FAQ on Financial Instruments and Exchange Act

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)?

A.

Under the framework of the FIEA, so-called “misegyoku” (which refers to the practice of placing a market order without an intention of executing the transaction and canceling it before execution in order to steer stock market prices) is regarded as an act of market manipulation and is subject to criminal punishment and Administrative Monetary Penalty.

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?

A1.

The FIEA provides for the following three regulations for “Specified Partnerships, etc.” whose assets include shares of a Listed Company, etc. which represent voting rights equal to or greater than 10% of the Voting Rights held by All of the Shareholders, etc. (a partnership under the Civil Code, an Investment LPS, or a Limited Liability Partnership, or a foreign organization similar to any of these partnerships (Article 27-8 of the FIEA)) (Article 165-2 of the IFEA).

2.

Firstly, when a partner of a Specified Partnership, etc. makes Purchase, etc. or Sales, etc. of Specified Securities, etc. of Share Certificates, etc. pertaining to the Listed Company, etc. in relation to the assets of the Specified Partnership, etc., the partner having executed the Purchase, etc. or Sales, etc. is obligated to submit a report on the Sales and Purchase, etc. on or before the 15th day of the following month (Article 165-2(1) and (2) of the FIEA).

3.

Secondly, with regard to Specified Securities, etc. pertaining to the Listed Company, etc. that belong to the assets of the Specified Partnership, etc., if profits have accrued from making Sales and Purchase, etc. and contrary transactions of such Specified Securities, etc. within a period of six months (hereinafter referred to as “short-term sales and purchases”), that Listed Company, etc. (or its shareholder) may request provision of profits earned by such short-term sales and purchases primarily from the assets of the Specified Partnership, etc. and secondarily from the respective partners of the Specified Partnership, etc. (Article 165-2(3) through (14) of the FIEA).

4.

Thirdly, the FIEA prohibits a partner of a Specified Partnership, etc. from carrying out short selling, etc. of Specified Securities, etc. pertaining to the Listed Company, etc. with regard to assets of the Specified Partnership, etc. (Article 165-2(15) of the FIEA).

5.

These regulations have almost the same contents as the provisions of Articles 163 through 165 of the FIEA which regulate short-term sales and purchases, etc. by an Officer or Major Shareholder of a Listed Company, etc. The FIEA stipulates that the provisions of Articles 163 through 165 should not be applied to a person who will hold 10% of the Voting Rights of the Listed Company, etc. when including the Voting Rights pertaining to the shares of the Listed Company, etc. held through the Specified Partnership, etc. (Article 165-2(16) of the FIEA), so as to avoid overlapped application of these provisions and Article 165-2 of the FIEA.