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Measures in Respect of the Use of Stock Loans in Margin Transactions |
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| Measures in respect of the use of stock loans in margin transactions |
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Outline of measures in respect of the use of stock loans, including a notice for precaution |
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Securities finance companies lend funds and stock (Note) to securities companies (general trading participant of financial instruments exchanges) through the clearing facilities of financial instruments exchanges to enable them to execute standardized margin transactions for their customers, thereby contributing to fair stock price formation or smooth circulation. |
| (Note) |
Each securities finance company deals with different types of securities. However, not only stock but also preferred securities issued by a co-operative financial institution, beneficiary certificates of stock investment trust or investment securities issued by investing corporations are available in loans for margin transactions. eStock' in the following texts include all these securities. |
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A financial instruments firm makes applications for borrowing stock for sale (stock loans) or loans for money necessary for purchasing stocks in margin transactions with a securities finance company after an investor completes trading with standardized margin transactions. |
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A securities finance company lends funds and stock to applicants, but the quantity of loanable stock is limited. Therefore, if there is, or is likely to be, excessive increase in the use of a specific issue for stock loans; or if the procurement of stock of a specific issue becomes difficult due to such factors as buying up or take-over bid (TOB); or if there is concern that fair and smooth operation of loans for margin transactions is greatly disturbed, a securities finance company will issue a notice for precaution in respect of the use of stock loans, etc. (notice for precaution) or restrict or suspend stock loan applications (Note), in the light of such conditions. |
| (Note) |
When stock loan applications for a certain issue is restricted or suspended by JSF, a financial instruments firm may, partially or wholly, restrict or suspend the use by their investors for standardized margin transactions (new short sale, actual receipt or sell-back), depending on how the security company commits itself to the standardized margin transactions. |
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In order to avoid a situation in which loan application is restricted or suspended without prior notice, or in which an investor must conform to the measures taken by a financial instruments firm to restrict the use of standardized margin transactions without predicting such measure, JSF establishes certain criteria (criteria for a notice for precaution) and informs securities companies and investors that loan applications for a certain issue which meets its criteria may potentially be restricted. This measure is called " Issuing a notice for precaution". |
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If the situation is not improved or even worsened following a notice for precaution, JSF is obliged to restrict or suspend loan applications by securities companies. However, in an emergency, JSF may restrict or suspend loan applications without issuing a notice for precaution. |
The restriction or suspension of loan applications is applied, partially or wholly, to the applications associated with the following (1) to (3).
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(1) New sale in standardized margin transactions.
(2) Actual receipt of stocks purchased in standardized margin transactions.
(3) Sell-back of stocks purchased in standardized margin transactions. |
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When the situations is improved, a securities finance company will, according to its conditions require, cancel the notice for precaution, or remove or change the restriction or suspension of loan application. When the notice for precaution is issued and/or measures to restrict applications for margin transactions are implemented, the content of the notice and/or measures will be notified to securities companies and be disclosed to news media. |
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When the notice has been issued, or measures to restrict loan applications have been implemented, financial instruments exchanges will disclose, daily, the outstanding balance of each issue for standardized margin transactions, with information that a notice for precaution for stock loan has been issued or that the loan application has been restricted or suspended. |
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Criteria for issuing a notice for precaution in respect of the use of stock loan |
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The criteria for issuing a notice for precaution is established by a securities finance company as follows:
| (1) |
Outstanding balance criteria |
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A notice is issued in respect of issues that meet two or more of the following three criteria. However, in respect of issues which are unlikely to face difficulty in procuring their stock, the issuance of the notice may be postponed, except for issues, investments on one unit (Note) of which is extremely small or those of which trading volume has sharply increased and which is expected to lead to a sharp increase in the outstanding balance of standardized margin selling. |
| (Note) |
One unit is the number of shares that is determined by financial instruments exchanges as one trading unit. This is applied to the description below. |
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Japan Securities Finance |
Osaka Securities Finance |
Chubu Securities Finance |
1
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Balance of standardized margin selling
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Listed shares
(Or balance of standardized margin selling) |
10% or more
(10,000 units or more)
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10% or more
(10,000 units or more)
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10% or more
(3,000 units or more)
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2
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Balance of standardized margin selling
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Balance of standardized margin buying |
60% or more |
60% or more |
60% or more |
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Balance of stock loans
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Listed shares
(Or Balance of stock loans) and Balance of stock loans /Balance of loans |
3% or more
(3,000 units or more)
120 % or more |
3% or more
(3,000 units or more)
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3% or more
(1,500 units or more)
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For issues which are expected to be difficult to procure stock for various reasons (for example, those, liquidity of which is likely to decline significantly due to buying up and TOB, those, the use of which for loans for margin transaction is likely to increase sharply due to radical changes in stock prices or increase in trading volume, those, the borrowing of which will be restricted as a record date for stock split or a closing date approaches), a notice for precaution in respect of the use of stock loans is issued irrespective of the outstanding balance criteria referred to in (1) above. |
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To securities companies and investors |
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Securities finance companies are doing their utmost to procure an increasing number of stock from life and non-life insurance companies, banks and other shareholders, for reliable supply of stock needed for standardized margin transactions.
However, the quantity of stock is limited, and when there has been large-scale purchasing of a specific issue or sudden large-scale margin selling, we may be obliged, as mentioned earlier, to restrict or suspend loan applications.
As a securities finance company, we should, as far as possible, avoid restricting or suspending loan applications and will do our utmost to procure stock. However, we should like you to understand that occasions might arise when we may not be able to meet your stock loan needs. |
Regulations concerning Solicitation for Investments and Management of Customers, Etc., by Association Members (Self-regulatory Regulations) by Japan Securities Dealers Association (JASD).
Article 12 (excerpt)
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An Association Member shall refrain from soliciting for Margin Transactions with respect to the issues set forth in each of the following Items for which a financial instruments exchange or a securities finance company has taken the measures stated therein:
| (1) |
Issues with respect to which financial instruments exchange has restricted or prohibited Margin Transactions; or |
| (2) |
Issues with respect to which a securities finance company has restricted or suspended an application for the use of lending stock, etc. |
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An Association Member must, when it accepts an order for Margin Transactions from a customer with respect to the issues set forth in each of the Items in the preceding Paragraph or the issues set forth in any of the following Items for which the measures stated therein have been taken by the financial instruments exchanges or a securities finance company, explain to the customer about the fact that these measures are in effect and the contents thereof:
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Issues designated by a financial instruments exchange as the issues subject to the daily publication of Margin Transactions balance; |
| (2) |
Issues with respect to which a financial instruments exchange has increased the rate of margin for Margin Transactions (including the restrictions on the use of securities in substitution for margin, etc.); or |
| (3) |
Issues with respect to which a securities finance company issued a notice for alert with respect to the use of lending stock, etc. |
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| Investors are kindly requested to contact their
associated securities companies directly if they have any questions concerning
matters such as restrictions which a given financial instruments firm may impose on the
use of standardized margin transactions. |
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