Restriction/ Suspension of Loans for Margin Transactions
Restrictive measures of Loans for Margin Transactions
Overview
In Loans for Margin Transactions, securities finance companies loan funds and stocks to Participants of Loans for Margin Transactions (securities companies, etc., hereinafter, Participants) but the quantity of lendable stocks are limited. Therefore, if there is, or is likely to be, excessive increase in the use of a specific issue for Stock Loan; or if the stock procurement of a specific issue becomes difficult due to such factors as buying up or take-over bid (TOB), etc.; or if there is concern that fair and smooth operation of Loans for Margin Transactions is greatly disturbed, securities finance companies will announce a Notice for Precaution of the use of Stock Loan, or restrict or suspend Stock Loan Applications (These latter of measures are collectively referred to as "Restrictive Measures").
A Notice for Precaution of the use of Stock loan
In order to avoid as much as possible a situation where Stock Loan Applications are restricted or suspended without prior notice given, or where an investor must conform unforeseeably to the measures taken by a securities company to restrict the use of Standardized Margin Transactions, securities finance companies establish certain criteria (Note) and informs Participants and investors that Stock Loan Applications for a certain issue which meets its criteria may potentially be restricted. This measure is called "Notice for Precaution".
(Note)
Criteria for issuing a Notice for Precaution
The criteria are set by securities finance
companies as follows:
(1) Quantitative Criteria
A notice is announced in respect of issues that meet two or more of the following criteria. However, in respect of issues which are unlikely to face difficulty in procuring their stock, the announcement may be postponed, except for issues, investments on one trading unit 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 Standardized Margin Selling Outstanding.
(2) Characteristic Criteria
For issues which are expected to be difficult to procure necessary amount of stocks 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 Transactions 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 is announced irrespective of the quantitative criteria referred to in (1) above.
Restrictive measures
- If the situation is not improved or even worsened following the announcement of a Notice for Precaution, securities finance companies are obliged to restrict or suspend Stock Loan Applications or Fund Return Applications by Participants. However, depending on the situation, JSF may restrict or suspend Stock Loan Applications without announcing a Notice for Precaution.
- The Restrictive Measures are implemented in all stock markets where the relevant stocks are listed or traded.
- Regarding issues where Loans for Margin Transactions have been restricted or suspended, Participants will restrict or suspend some or all of investors' Standardized Margin Transactions (New Sale, Actual Receipt, Sell-back of Stocks in Off-auction Trading, Sell-back of Stocks in Whole Trading).
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In usual case, the Restrictive Measures is applied, partially or wholly, to the Applications
associated with the following 1 and 2. However, depending on the situation of individual issues, there may be cases where the
restriction or suspension is applied, partially or wholly, to the applications associated with the following 3 and 4.
(a) New Sale in Standardized Margin Transactions
(b) Actual Receipt of stocks purchased in Standardized Margin Transactions
(c) Sell-back of stocks purchased in Standardized Margin Transactions (applied to off-auction trading)
(d) Sell-back of stocks purchased in Standardized Margin Transactions (applied to whole trading)
In issues where Stock Loan Applications and
Fund Return Applications due to above (a) and (b) are suspended, since
Stock Loan Applications for parts that become impossible to procure internally due to above (c)
and (d) are not suspended, there may be an increase in the Stock Loan Outstanding.
As shown in the figure, Participants, after balancing the buying and selling balances of
Standardized Margin Transactions internally, apply to securities finance companies for the
portion of the insufficient funds or issues that they cannot procure. Participants use a
Fund Loan Application for the balance equivalent to the margin buying outstanding, and a
Stock Loan Application for the portion corresponding to the margin selling outstanding.
Therefore, even if there is no New Sale in Standardized Margin Transactions, if there are
Sell-back of existing Standardized Margin Buying positions,
there may be Stock Loan Applications. Thus, the
Loans for Margin Transactions Outstanding changes do not necessarily match the result of margin
buying and/or selling in Standardized Margin Transactions.
Cancellation or removal of Precaution and Restrictive Measures
When the situations that led to the implementation of Precaution and Restrictive Measures are improved, securities finance companies will, according to its conditions, cancel the Notice for Precaution, or remove or change the Restrictive Measures.
Announcement of Restrictive Measures
When the Precaution and Restrictive Measures are announced,
their contents will be notified to securities companies and the press.
Normally we announce the Precaution and
Restrictive Measures around 4:30PM(JST), but there may be cases where we announce them at other
times throughout the day.
When Precaution and Restrictive Measures have been implemented,
stock exchanges, etc. will disclose, daily, the Standardized Margin Transactions Outstanding of
the relevant issues.
We cannot provide any information on the reasons of Precaution and
Restrictive Measures or the outlook for the future.
Mandatory Repayment of Loans for Margin Transactions
In cases where the smooth operation of Loans for Margin Transactions is significantly hindered, such as when it becomes extremely difficult to procure enough stocks even after implementing Restrictive Measures and Raising the Maximum Bidding Rate by 10 times, securities finance companies might order "Mandatory Repayment of Loans for Margin Transactions" in accordance with Article 4 of "Loans for Margin Transactions Regulations" to Participants.
※Click the below link for more details on this treatment.
The Article 4 of "Loans for Margin Transactions Regulations"
To all Participants and investors
JSF is constantly working to expand their stock procurement from Auction Participants, any
institutional investors and other shareholders in order to supply stocks necessary for
Standardized Margin Transactions smoothly.
However, the quantity of stock procurement is limited, so in the cases such as large-scale purchasing of a specific issue or
sudden large-scale margin selling, we may be obliged, as mentioned earlier, to restrict or suspend
Stock Loan Applications.
JSF should, as far as possible, avoid restricting or suspending Stock Loan Applications and will
do our utmost to procure stocks. Notwithstanding, JSF should like you to understand that occasions might arise when JSF may not be
able to meet your Stock Loan demands.
Regulations on Standardized Margin Transactions by stock exchanges and related operations by securities finance company（Note）
Stock exchanges, etc. may, so as to control excessive speculative transaction in stock markets, implements
Regulatory Measures for Margin Transactions (applied for each issue or whole issues) when stock
prices sharply rise, or turnover or Margin Transactions Outstanding greatly increase.
JSF also implements the corresponding measures for keeping sound and smooth
Loans for Margin Transactions operation when the above measures are implemented by stock
exchanges.
For the stocks on which these measures have been implemented, JSDA has established Rules concerning Solicitation for Investments.
Please refer to the JSDA website for more details.
References:
The Article 12 of "Rules concerning Solicitation for Investments and Management of Customers, Etc. by Association Members" (Self-regulatory Rules by Japan Securities Dealers Association (JSDA))
https://www.jsda.or.jp/en/rules-guidelines/E03.pdf(Note)
Investors are kindly requested to contact their securities companies directly if they have any questions concerning matters such as restrictions which a given securities company may impose on the use of Margin Transactions.
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