Financial Instruments and Exchange Act

Financial Instruments and Exchange Act

The Act for the Amendment of the Securities and Exchange Act, etc. (Act No. 65 of 2006) and the Act for the Development, etc. of Relevant Acts for Enforcement of the Act for the Amendment of the Securities and Exchange Act, etc. (2006 Act No. 66) were approved and enacted at the 164th Diet session on June 7, 2006, and promulgated on June 14, 2006. These acts aim to: respond to changes in the environment surrounding the financial and capital markets; promote full compliance with investor protection rules and improve investor convenience; ensure market functions to promote the trend “from savings to investment”; and adapt to the internationalization of the financial and capital markets.

The amendment largely consists of the following four pillars:

• (i) Establishing a cross-sectional legislative framework for investor protection covering financial products with strong investment characteristics (the so-called legal framework for investor services)

• (ii) Enhancing disclosure requirements

• (iii) Ensuring appropriate management of self-regulatory operations by exchanges

• (iv) Strict countermeasures against unfair trading

Later, on July 31, 2007, the "Cabinet Order on the Development, etc. of Relevant Cabinet Orders for Enforcement of the Act for the Amendment of the Securities and Exchange Act, etc. and the Act for the Development, etc. of Relevant Acts for Enforcement of the Act for the Amendment of the Securities and Exchange Act, etc." were approved by the Cabinet. On the same day, cabinet orders, cabinet office ordinances, etc. concerning the Financial Instruments and Exchange Act (FIEA) were published, and the FIEA, which incorporates these amendments, took effect on September 30, 2007.

Furthermore, the Quarterly Reporting System, the Internal Control Reporting System and the Certification by Management System were enforced on September 30, 2007 and is applicable from the business year beginning on or after April 1, 2008.

• New Legislative Framework for Investor protection - “Financial Instruments and Exchange Law” (pamphlet)Japanese) (English)
• Outline of the Bill for the Amendment of the Securities and Exchange Act (Japanese (1) & (2)) (English)
• Summary of and reference material relating to Cabinet Orders and Cabinet Office Ordinances on the FIEA (Japanese) (English)

Our Answers to Your Questions on the Financial Instruments and Exchange Act (Q&A Collection)

In order to foster better understanding of the purpose and objectives of the FIEA, which strikes a balance between user protection and user convenience, the Financial Services Agency and the Securities and Exchange Surveillance Commission published "Our Answers to Your Questions about the Financial Instruments and Exchange Act," on February 21, 2008, which sets out the authorities’ views on frequently asked questions and common misunderstandings regarding the Financial Instruments and Exchange Act.

Eleven Misunderstandings about the Internal Control Report System

The Internal Control Report System aims to create a balance between efficiency and effectiveness without burdening companies with excessive costs. However, some listed companies have reportedly engaged in overly cautious business practices in its implementation. In response to this concern, the FSA published a reference document titled Eleven Misunderstandings about the Internal Control Report System on March 31, 2008.

Amendment of the Financial Instruments and Exchange Act

Given the importance of strengthening the competitiveness of Japan's financial and capital markets, the Bill for the Amendment of FIEA was submitted to the Diet on March 4, 2008, as a step to make the necessary improvements in the financial system. The bill was approved and passed on June 6 of the same year, and the Act for the Amendment of FIEA was promulgated on June 13, 2008.

Related Material

• Overview of the FIEA (Part 1) (FSA Newsletter August, September 2006)
• Overview of the FIEA (Part 2)(FSA Newsletter October 2006)
• Overview of the FIEA (Part 3)(FSA Newsletter November 2006)
• Results of Public Consultation on the Draft Cabinet Order and Cabinet Office Ordinance on the FIEA Framework (Part 1) (Access FSA No. 57 - Available in Japanese)
• Results of Public Consultation on the Draft Cabinet Order and Cabinet Office Ordinance on the FIEA Framework (Part 2) (Access FSA No. 58 - Available in Japanese)