The Financial Services Agency ordered four foreign-affiliated securities firms Tuesday to either suspend or improve operations after they were found to have violated new rules on short-selling.
The punitive steps were taken against the Tokyo branches of Credit Lyonnais Securities Europe-Switzerland AG, Bear Stearns Japan Ltd., Deutsche Securities Ltd. and Nikko-Salomon Smith Barney Ltd.
Short-selling involves borrowing shares only to turn around and sell them.
The FSA ordered Credit Lyonnais to suspend operations for two weeks, beginning Thursday. Bear Stearns Japan was ordered to halt operations for up to four weeks, depending on the type, beginning Thursday.
Deutsche Securities and Nikko-Salomon Smith Barney were ordered to improve operations.
Short-selling can be a valuable tool for astute investors and can bring market attention to a firm's possible mismanagement. In fact, short-sellers were among the first to point out the blanks in the books of U.S. energy giant Enron Corp. before it collapsed late last year. But Japanese regulators have been trying to squelch the practice as they see it exacerbating a weakening market trend.
Since December, the FSA has tightened regulations on short-selling and conducted hearings with securities firms doing business on the Tokyo Stock Exchange. The four brokerages punished were found to be the most frequent violators of short-selling regulations, the FSA said.
Morgan Stanley Japan Ltd. was punished earlier this month for short-selling.