Japan to Extend Ban on Naked Short Sales of Stocks

Japan’s legal ban on naked short-selling in the stock market will be extended for another six months beyond Oct. 31, said the Financial Services Agency. The extension is deemed necessary to prevent market confusion amid jitters over the European banking crisis.

So-called naked short-selling is the speculative practice of selling stocks without first borrowing or at least entering into written contracts to borrow them. The practice has been blamed for excessive overreaction to market uncertainty in times of crisis.

The latest extension of the ban through the end of April 2012 is the 10th since it was introduced in October of 2008, a month after the U.S. investment bank Lehman Brothers Holdings Inc. collapsed, triggering a global financial crisis.

The current debt crisis in Greece and other eurozone economies has begun to threaten the stability of banks across Europe and caused high volatility in financial and other stocks around the world while investors await resolution of the problem by the EU’s member nations. So far such a resolution has been elusive despite pressure from the U.S., China and other trading partners.