued stocks

Planned short sell rules for public comment

1. Report to / announcement by stock exchange of short sell position
(1) As a permanent measure
(2) Two tier model
Report of short sell position over 0.2% of all issued stocks
Announcement of short sell position over 0.5% of all issued stocks
(3) Further reporting level to be increased to 0.1%
(4) Rationalization of report/announcement
Report/announcement should expand to include short sell position at PTS as well as stock exchanges.
Short position holder should report its position to stock exchange via trading participant, and the stock exchange announces it in public. This remains the case even if the stocks are traded on PTS as well.
(5) Enlargement of contents of report/announcement

2. Price restriction on the occasion of short selling (Uptick rule)
(1) Introducing trigger method (circuit breaker)
Uptick rule not triggered until a downward price movement of 10% or more from the previous day’s closing price.
(2) Effective period
Effective period is from the time the uptick rule is triggered until close of the next trading day (i.e. if the uptick rule is triggered today it would stay effective until close of the next trading day.)
(3) Enlargement of venue
PTS (limited to Auction method, Client order matching method, Market maker method) is applied.
(Short sell rules by JSDA now apply to PTS.)

3. Ban on naked short selling
(1) As a permanent measure
(2) PTS (limited to Auction method, Client order matching method, Market maker method) is applied.
(Short sell rules by JSDA now apply to PTS.)

4. Others
(1) Duty for manifestation and confirmation on the occasion of short selling applies to PTS.
(Short sell rules by JSDA now apply to PTS.)
(2) Reviewing exemptions from short sell rule
a. Arbitrage between stock exchange and PTS
b. Short selling of ETF on exchange/acquisition (already exempted partially)
c. Others

5. Timing
Introducing approximately November 2013.
Temporary measure which will expire in April 2013 will be extended to the effective date of the new rules.

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