On November 5, 2013, the amendments to the laws and regulations related to the Financial Instruments and Exchange Law of Japan (the “FIEL”) went into effect, in which regulations concerning short selling in the Japanese marketplace (“Short Selling”) were modified (the “Short Selling Reform”). Short Selling has been subject to an extra layer of regulation, especially after the global financial crisis following the turmoil in the subprime market, due to a concern that such a technique can cause stock prices to plunge further in an already sharply falling market. As the economy recovers from the crisis, the Japanese government has effectively declared that it is now time to get short selling regulations back on a normal track.

A. SHORT SELLING - BACKGROUND -

As covered in news reports, Short Selling has not been issue-free. In Japan, there were multiple cases where Short Selling was said to be conducted as insider trading prior to announcements of large-scale capital raising through public offerings. The Short Selling was also said to be distorting the appropriate price fixing function in public offerings, because there seemed to be excessive price drops after the announcement of public offerings due to Short Selling activities.