On March 7, 2013, the Financial Services Agency of Japan (the “Japan FSA”) announced that it is considering amending certain aspects of the existing rules and regulations governing short sales by November 2013. This Client Alert is a summary of the key changes proposed by the Japan FSA in its announcement.

1. General Changes -

(i) Permanent Effectiveness -

In October 2008, the rules and regulations governing the prohibition of “naked” short sales and the reporting of a trader’s short sale positions were introduced as tentative emergency measures being effective for periodic terms. While the Japan FSA has repeatedly renewed such terms in the past and will continue to do so until the effective date of the new amendments, under the proposed amendments, the effective period of these regulations will now be permanent.

(ii) Proprietary Trading Systems -

The current rules and regulations on short selling are generally only applicable to those trades which are made on financial exchanges (e.g. the TSE). Under the proposed amendments, the scope of the short sale rules and regulations will be broadened to cover short sales made on certain types of proprietary trading systems (limited to those using auction, matching client orders or bid or offer price indications methods).

Please see full alert below for more information.