Interest rates applicable to loans made in Japan are subject to the Interest Rate Restriction Act, which is Japan's usury law. For decades, legal experts and others questioned whether this regulation also applied to corporate bonds, thereby affording bond issuers the same protections against high interest rates as those enjoyed by borrowers. This longstanding question appears to have been resolved by a recent Tokyo District Court judgment.
To address the risk that the London Interbank Offered Rate may be discontinued, the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks was established to recommend the appropriate choice and use of Japanese yen interest rate benchmarks depending on the type of financial transaction involved and develop transition plans for a new framework enabling the use of Japanese yen interest rate benchmarks. The committee recently published a consultation paper in this regard.
Cabinet recently submitted a bill to the 198th session of the Diet to amend, among other acts, the Financial Instruments and Exchange Act and the Payment Services Act. Among other things, the amendments introduce new regulations for security-type digital tokens (ie, initial coin offerings and security token offerings) and clarify that digital tokens issued in consideration for crypto assets will be regarded as deemed securities.
If a securities registration statement contains a material misstatement, investors that acquire securities through the relevant offering can hold the issuing company liable for related damages. However, it is unclear what level of damages is recoverable if the issuing company successfully proves that the loss incurred by the investor is at least partly attributable to an unrelated factor or circumstance. A recent Supreme Court judgment has provided some clarity in this regard.
The Kyoto District Court recently ruled in favour of a shareholder's petition that a listed issuer cease an offering of its new shares by third-party allotment on the grounds that the offering had been conducted through an 'extremely unfair method', despite having been approved by a resolution at the issuer's shareholders' meeting. The court adopted the main purpose rule in accordance with prior court rulings and concluded that the share offering's main purpose had been to reduce the petitioning shareholder's shareholding.
Foreign private issuers' bonds that are listed on a Japanese securities exchange, such as the Tokyo Pro-Bond Market (TPBM), are subject to both the insider trading rules and the fair disclosure rules under Japanese law, while non-listed bonds (so-called 'Samurai bonds') are not. This article provides a brief explanation of the rules that apply to offerings of Samurai bonds and bonds listed on the TPBM under Japanese securities law.
The newly introduced fair disclosure rule enacted under Japan's securities laws and regulation regime is most often considered to apply to issuers of listed shares. However, based on the clear wording of the rule, it is also applicable to issuers whose only listed securities are bonds. Although the majority of bonds issued in the Japanese market are unlisted, there is a market dedicated to listed bonds in Japan: the Tokyo Pro-Bond Market.
The recent amendments to the Financial Instruments and Exchange Act introduced the fair disclosure rule, preventing listed issuers from making selective disclosure of their material information in order to ensure market fairness and transparency. This rule differs to the insider trading rule, which was introduced in 1989 with a similar aim of ensuring fairness and transparency by prohibiting parties with knowledge of undisclosed material facts regarding listed issuers from trading the securities of such issuers.
A recent Tokyo District Court decision was reported to be the first to hold an underwriter liable to investors that purchased shares in a company based on material misstatements in the financial information contained in the statutory disclosure document for a public offering in Japan. However, the Tokyo High Court overturned the district court decision in this regard and concluded that the lead manager was not liable to investors.
In June 2017 the Financial Instruments and Exchange Act was amended to introduce the fair disclosure rule in Japan. Subsequently, in October 2017 the Financial Services Agency (FSA) published draft legislation (comprising an implementing order and an ordinance) and guidelines for public comment, followed by final legislation in December 2017. The FSA has now published new guidelines and opinions on the public comments that it received.
In June 2017 the Financial Instruments and Exchange Act was amended to introduce the so-called 'fair disclosure' rule in Japan. The amendments address recent cases of selective disclosure of material information by issuers to sell-side analysts and investors' requests to introduce similar fair disclosure rules to those of other jurisdictions. The Financial Services Agency recently published a draft implementing order, ordinance and guidelines for public comment.
On June 29 2005 the Upper House of the National Diet introduced a major set of amendments to the Commercial Code and enacted the new Company Law. Among other things, the language of Article 821 of the law caused a high level of concern within the foreign financial community in Japan, as many foreign financial firms could fall within the definition of 'pseudo-foreign corporations'.
The Japanese Diet has passed a new bill amending securities regulations. According to the Financial Services Agency, the bill is intended to strengthen the market-monitoring function of regulators, broaden distribution channels for securities products and expand the variety of securities defined in the Securities Exchange Law.
Recent amendments expanding the scope of the side businesses which discretionary investment managers may engage in represent a first step by the Financial Services Agency towards granting such managers greater commercial freedom. However, uncertainties and possible inconsistencies in the supervisory process remain obstacles to industry growth.
Despite boasting a large economy, Japan has remained relatively untouched by foreign investors. This is primarily due to the country's opaque regulatory regime, which makes unusual distinctions between securities and other financial interests. Although laws governing foreign participation may still appear complex, recent amendments have moved toward economic openness.
Japanese lawmakers, faced with the stagnation of Japanese capital markets and apathy among investors, have enacted a series of amendments to the existing securities laws. The amendments introduce a new method of distribution for securities, which includes the introduction of licensed securities sales agencies that will act as intermediaries for the marketing of securities.
The Financial Services Agency recently proposed amending the definition of 'qualified institutional investors' stipulated in Article 2 of the Securities and Exchange Law, in order to include certain non-Japanese resident investors. The amendments aim to encourage and facilitate the private placement of securities in Japan.
The Financial Supervisory Authority has revised the regulations of the Securities Exchange Law regarding the private placement of offshore securities. The professional offer exemption has been extended to include equity products, while qualified institutional investors are now exempt from consideration as solicitees in securities offers.
The Financial Services Agency recently proposed a bill under which the major shareholders of securities broker-dealers would be subject to new reporting requirements and increased inspection powers. The proposal would also allow certain offshore participants in securities transactions to participate in the Japanese market without a securities broker-dealer licence.
The Financial Services Agency will soon launch the Electronic Disclosure for Investors Network, an electronic disclosure and data retrieval system for filings and notifications required under the Securities and Exchange Law. It is anticipated that the system will enable more efficient access to information required by investors.