The world’s largest pension fund, Japan’s $1.6tn Government Pension Investment Fund, said it will stop lending out its stock holdings to hedge funds that short-sell shares, in a significant blow to the industry.

Hedge funds that take short positions in companies — placing bets that their stock price will fall — depend on big investors such as pension funds to facilitate the trades. Short-sellers borrow the stocks and then sell them on to others, betting that by the time the loan is due, they can buy them back for a lower price and return them.