The law for amending the Securities and Exchange Law and other
financial laws (2006 Law No.65) and the law for abolishing and
amending the related laws to implement the law for amending the
Securities and Exchange Law and other financial laws (2006 Law
No.66) were promulgated on June 14, following the approval and
passage of the respective bills at the 164th Diet
session held on June 7, 2006.
More specifically, the legislations can broadly be divided into
the following four basic elements: |
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(1) Development of a cross-sectoral legal system to
protect investors regarding financial instruments with
strong investment characteristics (legal system based on
so-called ''Investment Services Law'');
(2) Enhancement of the disclosure system;
(3) Reinforcement of self-regulatory functions of stock
exchanges; and
(4) Strict approach to unfair trading, etc. |
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Parts 1 and 2 reviewed ''1. Building a cross-sectoral legal
system to protect investors regarding financial instruments with
strong investment characteristics (legislation ''Investment
Services Law'')''. This part reviews ''other revised
provisions''.
* The Securities and Exchange Law and the Financial Instruments
and Exchange Law are hereinafter referred to as ''SEL'' and ''FIEL'',
respectively. |
(2) |
Enhancement of Disclosure System |
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1) Enhancing of Disclosure by Listed Companies,
etc.
The latest legislations involve the following revisions
of the disclosure requirements of corporate information
for the purpose of ensuring the timely, speedy and
proper disclosure of financial and corporate
information.
a) Statutory Quarterly Reporting System
The system of quarterly disclosure-which is currently
based on self regulations of stock exchanges-will become
a statutory system, and listed companies, etc. will be
obliged to submit a ''quarterly report''. The quality
report will be subject to audits conducted by Certified
Public Accountants (CPAs) and auditing firms (Article
24-4-7 and Article 193-2 of FIEL). Submission of the
false quarterly reports will be subject to criminal or
civil money penalties.
b) Enhancing Internal Control over Financial
Reporting
- In order to ensure appropriate disclosure of financial
and corporate information, ''internal control reports''
which provide an evaluation of the validity of internal
control of financial reporting for each fiscal year will
become a mandatory requirement for listed companies and
will be subject to audits by certified public
accountants or auditing firms (Article 24-4-4 and
Article 193-2).
- Listed companies, etc. will be obliged to submit
''certification'' by management stating that descriptions
in the securities report, quarterly reports, etc. are
appropriate and in compliance with the FIEL and related
regulations (Article 24-4-2 and Article 24-4-8, etc.).
2) Reviewing the Tender Offer System
The ''tender offer (TOB) system'' is a system that ensures
transparency and fairness in stock transactions that may
affect the management rights of a company. Specifically,
by imposing duties to disclose information including
offer periods, volume and prices to companies intending
to conduct large volume off-exchange purchases of stock,
a fair opportunity for shareholders of the target
company to sell such stock is ensured.
In conjunction with the dramatic increase in corporate
mergers and acquisitions (M&A) and the diversification
of M&A methods in recent years, the number of cases of
TOB-which is one of the means of M&A-is rising. Under
these circumstances, the TOB system has been reviewed in
this legislative revision as exemplified below.
a) Taking Measures against Law-evading Transactions
and Ensuring Fairness amongst Bidders |
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Even if the number of buyers is
extremely small (no more than 10 bidders
within 60 days), TOB must be performed
in cases where the shareholding accounts
for more than one- third of all
outstanding shares purchased outside of
the stock exchange |
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- It will be made clear that aggressive
buying involving transactions executed
on and/or off the market that will
result in shareholdings of one third or
more will be subject to regulations on
tender offers.
- If a party with shareholding of more
than one third of the target company's
shares begins a rapid buy-up while a
tender offer of another party is in
place, the former is obliged to make a
tender offer also.
(paragraphs 1-4 and 1-5 of Article 27-2
of FIEL (amended SEL)) |
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b) |
Partial Introduction of Obligation to Buy All Stocks |
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In order to protect shareholders in cases
where the shares are delisted, etc. after TOB,
if a purchase will result in shareholdings of
two thirds or more, offering companies are
obliged to buy all of the tender offered shares.
(paragraph 4 of Article 27-13 (matters of
government ordinance)) |
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c) |
Enhancing Provision of Information to Investors |
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The targeted company will be
obliged to submit a ''position statement
report''. The targeted company may ask
questions to the bidder in the
''position statement report''. |
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If the targeted company asks a
question to the bidder in the ''position
statement report'', the bidder is
obliged to submit a ''response to
questions''. (paragraphs 1, 2 and 11 of
Article 27-10) |
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d) Extending the TOB Period |
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The period for tender offers is set
between 20 and 60 days (on a calendar
date basis) by the offering company. |
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The
TOB period is due to be changed
to business day basis, i.e.,
between 20 and 60 business days.
(matters of government
ordinance) |
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Bearing
in mind that it may be necessary
to make a counterproposal and
give shareholders enough time to
carefully think about it, the
TOB period will be extended to
30 business days (matters of
government ordinance) upon the
targeted company's request if
the original TOB period is
short. (paragraphs 2 and 3 of
Article 27-10) |
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e) Flexible Approach to Withdrawal of TOB, etc.
If target companies take countermeasures against the
takeover, offering companies may withdraw tender offers
or reduce offering prices. (paragraph 1-1 of Article
27-6 and paragraph 1 of Article 27-11 (matters of
government ordinance)) |
3) Reviewing the reporting system for Large
Shareholdings
''The reporting system for large shareholdings'' is a
system to promptly disclose the status of large
shareholdings to investors. Specifically, for example,
if total shareholdings in a listed company reach above
5%, the shareholder must submit a ''report on large
shareholdings'' within 5 business days from the date of
the purchase. However, a special reporting system with a
lower frequency of reporting is applied to institutional
investors who are engaged in trading large volumes of
shares, etc. in their daily business activities,
considering the administrative workload associated with
it and other such factors.
The latest legislations involve the revision of the
reporting system for large shareholders as exemplified
below, in response to the increasing number of cases in
which purchases of shares in large volumes do not lead
to M&A in recent years. |
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a) Reviewing Special Reporting System
In order to enhance transparency for investors, the
reporting deadline, frequency, etc. will be reviewed. |
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If holding of listed shares, etc.
reach above 5% of all outstanding shares |
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A report must be provided ''once every
three months by the 15th of the
following month'' |
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A report must be provided ''roughly every
two weeks (on every base date at least
twice a month) within 5 business days''.
(paragraphs 1 through 3 of Article 27-26
of FIEL (amended SEL)) |
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b) Obligation to Submit Electrical Reports on Large
Shareholdings
Submission of electrical reports on large
shareholdings will become mandatory, aimed at making the
information available to the public promptly via EDINET
(Electronic Disclosure for Investors' NETwork).
(Paragraph 30-2 of Article 27 of FIEL) |
(3) Enhancement of Self-regulatory Functions of Stock
Exchanges
Stock exchanges are allowed to be demutualized
pursuant to the revision of the Securities and Exchange
Law in 2000. There have been suggestions that an
incorporated stock exchange is required to ensure the
independence of the organization in charge of
self-regulatory functions from other operations, due to
the risk of conflict of interest arising between its ''profitability'' as a joint stock company and its
''self-regulatory operation'' aimed at ensuring fairness
and transparency of transactions on the exchange. On the
other hand, in discussions about the concrete
organizational structure, there have been suggestions
that attention needs to be paid to take finely-tuned
action in accordance with the market circumstances.
The latest legislations develop the following systems in
consideration of such discussions. |
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a) Self-regulatory Operations
Financial instruments exchanges will be required to
properly engage in ''self-regulatory operations'' (such as
operations concerning listing or delisting, and
examination on the compliance of market participants) to
enhance the quality of services provided by the
exchanges (Article 84 of FIEL).
b) Self-regulatory Corporations and Self-regulatory
Committees
- Financial instruments exchanges will be able to
outsource all or part of their self-regulatory
operations to a ''self-regulatory corporation'' (Article
102-2) with the Prime Minister's approval (Article 85).
The majority of board members of the self-regulatory
corporation must be outside board members (paragraph 3
of Article 102-23).
- An incorporated exchange will be able to establish a
''self-regulatory committee'' that determines matters
relating to its self-regulatory operations (Article
105-4). The majority of members of the self-regulatory
committee must be outside directors (paragraph 1 of
Article 105-5). |
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| (Note) |
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Whether to adopt such organizational
structures or not is at the discretion of each
exchange. However, if an financial instruments
exchange wishes to be listed on its own exchange
or another exchange, it must obtain the Prime
Minister's approval (Articles 122 and 124), in
which case the framework to properly run the
self-regulatory operations is also deemed to be
subject to screening.
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(4) Strict Approach to Unfair Trading, etc. |
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1) Increase in maximum criminal penalty
In response to the series of scandals involving some
listed companies recently, the statutory penalties under
penal provisions of the Securities and Exchange Law have
been strengthened as exemplified below, in order to
enhance user protection, secure fairness and
transparency in transactions and establish public
confidence in the markets. |
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2) Countermeasures against ''misegyoku''
''Misegyoku'', a means of market manipulation, is a
trading order with intention of canceling immediately.
Among the acts corresponding to ''misegyoku'', the act of
applying to buy/sell shares by a customer is currently
subject to criminal punishment on the grounds of being
an act of market manipulation. The latest legislations
involve the following revision aimed at ensuring the
effectiveness of regulations on unfair trading, in
consideration of the proposal made by the Securities and
Exchange Surveillance Commission (SESC) dated November
29, 2005.
- The act of applying to buy/sell shares by a customer
is subject to fines on the grounds of being an act of
market manipulation (paragraph 1 of Article 174 of FIEL
(revised SEL)).
- The act of applying to buy/sell shares by a securities
company as a part of self-dealing activities is also
subject to criminal punishment and fines on the grounds
of being an act of market manipulation (paragraphs 2-1
and 3 of Article 159 and paragraph 1 of Article 174).
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●Effective dates of legislation |
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The effective dates of the amendments are as follows. |
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Amendments of the Enforcement Ordinances
and Orders of the Customer Identification Law |
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1. |
Customer Identification Law
The Customer Identification Law1 is a law
that requires financial institutions to conduct an
identification procedure etc. of a customer upon the
opening of a deposit account or in the case of a
transaction of a large sum, i.e., exceeding 2 million
yen. It was legislated in April 2002 and came into force
as of January 2003.
Against the backdrop of these amendments were demands
from the international community to address the growing
need to combat money laundering in the wake of the 2001
9-11 terrorist attacks in the United States and the
increasing number of drug- and gun-related crimes etc. |
2. |
Purposes of the Amendments
The FATF (Financial Action Task Force on Money
Laundering), an intergovernmental body whose mission is
to fight money laundering and terrorism financing,
developed a set of "Special Recommendations on Terrorist
Financing" in 2001, one of whose recommendations was the
Special Recommendation VII on "Wire transfers," which
recommends FATF member countries to strengthen, by the
end of 2006, customer identification measures in wire
transfers exceeding 1,000 U.S. dollars or 1,000 Euros.
As part of Japan's actions to implement the
Recommendation above, necessary amendments were made
recently to the Enforcement Ordinance of the Customer
Identification Law and the Enforcement Regulation of the
Customer Identification Law (promulgated on September 22
of this year with a view to being enacted on January 4,
2007).
As a result of these amendments, financial institutions
will, on and after January 4, 2007, be required to
conduct identification procedures, etc. for any customer
who makes a cash transfer exceeding 100,000 yen etc. |
3. |
Procedures in the Case of Transfer
Exceeding 100,000 Yen
On and after January 4, 2007, when the amendments take
effect, customers will need to present a piece of ID,
such as a driver's license, health insurance certificate
or passport, at the teller's counter of a financial
institution to transfer funds initiated with cash
exceeding 100,000 yen. It should be noted that
transferring funds initiated with cash exceeding 100,000
yen will no longer be allowed at ATMs.
On the other hand, non-cash transfers from one deposit
account to another will still be permitted in the same
fashion as in the past, whether at an ATM or a teller's
counter (if, however, customer identification procedures
at the time of account opening have not been completed,
transfers may not be allowed without the presentation of
ID).
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| * To transfer funds from the remitter's own deposit account,
customer identification is, as a general rule, not required. |
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| ○IDs to be requested for presentation: |
| For individuals |
: Driver's license, Health Insurance
Certificate, National Pension Handbook,
passport, Maternal and Child Health Handbook,
Physically Disabled Persons' Certificate,
Foreign Resident Registration Card, Basic
Resident Register Card (indicating the name,
address and date of birth) etc. |
| For corporations |
: Certificate on Registered Matter, etc. |
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| 4. |
Conclusion
The FSA is determined to make steady efforts in publicity and
outreach activities, such as poster distribution and
publication in newspapers and magazines, so that the new
scheme should work smoothly. We have also advised
financial institutions to develop a structure necessary
to, among other actions, prevent any confusion at
service counters and we will also thoroughly monitor its
implementation progress in the future.
While the new scheme may cause some inconvenience for users, the
establishment of this scheme will make it possible to
prevent illegitimate funds transfers via financial
institutions and, even if such illegitimate funds
transfers are conducted, to subsequently monitor them
through checking and tracking.
We would like to ask our citizens for their understanding and
cooperation in regards to the recent amendments, which
we have made to address international demands, to the
cause of combating money laundering and terrorist
financing. |
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1Law on Customer Identification and Retention of
Records by Financial Institutions, and Prevention of Fraudulent
Use of Deposit Accounts |
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