FAQ on Financial Instruments and Exchange Act

July 2015

Financial Services Agency, Japan

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FAQ on Financial Instruments and Exchange Act Section 1 Purpose, etc. 1 Q1. What is the chapter structure of the Financial Instruments and Exchange Act (FIEA)? 1 Q2. What is the structure of the Purpose Provisions (Article 1) of the FIEA? 2

Section 2 Definitions Outline 3 Q1. What regulations are invoked where a Financial Instrument falls under the definition of Securities

under the FIEA? 3 Q2. What are beneficiary securities of beneficiary securities issuing trusts? 3 Q3. What kinds of Financial Instruments are designated as Securities by Cabinet Order? 4 Q4. Why are deposits and insurance not designated as Securities? 4

Interests in collective investment schemes (funds) 5 Q5. What is the definition for interests in collective investment schemes under the FIEA? 5 Q6. What regulations have been prescribed with regard to interests in collective investment

schemes? 6 Q7. What kinds of rights are excluded from interests in collective investment schemes? 7 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? 8 Q9. What other rights are excluded from the definition of interests in collective investment

schemes? 8

Derivative Transactions 10 Q10. What is the definition of "Derivative Transactions" under the FIEA? 10 Q11. What is the relationship between "Derivative Transactions" and Securities? 11 Q12. Is a person registered for Financial Instruments Business eligible to conduct both so-called

securities derivative transactions and financial futures transactions? 11

Public Offering, Secondary Distribution, etc. 12 Q13. What is Public Offering of Securities? 12 Q14. What is Secondary Distribution of Securities? 12 Q15. What is the outline of Qualified Institutional Investors? 13

Financial Instruments Business 15 Q16. What is the definition of "Financial Instruments Business" under the FIEA? 15

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Q17. Are so-called self-offering and self-management covered by "Financial Instruments Business"? 15

Q18. Is the FIEA applied to acts that are excluded from "Financial Instruments Business"? 16 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"? 17

Q20. What kinds of acts pertaining to interests in collective investment schemes are excluded from "Financial Instruments Business"? 18

Section 3 Disclosure of corporate affairs and other related matters Scope of application of disclosure regulation, etc. 21 Q1. What is the outline of disclosure regulation pertaining to issuance of Securities? 21 Q2. What is the purpose and outline of the system of disclosing issuance of new shares, etc. through

Reorganization? 21 Q3. Why are so-called securities equivalents exempt from the application of the disclosure

regulation? 23 Q4. What are Rights in Securities Investment Business, etc. that are subject to disclosure

regulation? 23 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.? 24 Q6. What is the disclosure system for the so-called asset finance-type instruments? 25 Q7. What are the requirements for exemption from the continuous disclosure obligation? 25 Quarterly disclosure 27 Q8. What is the quarterly disclosure system? 27 Q9. Which companies are obligated to submit Quarterly Securities Reports? 28 Q10. Are foreign companies also obligated to submit Quarterly Securities Reports? 28 Q11. Are there penal provisions concerning Quarterly Securities Reports? 29 Internal control over financial reporting 29 Q12. Why was the Internal Control Report system introduced? 29 Q13. What are the details of the Internal Control Report system, and from when is it applied? 29 Q14. What is the scope of companies that are obligated to submit an Internal Control Report? 30 Q15. Are foreign companies also obligated to submit an Internal Control Report? 30 Q16. What are the standards for assessment and audit of the internal control over financial

reporting? 31 Q17. What was the background behind the establishment of the standards and practice standards for

assessment and audit concerning internal control over financial reporting? 32

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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? 32

Q19. What is the scope of "internal control over financial reporting"? 33 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 SarbanesOxley Act of 2002? 33

Q21. Are there penal provisions applicable to Internal Control Reports? 35

Confirmation Letter 35 Q22. Why was the Confirmation Letter system introduced concerning the contents of Annual Securities

Reports, etc.? 35 Q23. What kind of system is the Confirmation Letter system? 35 Q24. Which companies are obligated to submit Confirmation Letters? 36 Q25. Are foreign companies also obligated to submit Confirmation Letters? 36 Q26. What kinds of disclosure documents require submission of a Confirmation Letter? 36 Q27. Which members of the management need to include their titles and names in the Confirmation

Letter? 37 Q28. How does a Confirmation Letter differ from a written oath of the management submitted under

self-regulation of a Financial Instruments Exchange? 37 Q29. Are there penal provisions concerning Confirmation Letters? 37

Section 4 Tender Offer regulation 39 Q1. What is the Tender Offer regulation? 39 Q2. Which specific transactions are subject to application of the Tender Offer regulation? 39 Q3. What is the treatment for purchases combining transactions at and outside of Financial Instruments

Exchange Markets? 40 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? 41

Q5. What is the treatment for the case where another person makes purchases during a period when a Tender Offer is conducted? 41

Q6. How does the FIEA provide for cases that are excluded from application of the Tender Offer regulation? 42

Q7. How does the FIEA provide for the disclosure in a Tender Offer Notification? 42 Q8. In what kind of cases is it possible to change the Terms of Purchase, etc. for a Tender

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Offer? 43 Q9. In what kind of cases is it possible to withdraw a Tender Offer? 44 Q10. Why is the Subject Company of a Tender Offer obligated to submit a Subject Company's Position

Statement? 44 Q11. What kind of matters should be included in the statement of the position of the Subject Company

of a Tender Offer? 45 Q12. Why is the Subject Company of a Tender Offer given an opportunity to ask the Tender Offeror

questions? 45 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? 45 Q14. How should a Tender Offeror respond when it receives questions from the Subject

Company? 46 Q15. How long is the Tender Offer Period under the FIEA? 46 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? 46 Q17. What will happen to the Tender Offer Period if the Subject Company of a Tender Offer requests

extension of the Tender Offer Period? 47 Q18. In what kind of cases is the Tender Offeror obligated to purchase all tendered shares? 47

Section 5 Large shareholding reporting system 49 Q1. What is the large shareholding reporting system? 49 Q2. What is the exceptional reporting system? 49 Q3. What are the specific time limits and frequency of exceptional reporting? 50 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.)? 51

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? 52

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.? 52

Q7. Are investment securities issued by investment corporations subject to the large shareholding reporting system? 53

Q8. Must the disclosure documents under the large shareholding reporting system be submitted through the electronic disclosure system (EDINET)? 53

Section 6 Financial Instruments Business Operators, etc.

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Outline 54 Q1. What kind of operator is a Financial Instruments Business Operator? 54 Q2.