August 23, 2013
International Bankers Association of Japan

FSA answers to IBA comment on the draft revisions to short selling regulations (published on August 21, 2013)
1.

Reporting and publication of short selling positions
Relevant provisions
1IBA comment

FSA answer

Overall (perpetuation ofWe would hope that the FSA will clarify why the No answer was provided.

the “temporary”

reporting and publication requirements are necessaryframework)and to what extent the requirements are likely to beeffective. “Prior Assessment of Regulation”, conductedfor these regulations in November, 2008 and April,2013, did not sufficiently address these issues.
For example, under the current regulations, a shortposition must be reported by 10:00am, two days after
the transaction, and this data is then forwarded to anexchange and published.
Thus, the published data are two days old andpositions are likely to have changed during these twodays. This “time lag” problem would not be resolved
even by the introduction of a change report (0.2, 0.3,0.4%….). It is not clear that this regulation would have
any influence on the market other than revealing thenames of investors and names of stocks they short.

2Paragraph 1, Article

Please enlighten us on the institutional framework in

We expect that necessary measures will be taken by

15-2, Draft Cabinet

which market participants can specify the “mainrelevant parties such as financial instruments exchanges

Office Ordinance on

financial instruments exchange” to which the position

to ensure smooth implementation. (No. 28)

Regulations on

information must be provided.
1

August 23, 2013
International Bankers Association of Japan
Relevant provisions

IBA comment

FSA answer

Transactions inSecurities, etc. (the“Draft Cabinet OfficeOrdinance”)
3

Item 1, ParagraphArticle15-2,Cabinet

reporting

The current regulations were introduced as a temporary

Draft

threshold from 0.25% to 0.2%. Any change would

measure at the time of the Lehman shock. Since then it has

Officerequire market participants to change their IT systems,

been intended that the regulations would be reviewed

Ordinance

1,The

proposalincludeslowering

theetc. What exactly is the incremental benefit from holistically with the aim of introducing permanent
lowering the threshold by 0.05%?

Would anymeasures in the future, taking into considerations suchincremental benefit more than offset the additional

factors as developments in various other countries. The

costs from IT system changes, etc.? The “Prior

reporting threshold under these revised regulations is set

Assessment of Regulation” published on April 30,

at 0.2%, taking into account such factors as the regulatory2013 states that “the regulatory framework needs todevelopments in Europe, as you have pointed out. (No. 29)

be reviewed holistically in light of the regulatory
trends in various other countries” (4.(1)②), but thisexplanation does not seem sufficient.
Japan has been administering the threshold of 0.25%,
since October 2008, while the EU has introduced thethreshold of 0.2% only recently in November, 2012).
What is the FSA’s assessment of the past four years’
experience?
4

Same as above

We believe the proposal should refer to “exchanges”,

It is necessary for financial instruments exchanges andnot “exchange members” - this would sort out reports regulatory authorities to grasp movements in short sellingexceeding the publication threshold, from those below
2positions of a certain size. Accordingly, there is significanceAugust 23, 2013
International Bankers Association of Japan
Relevant provisions

IBA comment

FSA answer

the threshold.

in requiring the reporting of positions smaller than thereporting threshold. (No. 30)

5Item 2, Paragraph 1,

Although the “Prior Assessment of Regulation” It is considered acceptable to report voluntarily even whereArticle 15-2, Draft(published on April 30, 2013) states that “with regard

Cabinet Officeto position reporting and publication, as the In the event of such reporting, the previous short selling

Ordinance

introduction of the change report threshold will

the position falls short of the reporting threshold.
position ratio (to be reported pursuant to Item 8, Paragrapheliminate the need to report changes within the 1, Article 15-3 of the Cabinet Office Ordinance) must be
threshold, costs of reporting by parties such as the position information actually reported most recently on
financial instruments firms will decrease” (6.(1)①a.),a voluntary basis. (No. 31)

the introduction of a change report would requirechanges to IT systems and increased administrativeburdens.
We would hope that exchanges will continue to beallowed to accept reports from investors and exchange
participants who report in accordance with the current
regulations but not with the change threshold, tocontain their burden of switching to the new reporting
system.
6

Same as above

The draft provision stipulates that the position
information must be provided “when the ratio of theshort selling position changes”. Does this mean thatthe position information must be provided when thechange in the ratio is caused solely by the change in
the number of outstanding shares, even where there
3Your understanding is correct. (No. 33)

August 23, 2013
International Bankers Association of Japan
Relevant provisions

IBA comment

FSA answer

has been no transaction?
7Article 26-5, Draft

Is our understanding correct that the proposed

Cabinet Order forrequirement would not include short-positions ofEnforcement of thederivatives transactions?

Your understanding is correct. (No. 25)

Financial Instruments
and Exchange Act(“Draft Cabinet Order”)
8Paragraph 2, Article

The public release entitled “A Comprehensive Review

Accurate reporting is required because position reporting is26-5, etc., Draft Cabinetof Short Selling Regulations (Draft)” (published on

important from the standpoint of fair price formation. ButOrderMarch 7, 2013) explained that an “investor” mustas you point out, it is not intended to require exchangereport to exchanges “through exchange members”. Is participants to strictly verify the accuracy of the position
our understanding correct that exchange members information. (No. 36)
would have only to forward reports received frominvestors?
In the draft Cabinet Office Ordinance, the deadline foran exchange participant to submit the position
information received from the client to the exchange
has beentightened

from “without delay” to“immediately”. Is our understanding correct that thisis premised upon the fact that exchange participants
are not in a position to verify the accuracy of reports
received from investors?

4August 23, 2013
International Bankers Association of Japan
Relevant provisions
9IBA comment

FSA answer

Paragraphs 2 throughWhen providing the position information to the No answer was provided.

6, Article 15-2, Draft

exchange, firms must do so “together with the nameCabinet Office

and address” of the client. Therefore exchanges

Ordinance

currently require firms to submit a report on the“name and address” separately from the report on theposition information.
However, where the client is a legal entity, the nameand address are included in the position information as
mandatory items. Thus there is a certain degree ofadministrative burden from having to duplicate theinformation despite the lack of necessity for it.
Therefore, we request that the relevant provisions beamended so that the additional information about “thename and address” will be required for natural persons
only.

10

Item 8, Paragraph 1, We believe the proposal of linking the change report The date and the ratio of the short position reported lastArticle

15-3,Cabinet
Ordinance

Draft with the previous report (the date and the ratio of the time are considered as necessary information for theOffice short position reported last time) should also be purpose of grasping the behavior of persons who have short
withdrawn, as the burden on IT system to retrieve andstore the data (data for the previous report) andreconcile them for each stock would be significant andthe added benefits not worth the costs.

5selling positions of a certain size. (No. 40)

August 23, 2013
International Bankers Association of Japan
Relevant provisions
11IBA comment

FSA answer

Paragraph 2, Article Types of transactions excluded from the calculation of Paragraph 1, Article 9-3 of the Cabinet Office Ordinance
15-3, Draft Cabinet the “position amount” are grossly inconsistent among will apply not only to selling on an exchange market but also
Office Ordinanceexchange transactions, transactions in OTC registered

to selling in an OTC registered stock market and throughstocks and transactions through PTSs. This would notPTSs.

just cause confusion but is also undesirable because it

Item 8 of the said paragraph is included in the calculation inwould impose inconsistent regulations. Regulations order to require reporting of the whole short sellingfor similar items should be consistent among the three position and not just a position from short selling on an
different markets, except where the nature of the exchange market.
particular market requires a different treatment.

Item 18 of the said paragraph has been included in thecalculation prior to the revision. (No. 44)

12

Same as above

For the purpose of calculating the “position amount”, it

For the purpose of calculating the “position amount”,

would be difficult to exclude positions from, forcertain transactions including those which are long sales

example,hedgingtransactions,fromtransactions
theandpracticablearbitrage from the substantive viewpoint are excluded, in order toviewpoints calculate accurate short selling positions.

including those of system development. There shouldAccordingly, it is considered necessary to calculate thebe no exemptions for the purpose of calculating the “position amount” in accordance with the said provision, toposition amount, or otherwise reporting of the the extent practicable. (No. 41)
aggregate short positions without excluding theexemptedtransactions shouldbe accepted

compliant.

6

asAugust 23, 2013
International Bankers Association of Japan

2. Price restrictions
Relevant provisions
13

Article26-4,

IBA comment

FSA answer

Draft We appreciate the proposed “trigger rule” which aims Your precious opinion is noted. (No. 11)

Cabinet Ordernot to intervene at ordinary times when share prices
are stable and to apply only when the share pricedrops significantly, as the regulation is expected toefficiently

deter

manipulativesell-offs

without

excessively reducing market liquidity.
14Same as above

In the case of a precipitous price fall due to, for

In an objectively clear situation in which a price restriction

example, an erroneous transaction order exchanges is triggered erroneously even though it cannot be(or PTS operators) are required to use their discretionconsidered as a situation as stipulated in Paragraph 1,

not to trigger price restriction.

Article 26 of the FIEA Enforcement Order, it is considered
acceptable if the financial instruments exchange or the PTS
operator cancels the price restriction, to the extent
practicable. (No. 13)

15

Same as above

On 29th March, 2011, JSDA and TSE have sent notices These revisions are premised on such operation by financial
regarding the exchanges’ systematic price-checkers,

instruments exchanges as you point out. We have the same

which stated that “based on the assumption that the assumption for PTSs. (No. 15)
price-checking by the TSE trading system functions
effectively”, firms may consider it compliant with theprice restriction (Article 26-4 of the Enforcement
Ordinance of the Financial Instruments and ExchangeAct) “if an order placement is made by clarifying thattheorderissubjectto

short-selling

pricerestrictions”. We would like confirmation that under7

August 23, 2013
International Bankers Association of Japan
Relevant provisions

IBA comment

FSA answer

the same conditions, it would also be acceptable torely on the price-checking function of each PTS fororders being placed to PTSs.

3. Exempted transactions
Relevant provisions
16

IBA comment

FSA answer

Item 17, Paragraph 1,

Currently an exemption is available for transactions No answer was provided.

ArticleDraft

only in the exchange participant’s proprietary accountOfficeto provide liquidity for foreign ETFs, etc. We would9-3,Cabinet
Ordinance, etc.

hope that this exemption will be expanded to include acertain range of transactions for a customer account.
For example, under the TSE’s foreign ETF support
member system, a support member or an associate
support member designated by the exchange will
execute orders to ensure smooth transactions in themarket, not just in its proprietary account but also forthe account of a third-party market maker (includingthose overseas) based on a certain contractual
relationship. Making those third-party orders ineligible
for exemptions from short selling regulations would
significantly restrict the functioning of this system forthe smooth transactions in the market.

8August 23, 2013
International Bankers Association of Japan
Relevant provisions
17

IBA comment

FSA answer

Item 12, Paragraph 1,We consider it as a good proposal to have a uniform Short selling of ETNs, which are securities defined inArticle

Draft

definition of the term “investment trust certificates, Item 5, Paragraph 1, Article 2 of the FIEA, is exemptedOfficeetc.”

9-3,Cabinet

andexpandthe scope of exemptions from the locate requirement (Paragraph 5, Article

accordingly, since in this manner transactions which 26-2-2 of the FIEA Enforcement Order, Item 3(b),Ordinancehave similar nature will be subject to the same Paragraph 1, Article 9-3 of the Cabinet Officeregulations.

Ordinance).

(No. 7)For example, ETNs which are currently traded onJapanese exchanges have the same economic
effects as foreign ETFs. Is our understanding
correct that ETNs are within the definition of“investment trust certificates, etc.” under Item 12d.,Paragraph 1, Article 9-3 of the Draft Cabinet Office
Ordinance?
18

Item 6, Paragraph 1,The draft provision subjects “securities purchased“Tsuujite” refers to a situation where two or more parties

ArticleDraft

from a person who consigns short selling on an“collude” or “prearrange” with each other to do something,

Officeexchange market, in communication (tsuujite) withas used in Paragraph 1, Article 94 of the Civil Code.

such person and in lieu of (kaete) such consignment” to“Kaete” means “purchasing” the shares instead of “accepting

short selling regulations unless the purchase has beenan order to sell short or agreeing to broker such an order”.

settled. It is our understanding that this is intended to

In all cases, whether these criteria are met should be

regulate “attempts to circumvent regulations byjudged based on specific facts on a case by case basis. (Itemdisguising client short selling orders as long sales in1)

CabinetOrdinance

9-3,

thesecurities

firm’sproprietaryaccount”

aspreviously stated in 4.(2) ③ of the press release“Regarding a comprehensive review of short selling9August 23, 2013
International Bankers Association of Japan
Relevant provisions

IBA comment

FSA answer

regulations (draft)”. Based on this understanding, what
specific content of communication or information
sharing is meant by being “in communication with” theperson who consigns short selling?

10