JSF Auction, Gyaku-hibu, Maximum Bidding Rate, Bid to Cover Ratio

The Participants of Loans for Margin Transactions (securities companies ,etc., hereinafter, Participants) can internally balance the procurement of fund loans and stock loans to investors in connection with the buying and selling of Standardized Margin Transactions and may use Loans for Margin Transactions as necessary.
Securities finance companies must separately procure loaned stocks if the Fund Loan Outstanding exceeds the Stock Loan Outstanding (Stock Over-lent) after Applications for Loans for Margin Transactions (hereinafter, Applications) received from Participants are internally balanced in the same manner as Participants. On the business day following the Application Date, securities finance companies procure the shortfall in shares, but first, Additional Applications from Participants are accepted to fill the excess of the loaned stocks. In parallel with the Additional Applications, the shortfall in shares is procured through bidding (hereinafter, JSF Auction) from securities companies and institutional investors. The Premium Charge determined by the JSF Auction also applies to Standardized Margin Transactions. All margin sellers pay this to all margin buyers and allotted bidders.
For the issues on the Tokyo Stock Exchange market and PTS, the Fund Loan and Stock Loan Outstanding for each market are added up, after which time a JSF Auction is conducted for the Stock Over-lent. Therefore, the determined Premium Charge is applied to all markets, and even if the issue is not an Issue Eligible for Fund Loan and Stock Loan, but instead an Issue Eligible Only for Fund Loan on PTS, the margin buyer on the PTS receives the determined Premium Charge.

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Treatment of Stock Over-lent issues etc. on Loans for Margin Transactions (Japanese language only)

Securities finance companies procure stocks of issues that are Stock Over-lent from Applications by JSF Auction on the business day following the date of the Applications. In JSF Auctions, priority is given to bids with a low bidding price or, in the case of the same price, from the earliest bidding time, and the price at which all the procurement quantities required can be procured is used as the Premium Charge. Securities finance companies publish the Premium Charge Rate (Gyaku-hibu) by multiplying the Premium Charge by the number of Premium Charge Days.

Premium Charge Rate (Gyaku-hibu) = Premium Charge x Number of Premium Charge Days

In addition, the Premium Charge Rate (Gyaku-hibu) will not be incurred on the Application Date (Trade Date) when Additional Applications submitted on the next business day eliminate the over-lent situation (Mangaku [bidding no longer necessary]). In such cases, securities finance companies publish the space of Premium Charge as "*****".
On the other hand, if the required number of shares can be procured by bids at 0.00yen, securities finance companies publish the Premium Charge Rate (Gyaku-hibu) as "0.00"(zero Premium Charge).
Mangaku and zero Premium Charge mainly occurs due to the actions of Participants that engage in Self-financing by procuring funds from sources other than securities finance company, for stocks with margin buying positions in Standardized Margin Transactions.
To provide background, in Standardized Margin Transactions, Participants generally use the Premium Charge they receive from the Loans for Margin Transactions and the margin seller for the Premium Charge they pay to the margin buyer. However, if the Participant doesn't use Loans for Margin Transactions, it will not be able to receive the Premium Charge that it should receive from securities finance companies, so the Participant must pay the Premium Charge to the margin buyer at its own expense. To avoid this cost, Participants will either apply for Additional Applications in order to switch from Self-financing to Loans for Margin Transactions or bid for purchased stocks accepted as collateral from customers at 0.00 yen if the issue for which they do Self-financing is in an over-lent situation.
As mentioned above, the Premium Charge is determined byJSF Auction conducted daily. Therefore, depending on the trends of Auction Participants and the supply-demand status of the issues, the increase or decrease in Stock Over-lent Outstanding may not coincide with the movement of the Premium Charge. For example, if holding shares of a listed company and the record date is reached, the owner will have shareholder voting rights, but if adopted in the JSF Auction, the owner will not be registered and accordingly they will not be able to obtain shareholder voting rights. Therefore, in general, when the fiscal year end is approaching, Auction Participants who want to become registered owners often postpone bidding, and as a result, the Premium Charge tends to rise.

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On the 3rd business day starting from Application Date (on the 2nd business day starting from bidding date), securities finance companies borrow stocks which securities finance companies procure through JSF Auction. Securities finance companies basically return such issue on the next business day. In this case, lending term (the Number of Premium Charge Days that securities finance companies borrow stock) is 1 day. If the next day (Repayment Date) falls on holiday, Number of Premium Charge Days is extended in response to the number of holidays.

Example of 3 Premium Charge Days:

The Premium Charge is determined through a JSF Auction. During the auction, there is an upper limit on the rate at which bids can be accepted, and this upper limit is called the Maximum Bidding Rate. The Rate is predetermined according to the investment unit, which is the Reference Price for Loans for Margin Transactions (the price of each issue used in the calculation of price adjustments of stocks and interest rates, etc. in Loans for Margin Transactions. In principle, JSF adopts the closing price of standard transactions at the stock exchange. Hereinafter, Reference Price) multiplied by the trading unit.
As shown below, for issues with a Notice for Precaution or Suspension of Stock Loan Applications and for issues that are within a certain period of time before the Record Date such as the accounting period, the Maximum Bidding Rate is raised from the original Maximum Bidding Rate.
In addition, Temporary Measures of Raising Maximum Bidding Rate may be taken separately to apply a ratio of 4x or 10x to the original Maximum Bidding Rate for an issue that has or is likely to have an extreme over-lent situation, even if the issue does not meet the conditions for applying these multipliers.

It should be noted that the multiplier only applies to the upper limit of the Premium Charge. For example, for an issue with a Maximum Bidding Rate multiplier of 2x, even if the Maximum Bidding Rate changes from 1.00 yen to 2.00 yen, if the issue can be procured at 0.05 yen per share, the Premium Charge will be 0.05 yen. Even if the Maximum Bidding Rate is doubled, it does not mean that the determined Premium Charge Rate will be 0.10 yen.

Let's consider a typical circumstance where weekdays from Monday to Friday are business days and weekends are holidays.
And the status of this stock and trading condition is as follows:

• Trade Date: the day before the ex-dividend/ ex-rights date (Wednesday)
• Settlement Date: Record date (Friday)
• Reference Price: 1,000 yen
• Trading Unit: 100shs
• A Notice for Precaution has been already announced.

The original Maximum Bidding Rate is 2.00 yen, but due to the Notice for Precaution, that rate is multiplied by 2, and due to the day before the ex-dividend/ ex-rights date, it is multiplied by 4, resulting in an increase in the Maximum Bidding Rate.

The Maximum Bidding Rate is 2.00 yen × 2 × 4 = 16.00 yen.

The Premium Charge is determined through JSF Auction with the Maximum Bidding Rate as the upper limit. In this case, the borrowing period for the stocks that securities finance companies borrows through the auction is from Friday to Sunday (to be returned on Monday), resulting in the Number of Premium Charge Days for 3days. In other words, the Premium Charge Rate per share would be 48 yen (16 yen × 3 days).

If there is a risk that the smooth operation of Loans for Margin Transactions will be significantly impeded, such as when it is extremely difficult to procure enough stocks, even after taking the Suspension of Stock Loan Applications and Temporary Measures of Raising the Maximum Bidding Rate to 10x, Special Measures may be taken to Raise the Minimum Bidding Rate to the Maximum Bidding Rate calculated as the original Maximum Bidding Rate for the issue in question.

ex）The range of bidding rate with a stock price of 3,000 yen and a trading unit of 100 shares.

"The Bid to Cover Ratio" was launched in November 2024 with the aim of visualizing the status of the procurement of shares in the JSF Auction process so that investors can appropriately control their own margin positions, etc., based on the status of the increase or decrease in the number of shares bid.
Specifically, it displays the bid to cover ratio (total number of shares bid in the JSF Auction ÷ Stock Over-lent Outstanding) in the result of the Applications according to rank. It is also one of the indicators that shows the degree of tightness in the current stock procurement situation of each issue at securities finance companies.

In general, the closer the Bid to Cover Ratio is to A, the tighter the procurement of shares by securities finance companies, and the greater the risk of a higher Premium Charge Rate. However, since the Premium Charge Rate is determined by bidding, it does not necessarily correspond to the degree of tightness in the share procurement situation.
Bid to Cover Ratio information is updated after the end of the JSF Auction on the next business day after the Application Date (Trade Date). The update is made at around 10:40AM(JST). However, this does not apply if the time limit for accepting the Auction Applications is extended.

Example of Bid to Cover Ratio