Tuesday, June 14, 2011

Japanese government props up ailing TEPCO utility

Date: 6/14/2011 published
by: Jason Chan

Shorts got an unpleasant surprise yesterday (June 13, 2011) as TEPCO shares spiked up 25% after news that the Japanese government approved a disaster compensation bill which would help TEPCO pay compensation to victims of the Fukushima Daiichi nuclear disaster.  In addition, the Tokyo Stock Exchange raised margin requirements which discourages short selling of TEPCO. [1]
As we have seen from other examples, margin rule requirements when implemented can cause drastic changes in the previous direction of stocks or commodities.  For example the recent silver crash is due primarily to aggressive margin hikes on the part of the CME (Chicago Mercantile Exchange).   Due to the timing of news from both the Japanese government and Tokyo Stock Exchange margin hike on short selling TEPCO stock (both being released on the same day), one might wonder if there were not some form of coordinated activity between the Japanese government and the Tokyo Stock Exchange in order to artificially prop up the TEPCO stock.  Note that this is just speculation and not what the text of the Bloomberg article I am referencing says.  In the case of the CME (Chicago Mercantile Exchange) the aggressive margin hikes recently on silver also seemed a little suspicious and in this case I also wondered if there were not perhaps some form of communication or coordinated activity with another entity (or entities) with a vested interest in keeping the price of silver down.  I will let you guess who I mean.  The official story in both the case of the Tokyo Stock Exchange or CME for why they increased their margin requirements is that their mathematical risk management model has been triggered and margins are hiked in a robotic fashion in response.  I am not sure if I personally buy that line.

[1] Tokyo Electric Jumps by Record 25% After Short Sale, Margin Rule Changes, Bloomberg