The Financial Services Agency may extend restrictions on short-selling of shares as stocks in Tokyo linger near their lowest level in 27 years, an FSA official said.
Extension of the temporary ban, introduced in October and due to expire this month, is being considered, said the official, who declined to give his name, citing government policy.
The restrictions include a ban on so-called naked short-selling as well as requiring investors with short-sale positions of more than 0.25 percent of the outstanding shares of a stock to report their position to brokerages.
Regulators from Washington to London last year cracked down on short-selling as part of global efforts to counter the worst market losses since the Great Depression. In the U.K., a Financial Services Authority prohibition on shorting 34 financial companies expired in January. The Securities and Exchange Commission in the United States eliminated a similar measure Oct. 9 after exchange data showed the prohibition fueled volatility and made it more costly to trade.
Short-sellers borrow shares and sell them, betting the price will fall and they'll be able to buy them later, return them to the lender and pocket the difference in price. In naked short-selling, traders never borrow the shares. The practice raises concern markets will be flooded with sell orders, driving down prices.
During a slump in the stock market in 2002, the FSA introduced a so-called uptick rule to discourage short-selling. The rule allows investors to complete sales only if a stock's price rises in the previous trade.