December 21,2001
Financial Services Agency

Comprehensive measures for short-selling of stocks

1. Background

(1)

The Financial Services Agency (FSA) has been taking steps to improve market infrastructure in order to enhance confidence of individual investors in the securities market in line with the ''Program for Structural Reform of Securities Markets'' announced in August, 2001. However, as seen in the recent violations of rules and regulations with regard to short-selling of stocks, there are still some behaviors that undermine confidence of individual investors in the securities market.

(2)

Under these circumstances, the FSA has decided to undertake a review of rules and regulations on short-selling in order to achieve a better market infrastructure to enhance confidence of individual investors in the stock market based, in particular, on the ''Advanced Reform Program'' (decided on Oct.26th).

2. Supervisional measures for short-selling of stocks

The FSA will request the Japan Securities Dealers Association (JSDA) to remind the member securities firms of the rules and regulations on short-selling, and to make them conduct a comprehensive review of their compliance with the rules and regulations.

3. Surveillance measures for short-selling of stocks

(1)	The Securities and Exchange Surveillance Commission (SESC), in conducting its surveillance function, will focus on the violations of rules and regulations on short-selling through inspection of or reporting from securities firms.
(2)	The SESC will increase its staff and recruit experts from private sector in order to further enhance its surveillance functions.

4. Regulatory measures for short-selling of stocks

(1)	Application of *the ''mark and confirm'' rule for short-selling of stocks on margin transactions
	Currently, selling stocks on margin transaction is exempt from the ''mark and confirm'' rule regarding short-selling activities. In view of the recent increase in the volume of selling on margin transaction, the FSA will promptly amend the Cabinet Order to withdraw this exemption and apply the ''mark and confirm'' rule regarding short-selling activities to margin transactions.
	* the ''mark and confirm'' rule   - No person shall effect a sell order on securities exchanges and OTC market, unless such order is marked either ''long'' and ''short''. - Member firms of securities exchanges and OTC market shall confirm to its client whether the client's sell order is ''long'' and ''short'' before effecting such order.
(2)	Strengthening the daily disclosure of the balance of margin transactions
	The FSA will request stock exchanges and the JSDA to strengthen the daily disclosure of the balance of margin transaction and to intensify their monitoring of selling on margin transaction.
(3)	Others
	The FSA will carefully review the implementation of the above measures, and will consider additional measures if necessary.