.  Basic Idea

     Based on Article 3 of the Law on Foreign Securities Firms, unless a foreign broker-dealer registers the main branch in Japan with JFSA, a foreign broker-dealer is not allowed to engage in securities transactions with residents in Japan.
     On the other hand, based on Article 2 Paragraph 2 of the Cabinet Order for the Enforcement of the Law on Foreign Securities Firms, even non-registered foreign broker-dealers are allowed to engage in securities transaction if they receive orders from investors in Japan without the direct "solicitation" to them. The issue, therefore, is whether JFSA would consider a broker-dealer's Web site to be the "solicitation", the attempt to induce securities transactions with Japanese investors.

2

.  Cross-Border Securities Transaction via Internet by Foreign Securities Firms

     As a rule, a broker-dealer's advertisement on Internet Web sites such as the offer of market information, real-time or delayed quote information, or instructions on how to order, falls under the "solicitation", that is, an advertisement about securities transaction in newspaper, magazine, television, radio or other related media based on Article 7 Item 1 of the Ordinance of the Prime Minister's Office on Foreign Securities Firms.
     In spite of the above, the JFSA will not consider foreign broker-dealer's advertisement on an Internet Web site to constitute a "solicitation", that is an attempt to induce securities transactions with residents in Japan, only if the foreign broker-dealer takes the following appropriate and rational measures designed to exclude the possibility of securities transactions with residents in Japan:

(1)

Disclaimer     The Web site must have a prominent disclaimer which makes it clear that the offer is not aimed at residents in Japan. *   The JFSA will take into account the following factors in order to determine whether the disclaimer is adequate or not.     The disclaimer should be seen without any special operation other than viewing the Web site.     The disclaimer should be described in the same language as the rest of the Web site.

(2)

Measures designed to avoid securities transaction with residents in Japan     The measures must be designed to avoid dealing with persons in Japan. *   The JFSA will take into account the following factors in order to determine whether the measures are adequate or not.     The broker-dealer should implement appropriate procedures to determine a potential customer's residence, by requiring them to provide their mailing address, e-mail address, payment or other information.     The broker-dealer should prepare the appropriate procedures for rejecting an order reasonably recognized as being sent from Japan.     The broker-dealer should not implement such measures as establishing a call-center in Japan or hypertext linked to the portal sites targeting to Japanese residents.

   The above procedures are not definitive. The JFSA, therefore, will accept equivalent or more effective measures than those stated above.

   The JFSA will consider a Web site to be a solicitation if the broker-dealer should fails to implement the appropriate measures mentioned above. In this case, the broker-dealer is required to prove that any transactions with residents of Japan took place without solicitation.