Frequently Asked Questions -> Securities Companies

Directly linking the investors who want effective investment of their assets and the enterprises that procure the funds required for their business development, the securities market is an infrastructure indispensable for dynamic growth of the Japanese economy, so it may be termed as ''a shared possession of the nation''.

The FSA has been executing structural reform of the securities markets in terms of all the items included in the ''Program for Structural Reform of Securities Markets'' that was announced in August 2001. On August 6, 2002, the ''Program for Promoting Securities Markets Reform'' was announced in order to accelerate the structural reform of the securities markets.

The ''Program for Promoting Securities Markets Reform'' is based on three concepts to enhance the depth of securities markets in which a wide range of investors can participate and enable the markets to play a central role in the Japanese financial system in which the market mechanism is set as its core. The concepts are;

Development of securities markets easy to access for everyone -- Promoting broader participation of diversified investors --
Establishment of securities markets that investors can invest with confidence -- Ensuring fairness and transparency of the markets --
Establishment of efficient and competitive securities markets -- Improving stability and efficiency in securities markets --

The specific measures are as follows:

''Reducing the minimum capital requirement for securities companies, investment trust companies and investment advisory companies'', ''introducing sales agency system for securities companies'', ''sales of securities through banks'' and ''verification on whether the securities companies, investment trust companies and investment advisory companies are conducting truly faithful business.''
Enhancing accounting and auditing system considering recent incidents in the U.S.
''Reviewing comprehensively the Japanese markets from a medium-to-long term perspective'', ''developing measures to improve markets including stricter delisting criteria'', ''expanding the scope of private offering bond markets'', and so on.

For details, please access the following:
* Program for Promoting Securities Markets Reform (summary) (August 6, 2002)
* Program for Promoting Securities Markets Reform (main text) (August 6, 2002) Available in Japanese

In the tax system reform in FY2003, it is intended that the securities tax system is extensively amended in order to accelerate the flow of ''from savings to investment'' and to encourage private investors to actively access the market. In order to realize the reform, the law concerning tax system reform was adopted and enacted at the Diet session on March 28, 2003.

As summarized below, the amendments contain rather drastic changes aiming at simple and easy-to-understand taxation principles that will remain stable in the future and give privileges to investors.

For tax payment for capital gains, dividends, and distributions of stock-investment funds, a new system is introduced in which tax payment completes simply by withholding at source for both national and local taxes (no declaration is required), and the requirement for the securities companies to submit annual transaction reports to tax authorities becomes unnecessary.
The tax rates for capital gains, dividends for all shares, and distributions of stock-investment funds are uniformly reduced to 10% for the next five years.
Aggregation of the losses from redemption or cancellation of stock-investment funds and capital gains is allowed.
For the special account, stock certificates kept by investors are maintaining (or so-called hoarded stock certificates) that were not allowed to deposit under the former system, become possible to be deposited.

The FSA strengthened the short selling restrictions in February 2002 with the objective to make further efforts to develop infrastructure for enhancing confidence of individual investors in securities markets in compliance with the ''Program for Structural Reform of Securities Markets'' announced in August 2001, because some securities companies had violated the short selling restrictions, and it was not intended to affect the market price of stocks.
The measure to strengthen the short selling restrictions has been successful in prevention of unfair transactions in the market, however, the FSA plans to continue monitoring the markets to prevent such transactions.

For the market measure announced in March 2003 under the title of ''Measures for Ensuring Proper Operations of Stock Markets'', the FSA compiled necessary policies with the objective to remove anxiety of the investors and to ensure proper operations of stock market had been uncertain conditions due to mainly to strained uncertain in the international environment such as the situation surrounding Iraq, causing extreme nervousness on the investors on the market condition. It did not aim at raising stock prices.
The FSA expects that these measures will remove investors' anxiety, enabling investors to make investment at ease, and thereby activate the securities markets.

For details, please access the following:

*	Comprehensive Measures for Short-selling of Stocks (December 21, 2001)
*	Reform of Margin Transaction and Loan Transaction (February 1, 2002) Available in Japanese
*	Review on Short Selling Restrictions (February 8, 2002) Available in Japanese
*	Measures based on Rules of Comprehensive Review of Compliance with Regulations on Short Selling (February 26, 2002) Available in Japanese
*	Amendment of the Ordinance of the Cabinet Office upon Introduction of the Price Rules for Credit Transactions (September 17, 2002) Available in Japanese
*	Measures for Ensuring Proper Operations of Stock Markets (March 13, 2003)

The system for protection of investors if a securities company should fail is as follows:

(1) Separate management of assets in securities companies
When investors purchase or sell stocks, usually money, stocks certificates and other private assets are deposited to a securities company. If the securities company manages the assets deposited by customers separately from the assets of its own, the customers' assets can be returned to the original proprietors even when the securities companies should fail. This is called separate management of assets.
This concept forms the foundation of investors protection and the separate management of assets is a duty imposed on securities companies by the Securities and Exchange Law.

(2) Investors Protection Fund
When securities companies observe the separate management of assets rule, the assets deposited by customers will be returned to the customers even if the securities companies go bankrupt.
However, in case securities companies become unable to smoothly return customers' assets due to some accident in the event of a bankruptcy, a compensation system using an investor protection fund was established.
The maximum reimbursement amount by the fund in the event of bankruptcy of a securities company is not more than 10 million yen per investor. Therefore, any amount exceeding 10 million yen in the assets of the customers that the securities company should return to an investor might be cut off, according to financial conditions of the failed securities company.
However, as described in (1), as long as securities companies observe the separate management of assets rule, customers' assets should return to the customers and, therefore, compensation by the fund will not be necessary in general.
Note: The fund does not compensate for loss to customers that is incurred by decline of the securities holding prices.