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TSE : Overview

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http://www.tse.or.jp/english/rules/equities/margin/index.html

Margin Trading

Overview
Update : Nov. 15, 2013

Outline of margin transactions


(1) Definition of margin transactions
*Article 156-24 of the Financial Instrument and Exchange Law defines margin transactions as follows:
'A Margin transaction is the purchase/sale or other transaction of securities effected on credit extended to the customer
by a securities company.'
Customers buying or selling stocks on margin must deposit warranty deposit ("margin") equivalent to at least 30% of the
transaction value with the securities company. Having done so they may borrow the securities/money necessary for the
transaction. The transaction must be settled within a predetermined period.
(2) Function of margin transactions
To provide more depth and secure more liquidity.
To contribute to the fair and orderly price formation.
(3) Reasons to use margin transactions
To make profits from a short-term capital gain (expecting a rise or fall of stock prices in a short period time)
Selling hedge (to avoid the risks associated with a fall in stock prices when and after exercising convertible bonds or
bonds with warrants)
(4) Settlement
Repayment against loans or borrowed stocks
Purchase on margin>>>>>Sell out, repayment against stocks with cash
Sale on margin>>>>>Buy in, repayment against cash with stocks
(5) Rules of margin transactions
(a) Two types:
Standardized
- lending fee and period of settlement are regulated by stock exchange rules
- securities companies may borrow stocks and cash needed from securities finance corporation ("loan transactions")
- eligible issues are designated by TSE based on the rules
Negotiable
- lending fee and period of settlement are negotiable

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TSE : Overview

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http://www.tse.or.jp/english/rules/equities/margin/index.html

- loan transactions may not be used for negotiable margin transactions


- all listed issues are eligible
(b) Opening a margin transaction account
Customers must complete a written agreement to top open an account.
(c) Period of settlement
Standardized margin transactions: within 6 months
* Negotiable margin transactions: negotiable
(d) Margin deposits
Margin : Collateral deposited to a securities firm, when borrowing money or stocks needed for margin transactions
Minimum margin : 30% of the transaction value or 300,000 yen ( whichever is greater)
Securities (bonds, stocks, etc) can be deposited in lieu of cash.
Customers must maintain margin of at least 20% of the transaction value. If, as a result of market fluctuations, the value
of the deposited margin sinks below this level, the customer must deposit additional margin to bring it back up to this
level.

Administrative and operational control of margin transactions


In addition to the functions/purposes set out above, margin transactions can also be used speculatively to the detriment of
the market. Thus it is important that proper administrative and operational controls are in place to prevent such activities.
(1) Reports from members and disclosure of the balance of margin transactions
(a) Members' balance reports
Daily: For issues under restriction, issues under observance, etc.
Weekly: For all margin transaction issues
(b) Balance disclosure
Daily: Balance of margin transactions per issue (including issues under restriction, issues under observance, etc.)
Weekly: Balance of margin transactions per issue at end of previous week
Weekly: Total balance of margin transactions at end of previous week (Tokyo and Nagoya Stock Exchanges)
(2) Restriction of margin transactions
(a) Designation of issues under observance
Inform investors of excessive margin trading activities of such issues
Daily disclosure of the balance of margin transactions
(b) Restriction of individual issues
Triggered when the stock exchange determines that the balance of margin transactions is extraordinary excessive
Raise the margin requirement, increase cash portion of deposited margin, restriction or prohibition of margin transactions
of that issue

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TSE : Overview

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http://www.tse.or.jp/english/rules/equities/margin/index.html

(c) Restriction of whole market


In order to prevent over-heated trading of the stock market
Raise the margin requirement, change the loan value, increase cash portion of deposited margin

<Flow Chart of Standardized Margin Transaction >

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