UPDATE 1-German short-sale ban hits euro bond trade in Asia

* Some Japan brokers avoid selling European debt for now

* German ban on naked short sales makes players cautious

(Adds more comment)

By Masayuki Kitano and Satomi Noguchi

TOKYO, May 19 (BestGrowthStock) – Germany’s decision to ban naked
short sales of euro-denominated government bonds is prompting
some Japanese brokers to avoid selling European debt during Asian
trading hours, market players said on Wednesday.

“For today the situation is that it’s hard for us to take
orders on European bonds,” said Yasutoshi Nagai, chief economist
at Daiwa Securities Capital Markets. “For clients looking to buy,
we are asking them to buy Treasuries,” he said.

Uncertainty about the details of Germany’s ban on naked short
selling was making brokers cautious and came as a headache for
some Japanese investors, market players said.

“Since we don’t trade in Tokyo hours, our company has not
been hurt, but some players such asset management companies which
do trade in Tokyo are believed to be getting hurt by this
situation,” said a senior manager of foreign bond investment at a
major Japanese life insurer.

Germany, in an attack on the financial speculation on which
it blames much of the euro zone’s debt crisis, announced on
Tuesday a ban on naked short sales of euro-denominated government
bonds, credit default swaps based on those bonds, and shares in
Germany’s 10 leading financial institutions. [ID:nN18512882]

Naked short selling is when a trader sells short a financial
instrument he does not possess, betting that its price will fall,
without first borrowing the instrument or confirming if it can be
borrowed.

“What I have heard is that during Tokyo trading hours,
brokerages cannot give prices for trades that would involve
selling (of European bonds) by the brokerages,” said Junji
Kojima, senior deputy general manager at Sompo Japan Insurance’s
global securities investment department.

Kojima said he had heard that such steps were being taken by
more than one Japanese brokerage house.

The brokers apparently want to avoid taking orders to sell to
investors European bonds that they do not have in their
inventories, Kojima said, adding that the situation was likely to
normalise once European markets open.

“Once we get into London trading hours, there probably won’t
be any problems since they would be able to procure them from the
market,” Kojima said.

But not all were convinced that the situation would normalise
quite so quickly.

“The brokerage firms are saying they cannot give prices
because they are not sure about what exactly a ‘naked’ position
is. It is probably inevitable that there will be market
turbulence on such confusion once the London market opens,” said
the senior manager of foreign bond investment at a major Japanese
life insurer.

Stock Market News

(Editing by Joseph Radford)

UPDATE 1-German short-sale ban hits euro bond trade in Asia