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Japan Margin Trade Doubles Amid Rally, Looser Regulation

Japan’s margin trading doubled last month after collateral rules were eased amid the Nikkei 225 Stock Average’s longest weekly rally in a half century.

Margin trades at Matsui Securities Co. and the brokerage unit of SBI Holdings Inc., the two biggest providers, jumped 2.2 times last month to 6.58 trillion yen ($70 billion) from December as the Nikkei 225 capped a 12-week advance. The Financial Services Agency on Jan. 1 eliminated a three-day waiting period on rolling collateral over into new trades. Margin accounts allow investors to borrow to buy or sell shares.

The change, endorsed by Japan Exchange Group Inc. Chief Executive Officer Atsushi Saito in July, removes unnecessary trading restraints, the Financial Services Agency said. To prevent excessive speculation, the exchange said in November it will be more aggressive in placing stocks on its margin-trading watchlist and may sometimes require more collateral.

“The change is certainly positive because it will increase volume by retail investors,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co., which oversees about $38 billion. “The more liquidity there is, the better the market will handle changes to supply and demand.”

While the securities regulator said it wasn’t acting in order to encourage more investment, the rule change coincides with a push to get households to move assets from cash to equities. Prime Minister Shinzo Abe’s government last month approved a 10-year plan modeled on a U.K. program to allow people to invest as much as 1 million yen in stocks and investment trusts each year without paying tax on returns.

Retail Investors Increasing

After a two-decade slide that’s left Japan’s benchmark gauge 71 percent below its 1989 peak, the Nikkei 225’s best three-month run since 2009 is luring individual investors. Retail investors made up 33 percent of equity turnover in the final week of January, up from a weekly average of 21 percent last year before the rally.

The Nikkei 225 climbed 32 percent since Nov. 14 as Prime Minister Abe pushed the Bank of Japan to loosen policy. The gauge closed on Feb. 6 at its highest level since September 2008. The benchmark’s 12-week rally through Feb. 1 was the longest since 1959, according to Nikkei Inc.

Japan Exchange has broadened its criteria for placing stocks on its margin trading watchlist and requiring higher deposits becuase looser rules on collateral could “invite market disruption,” according to Daiki Uehara, an official at the bourse’s margin trading desk.

The balance of Japanese stock purchases on margin rose to 1.9 trillion on Feb. 8, the most since July 2011 and a 10 percent gain from a week earlier, exchange showed today. The total has risen seven weeks running.

Long-Term Investors

Margin trades accounted for about 61 percent of transactions by individuals in the week ending Feb. 1, according to Japan Exchange data. That’s up from 55 percent for the week ended Dec. 28 before the rules were relaxed.

“More mid- to long-term investors are opening up new accounts, it’s not just day traders,” said Tomoichiro Kubota, an analyst at Matsui Securities, where margin transactions more than doubled last month from December to 1.46 trillion yen, the most since February 2007. Cash trades climbed 50 percent.

At SBI, the value of margin trades increased 2.2 times to 5.13 trillion yen in January from the previous month, according to the broker’s website. Sony Corp., Orient Corp., Aiful Corp. and Mazda Motor Corp. were the firm’s most traded shares on margin, SBI spokesman Takeru Suzuki said.

Other changes that took effect on Jan. 1 include allowing gains from trades to be added to collateral before settlement dates so that borrowers can take on more leverage.

“The revised rules are probably having an effect on boosting trades,” said Koji Toda, chief fund manager at Tokyo- based Resona Bank Ltd., which oversees about $160 billion. “But even if margin trade becomes easier, no one’s going to participate if they can’t make money.”

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Satoshi Kawano in 東京 at skawano1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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