FAQ on Financial Instruments and Exchange Act

Section 1 Purpose, etc.
Section 2 Definitions
Section 3 Disclosure of corporate affairs and other related matters
Section 4 Tender Offer regulation
Section 5 Large shareholding reporting system
Section 6 Financial Instruments Business Operators, etc.
Section 7 Unfair transactions, etc.

Section 1 Purpose, etc.

Q1.: What is the chapter structure of the Financial Instruments and Exchange Act (FIEA)?
Q2.: What is the structure of the Purpose Provisions (Article 1) of the FIEA?

Section 2 Definitions

Outline

Q1.: What regulations are invoked where a Financial Instrument falls under the definition of “Securities” under the FIEA?
Q2.: What are beneficiary securities of beneficiary securities issuing trusts?
Q3.: What kinds of Financial Instruments are designated as “Securities” by Cabinet Order?
Q4.: Why are deposits and insurance not designated as “Securities”?

Interests in collective investment schemes (funds)

Q5.: What is the definition for interests in collective investment schemes under the FIEA?
Q6.: What regulations have been prescribed with regard to interests in collective investment schemes?
Q7.: What kinds of rights are excluded from interests in collective investment schemes?
Q8.: What are the cases where all of the equity investors participate in the Invested Business, which are excluded from the definition of interests in collective investment schemes?
Q9.: What other rights are excluded from the definition of interests in collective investment schemes?

Derivative Transactions

Q10.: What is the definition of "Derivative Transactions" under the FIEA?
Q11.: What is the relationship between "Derivative Transactions" and “Securities”?
Q12.: Is a person registered for Financial Instruments Business eligible to conduct both so-called securities derivative transactions and financial futures transactions?

Public Offering, Secondary Distribution, etc.

Q13.: What is “Public Offering of Securities”?
Q14.: What is “Secondary Distribution of Securities”?
Q15.: What is the outline of “Qualified Institutional Investors”?

Financial Instruments Business

Q16.: What is the definition of "Financial Instruments Business" under the FIEA?
Q17.: Are so-called self-offering and self-management covered by "Financial Instruments Business"?
Q18.: Is the FIEA applied to acts that are excluded from "Financial Instruments Business"?
Q19.: What is the scope of professional investors who are counterparties of Over-the-Counter Transactions of Derivatives, etc. that are excluded from "Financial Instruments Business"?
Q20.: What kinds of acts pertaining to interests in collective investment schemes are excluded from "Financial Instruments Business"?

Section 3 Disclosure of corporate affairs and other related matters

Scope of application of disclosure regulation, etc.

Q1.: What is the outline of disclosure regulation pertaining to issuance of Securities?
Q2.: What is the purpose and outline of the system of disclosing issuance of new shares, etc. through Reorganization?
Q3.: Why are so-called “securities equivalents” exempt from the application of the disclosure regulation?
Q4.: What are “Rights in Securities Investment Business, etc.” that are subject to disclosure regulation?
Q5.: In what kinds of cases is it necessary to submit a Securities Registration Statement and Annual Securities Reports for interests in investment-type collective investment schemes, etc.?
Q6.: What is the disclosure system for the so-called asset finance-type instruments?
Q7.: What are the requirements for exemption from the continuous disclosure obligation?

Quarterly disclosure

Q8.: What is the quarterly disclosure system?
Q9.: Which companies are obligated to submit Quarterly Securities Reports?
Q10.: Are foreign companies also obligated to submit Quarterly Securities Reports?
Q11.: Are there penal provisions concerning Quarterly Securities Reports?

Internal control over financial reporting

Q12.: Why was the Internal Control Report system introduced?
Q13.: What are the details of the Internal Control Report system, and from when is it applied?
Q14.: What is the scope of companies that are obligated to submit an Internal Control Report?
Q15.: Are foreign companies also obligated to submit an Internal Control Report?
Q16.: What are the standards for assessment and audit of the internal control over financial reporting?
Q17.: What was the background behind the establishment of the standards and practice standards for assessment and audit concerning internal control over financial reporting?
Q18.: What points should be kept in mind when operating the standards and practice standards for assessment and audit concerning internal control over financial reporting?
Q19.: What is the scope of "internal control over financial reporting"?
Q20.: How does the Japanese system differ from the Internal Control Report system pertaining to financial reporting that was introduced in the United States by the Sarbanes–Oxley Act of 2002?
Q21.: Are there penal provisions applicable to Internal Control Reports?

Confirmation Letter

Q22.: Why was the Confirmation Letter system introduced concerning the contents of Annual Securities Reports, etc.?
Q23.: What kind of system is the Confirmation Letter system?
Q24.: Which companies are obligated to submit Confirmation Letters?
Q25.: Are foreign companies also obligated to submit Confirmation Letters?
Q26.: What kinds of disclosure documents require submission of a Confirmation Letter?
Q27.: Which members of the management need to include their titles and names in the Confirmation Letter?
Q28.: How does a Confirmation Letter differ from a written oath of the management submitted under self-regulation of a Financial Instruments Exchange?
Q29.: Are there penal provisions concerning Confirmation Letters?

Section 4 Tender Offer regulation

Q1.: What is the Tender Offer regulation?
Q2.: Which specific transactions are subject to application of the Tender Offer regulation?
Q3.: What is the treatment for purchases combining transactions at and outside of Financial Instruments Exchange Markets?
Q4.: For example, in cases where the purchaser has purchased a volume of Share Certificates, etc. equivalent to more than 5% of the outstanding total outside of Financial Instruments Exchange Markets through means other than a Tender Offer and where it plans to conduct an additional purchase within three months in order to increase the Share Certificates, etc. Holding Rate to more than one-third, would it be sufficient to conduct the additional purchase through a Tender Offer?
Q5.: What is the treatment for the case where another person makes purchases during a period when a Tender Offer is conducted?
Q6.: How does the FIEA provide for cases that are excluded from application of the Tender Offer regulation?
Q7.: How does the FIEA provide for the disclosure in a Tender Offer Notification?
Q8.: In what kind of cases is it possible to change the Terms of Purchase, etc. for a Tender Offer?
Q9.: In what kind of cases is it possible to withdraw a Tender Offer?
Q10.: Why is the Subject Company of a Tender Offer obligated to submit a Subject Company's Position Statement?
Q11.: What kind of matters should be included in the statement of the position of the Subject Company of a Tender Offer?
Q12.: Why is the Subject Company of a Tender Offer given an opportunity to ask the Tender Offeror questions?
Q13.: What is the arrangement for the Subject Company of a Tender Offer to ask the Tender Offeror questions, and how many opportunities to ask questions are available?
Q14.: How should a Tender Offeror respond when it receives questions from the Subject Company?
Q15.: How long is the Tender Offer Period under the FIEA?
Q16.: Why is it that there is an arrangement to allow the Subject Company of a Tender Offer to request extension of the Tender Offer Period?
Q17.: What will happen to the Tender Offer Period if the Subject Company of a Tender Offer requests extension of the Tender Offer Period?
Q18.: In what kind of cases is the Tender Offeror obligated to purchase all tendered shares?

Section 5 Large shareholding reporting system

Q1.: What is the large shareholding reporting system?
Q2.: What is the exceptional reporting system?
Q3.: What are the specific time limits and frequency of exceptional reporting?
Q4.: Why does the FIEA provide that exceptional reporting is not applicable to the case where Share Certificates, etc. are held for conducting an act of effecting material changes in or having a material effect on the business activities of the Issuer of said Share Certificates, etc. as specified by Cabinet Order (Act of Making Important Suggestion, etc.)?
Q5.: What is the treatment for the case of conducting transactions that result in the Holding Ratio of Share Certificates, etc. of an institutional investor, etc. that uses the exceptional reporting system falling below 10% from above the 10% level?
Q6.: What is the treatment for the case where the Share Certificates, etc. held by a holder and a Joint Holder overlap in calculating the Holding Ratio of Share Certificates, etc.?
Q7.: Are investment securities issued by investment corporations subject to the large shareholding reporting system?
Q8.: Must the disclosure documents under the large shareholding reporting system be submitted through the electronic disclosure system (EDINET)?

Section 6 Financial Instruments Business Operators, etc.

Outline

Q1.: What kind of operator is a Financial Instruments Business Operator?
Q2.: What is Type I Financial Instruments Business?
Q3.: What are businesses that can only be conducted by Financial Instruments Business Operators conducting Type I Financial Instruments Business?
Q4.: What is Type II Financial Instruments Business?
Q5.: What is Investment Advisory and Agency Business?
Q6.: What is Investment Management Business?
Q7.: How is the distinction between Discretionary Investment Management Business and Investment Advisory Business determined?
Q8.: What is Financial Instruments Intermediary Service?
Q9.: What is Securities-Related Business? Why is such business defined under the FIEA?

Business regulation

Q10.: How does the FIEA provide for the entry regulation for Financial Instruments Business Operators?
Q11.: Is a separate registration procedure required for each category of business of Financial Instruments Business Operators?
Q12.: What are the requirements for refusal of registration of Financial Instruments Business Operators?
Q13.: What is the scope of employees that are subject to examination of the requirements for refusal of registration of Financial Instruments Business Operators?
Q14.: What are the contents of examination standards with regard to the personnel structure requirement for Financial Instruments Business Operators?
Q15.: What are the standards for the minimum capital and Net Assets regulations for Financial Instruments Business Operators?
Q16.: What are the standards for the deposit for operation regulation for Financial Instruments Business Operators?
Q17.: What is the subsidiary business regulation for Financial Instruments Business Operators?
Q18.: For what kind of business is Sales Representative registration obligated?

Scope of business

Q19.: What is the scope of business conducted by Registered Financial Institutions?
Q20.: What is the treatment of Derivative Transactions conducted by business companies?
Q21.: What is the outline of the scope of business of Financial Instruments Business Operators?
Q22.: What is the scope of incidental business conducted by Financial Instruments Business Operators?
Q23.: What is the scope of business subject to notification conducted by Financial Instruments Business Operators?

Professional investors and general investors

Q24.: What are the outline and purpose of the system for distinguishing between Professional Investors and General Investors?
Q25.: What is the scope of Professional Investors?
Q26.: How are foreign investors treated?
Q27.: Which part of the regulation on activities is not applied to Professional Investors?
Q28.: What kind of regulation on activities is applied to Professional Investors?
Q29.: What kind of exceptions are provided for with regard to regulation on activities that is not applied to transactions with Professional Investors?
Q30.: The FIEA provides that the shifting of the status between a Professional Investor and a General Investor is to be made for each Kind of Contract, but what are the different Kinds of Contracts?
Q31.: What is the scope of individuals who can be treated as Professional Investors?

Regulation on activities

Regulation on activities of Financial Instruments Business Operators, etc.

Q32.: What is the outline of regulation on activities under the FIEA?
Q33.: What kind of provisions does the FIEA have with regard to fiduciary responsibility?
Q34.: What is the scope of application of the regulation on advertising, etc.?
Q35.: What kind of obligation of explanation is imposed on business operators against customers?
Q36.: Is it sufficient for a business operator to deliver a document in advance, in order to fulfill the obligation of explanation to a customer?
Q37.: What are the matters to be stated in a pre-contract document?
Q38.: What is the method of making statements in a pre-contract document?
Q39.: How should the obligation for explanation be fulfilled in the case of transactions that are not conducted face-to-face?
Q40.: What is the scope of fees, etc. which a business operator must disclose to the customer?
Q41.: Is the sales commission payable by the producer (e.g., an insurance company) of a Financial Instrument to its seller (e.g., a bank, etc.) included in the fees, etc. that must be disclosed?
Q42.: In what kind of cases is the delivery of a pre-contract document unnecessary?
Q43.: What is a document on listed Securities, etc.?
Q44.: What kind of document needs to be delivered upon conclusion of a contract?
Q45.: In what kind of cases is delivery of an upon-contract document unnecessary?
Q46.: What kind of prohibited acts are specified by Cabinet Office Ordinance?
Q47.: In what kind of cases is the confirmation on Problematic Conduct, which is usually required in order for a case to be excluded from prohibition of Compensation of Loss, unnecessary?
Q48.: What kind of revision was made to the principle of suitability?
Q49.: What matters should be taken into consideration when applying the principle of suitability?

Regulation on activities concerning Investment Advisory Business

Q50.: What kind of regulation is provided for with regard to Investment Advisory Business?

Regulation on activities concerning Investment Management Business

Q51.: What kind of regulation is provided for with regard to Investment Management Business?
Q52.: In what kind of cases is self-dealing, etc. or a transaction between investment properties possible with regard to Investment Management Business?
Q53.: What kind of regulation is provided for with regard to entrustment of authority of investment for Investment Management Business?

Regulation on activities concerning Securities, etc. Management Business

Q54.: What kind of regulation is provided for with regard to Securities, etc. Management Business?

Supervision

Q55.: What provisions are there regarding the issuance of an order to improve business operation to a Financial Instruments Business Operator, etc.?
Q56.: Why does the FIEA provide for an order for the production of reports and inspection to be issued against a person who has received entrustment of business from a Financial Instruments Business Operator, etc.?

Foreign Business Operators

Q57.: How are Foreign Business Operators treated?
Q58.: In what kinds of cases is a Foreign Securities Broker exempted from the requirement to be registered?
Q59.: In what kinds of cases is a person who conducts Investment Advisory Business or Investment Management Business in a foreign state exempted from the requirement to be registered?
Q60.: How is establishment of a representative office, etc. of a foreign business operator treated under the FIEA?

Section 7 Unfair transactions, etc.

“Misegyoku” (false orders to manipulate prices)

Q1.: What provisions are there with regard to “misegyoku” (false orders to manipulate prices)?

Regulation on short-term sales and purchases by partnerships

Q2.: What are the contents of the regulation of short-term sales and purchases by partnerships?

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