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Japan Targets Shorters of New Issue Shares

Neil Baker | December 29, 2010

Japan is planning new rules to punish speculators who short-sell company shares ahead of new share issues. The move is aimed at reducing insider dealing.

The Financial Services Agency said the rules would target investors who short-sell shares in the gap between a new issue being announced and its pricing being confirmed.

Under the new rule, which the FSA said would take effect after April 2011, any investor who short-sells a share in that window would be barred from receiving any of the new shares that are issued.

The move is in response to concerns that massive short selling before recent new share issues—an indication of insider dealing—has hurt issuing companies and their long-term shareholders.

Under the FSA's existing rules, investors can sell a company's shares short and then cover their position by buying shares via the new issue, which are typically priced at a market discount.

That trading...

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