• Securities finance companies lend funds and stock (note1) to securities companies (general trading participant of financial instruments exchanges) through the clearing facilities of financial instruments exchanges, etc. to enable them to execute standardized margin transactions for their customers, thereby contributing to fair stock price formation or promoting market liquidity.
  This transaction is called Loans for Margin Transactions.

• A securities company makes applications for borrowing stock for sale (stock lending) or loans for money necessary for purchasing stocks (money lending) in margin transactions with a securities finance company after an investor completes trading with standardized margin transactions.

• A securities finance company lends money and stocks to applicants (securities companies), but the quantity of loanable stocks is limited. Therefore, if there is, or is likely to be, excessive increase in the use of a specific issue for stock lending; or if the procurement of stock 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, a securities finance company will announce a notice for precaution in respect of the use of stock loans, etc. (notice for precaution) or restrict or suspend stock lending applications (note2), in the light of such conditions.

• In order to avoid a situation where loan application is 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, 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 "notice for precaution".

• If the situation is not improved or even worsened following the announcement of 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 announcing 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 4.
  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 (applied to off-auction trading).
  4. Sell-back of stocks purchased in standardized margin transactions (applied to whole trading).

• The restriction/suspension measures are the same for Tokyo Stock Exchange market and PTS, as stock procurement through bidding is carried out for the over-lent amount calculated by adding up stock lending balance and money lending balance at both markets. And when the stock is eligible for both margin buying and selling at Tokyo Stock Exchange, the same measures are applied to the only margin buying eligible stock at PTS.

• When the situations are 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 stock lending application. When the notice for precaution is announced and/or restriction of stock lending applications is implemented, their contents will be notified to securities companies and will be published to news media.

• When the notice has been issued, or restriction of stock lending applications have been implemented, financial instruments exchanges, etc. will disclose, daily, the outstanding balance of the standardized margin transactions of the relevant issues.

The criteria is set by a securities finance company as follows:

A notice is announced 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 announcement may be postponed, except for issues, investments on one unit (note3) 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.

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 in respect of the use of stock lending is announced irrespective of the outstanding balance criteria referred to in (1) above.

Securities finance companies are doing their utmost to procure stocks needed for standardized margin transactions smoothly from life and non-life insurance companies, banks and other shareholders.

However, the quantity of stocks 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 stock lending applications.

As a securities finance company, we should, as far as possible, avoid restricting or suspending stock lending applications and will do our utmost to procure stocks. However, we should like you to understand that occasions might arise when we may not be able to meet your stock lending needs.

Rules concerning Solicitation for Investments and Management of Customers, Etc., by Association Members (Self-regulatory Regulations by Japan Securities Dealers Association (JSDA)

Article 12 (excerpt)
(Paragraph 2)

• 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.

(Paragraph 3)

• 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:

1. 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.

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 standardized margin transactions.