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(Reference 1)  Supplementary explanations on the Financial Instruments and Exchange Act

 

(1)   Classification of financial instruments businesses
Types of registration Major business operations with obtaining registration*1 Corresponding business scheme cases
Type I Financial Instruments Business

A.   Following businesses related to Paragraph 1 Securities*2

(a)  Purchase and sale of securities, market derivatives transactions

(b)  Intermediation, brokerage or agency for purchase and sale of securities or market derivatives transactions

(c)  Intermediation, brokerage or agency for entrustment of purchase and sale of listed securities or market derivatives transactions

(d)  Secondary distribution of securities

(e)  Handling of public offering, secondary distribution or private placement of securities

2 (2) 2) (vi)
2 (2) 4) (i)
2 (2) 4) (ii)
 

B. Over-the-counter derivatives transactions

C. Operation of the Proprietary Trading System (PTS)

D. Underwriting of securities

E. Accepting deposits of cash or securities

Type II Financial Instruments Business

A.   Following businesses related to Paragraph 2 Securities*2

(a)  Purchase and sale of securities, market derivatives transactions

(b)  Intermediation, brokerage or agency for purchase and sale of securities or market derivatives transactions

(c)  Intermediation, brokerage or agency for entrustment of market derivatives transactions

(d)  Secondary distribution of securities

(e)  Handling of public offering, secondary distribution or private placement of securities

2 (2) 4) (i)
2 (2) 4) (ii)
 

B. Public offering or private placement (self-offering) of certain types of securities such as beneficiary certificates of investment trusts that the business operator manages as the investment trust management company, and interests in collective investment schemes that it manages as the executive partner (such as unlimited liability partner and general partner)*3

2 (2) 2) (vii) through (x)
Investment Management Business (Regular) Investment Management Business

A. Management of assets held by registered investment corporations under an asset management contract (Investment corporation asset management business)

2 (2) 2) (x)

B. Management of customer assets under a discretionary investment contract, performed by means of investment in securities or derivatives transactions (Discretionary investment business)

2 (2) 2) (i) through (vi)

C. Management of investment trusts as an investment trust management company (Investment trust management business)*4

2 (2) 2) (vii)

D. Self-management of cash contributed by the right holders of trust beneficiary rights (except beneficiary certificates of investment trusts) or collective investment schemes, where over 50% of the assets under management are invested in securities or derivatives transactions (Fund management business)*4

2 (2) 2) (viii)
2 (2) 2) (ix)
Investment Management Business for Qualified Investors Same as regular investment Management Business (but limited to cases where rights holders consist exclusively of Qualified Investors and the total amount of assets under management is 20 billion yen or less) Same as regular Investment Management Business
Investment Advisory and Agency Business

A. Provision of advices on values, etc. of securities or investment decisions based on analysis of values, etc., of financial instruments, under an investment advisory contract (investment advisory business)

2 (2) 1)
2 (2) 2) (v)

B. Intermediary or agency for conclusion of investment advisory contracts or discretionary investment contracts

2 (2) 3)

 

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Note 1: For Type I Financial Instruments Business and Type II Financial Instruments Business, businesses related to asset management business are mainly provided and not all businesses are covered. For details, please refer to relevant provisions (Article 2(8), Article 28 of the Act). Businesses other than those listed above include, for example, businesses related to brokerage for clearing of securities (Type I and Type II Financial Instruments Business) and book-entry transfer of corporate bonds and other securities (Type I Financial Instruments Business). Among market derivatives business transactions, intermediation, brokerage, or agency of commodity-related market derivatives transactions is classified as Type I Financial Instruments Business and the market derivatives transactions related to items other than securities and commodities are classified as Type II Financial Instruments Business.

Note 2: Major securities that are classified as “Paragraph 1 Securities” (securities defined in Article 2, Paragraph 1 of the Act) and “Paragraph 2 Securities” (securities defined in Paragraph 2 of the same Article) are as follows:

Paragraph 1 securities

- National government bonds, local government bonds

- Corporate bonds

- Stocks, warrants

- Beneficiary certificates of investment trusts*1

- Investment certificates, warrants and investment corporation bonds issued by investment corporations

Paragraph 2 securities

- Trust beneficiary rights (excluding beneficiary certificates of investment trusts)

- Membership rights of a general partnership company, limited partnership company, or limited liability company (including foreign companies having similar characteristics)

- Interests in collective investment schemes*2

*1: “Investment trust” refers to a trust investing in securities, rights to derivatives transactions, real estate, commodities and other specified assets (Specified Assets), which is established under the Investment Trust Act, and trusts similar thereto that are established overseas in accordance with the relevant foreign laws (foreign investment trusts) (Article 2(3) and (24) of the Investment Trust Act).

*2: “Interests in collective investment schemes” refer to rights based on various partnership contracts, membership rights of incorporated associations and other rights that allow investors to receive dividends of profits arising from business that is conducted using money invested or contributed by the investors (“invested businesses”) or distribution of assets pertaining to the said invested businesses, excluding the securities separately defined in Article 2(1) and (2) of the Act (such as beneficiary certificates of investment trusts, investment certificates of investment corporations) and other specified rights.  Typical interests in collective investment schemes are shares of partnership-type funds. For more details, see Article 2(2)(v) and (vi) of the Act.

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Note 3: Where an Investment Management Business Operator newly issues the shares of fund such as an investment trust, registered investment corporation and collective investment scheme (partnership-type fund) established and managed by itself (primary offering), the business operator may solicit investments from investors with registration for Type II Financial Instruments Business (Article 2(8)(vii) and Article 28(2)(i) of the Act, Article 196(2) of the Investment Trust Act). Even in the case of new issuance of fund (primary offering), however, where any other party (including distributor and person managing the fund under entrustment by the investment management company directly in charge of management of the fund) conducts solicitation (handling of public offering or private placement), registration for Type I Financial Instruments Business or Type II Financial Instruments Business is required depending on the type of securities for transactions. Also, in a case where a person conducts solicitation related to purchase and sale of the issued rights (secondary offering), registration for Type I Financial Instruments Business or Type II Financial Instruments Business is required.

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Note 4: Even in the case of managing an investment trust or partnership-type fund, if such management businesses are conducted under entrustment by a person who directly established the said investment trust or partnership-type fund (such as investment trust management company of an investment trust or unlimited liability partner of an investment limited partnership), it shall be classified as discretionary investment business and does not constitute investment trust management business or fund management business.

 

(2) Major exemptions from application for Financial Instruments Businesses

 The FIEA specifies some reasons for exemption from application to enable certain businesses to be conducted without obtaining registration as a Financial Instruments Business Operator. Details and requirements for such exemptions are specified in relevant provisions (among others, Article 1-8-6 of the Order, Article 16 of the Cabinet Office Ordinance on Definitions, Article 58-2, Article 61, and Article 63 of the Act). Major reasons for exemption include the following. Please note that the descriptions below don’t cover all of the cases and requirements provided for in the relevant provisions and, for more details, please refer to the provisions. (The “applicable businesses” below refer to the businesses provided in the table of (Reference 1) “Classification of financial instruments businesses.”)

1) Exceptions pertaining to sales of securities by foreign securities service providers (Article 58-2 proviso of the Act, Article 17-3(i) and (ii) of the Order)

(Applicable businesses: Type I Financial Instruments Business A., B., C., Type II Financial Instruments Business A.)
 In a case where a business operator is governed by foreign laws and regulations and engaged in purchase and sale of securities or other securities transactions or securities-related derivatives transactions (securities-related business) in a foreign country (foreign securities services provider) is to conduct any of the businesses listed below, registration for Type I Financial Instruments Business or Type II Financial Instruments Business is not necessary.

(a) (i) Purchase and sale, brokerage, solicitation and other securities-related businesses only with Financial Instruments Business Operators conducting securities-related businesses in Japan (Article 58-2 proviso of the Act); and (ii) purchase and sale, brokerage, solicitation and other specified securities-related businesses only with the government or banks, insurance companies, Investment Management Business Operators and other specified financial institutions, conducted from overseas regarding their own investment activities and investment management businesses (Article 17-3(i) of the Order)

(b) Without making solicitation,* (i) purchase and sale and brokerage of securities and other specified securities-related businesses conducted with customers in Japan as the counterparty thereto upon receiving orders from the customers (Article 17-3(ii)(a) of the Order); and (ii) purchase and sale of securities and other specified securities-related businesses conducted with customers in Japan as the counterparty thereto through the agency or intermediary service performed by a Type I Financial Instruments Business operator engaged in securities-related businesses (Article 17-3(ii)(b) of the Order)

* See X-1-2 of the Guidelines for Supervision for solicitation activities using internet by foreign securities service providers.

- For business scheme cases, see section 2 (2) 4) (ii) .

Note: When conducting investment solicitation (handling of a public offering or a private placement) for beneficiary certificates of a foreign investment trust or foreign investment securities issued by a foreign investment corporation in Japan, the issuer thereof is required to notify the competent authority of specified matters in advance (Article 58(1), Article 220(1) of the Investment Trust Act).

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2) Exemptions pertaining to management/advisory businesses by foreign asset manager (Article 61 of the Act, Article 17-11 of the Order)

(Applicable businesses: Investment Management Business B. D., Investment Advisory and Agency Business A.)
 Registration for Investment Management Business or Investment Advisory and Agency Business is not required (a) when a corporation engaged in Investment Management Business (discretionary investment business) overseas is to conduct Investment Management Business (discretionary investment business) for Investment Management Business Operators or trust banks conducting Investment Management Business (discretionary investment business), (b) when a corporation engaged in Investment Management Business (fund management business) overseas is to conduct Investment Management Business (fund management business) for Investment Management Business Operators or trust banks (limited to those conducting Investment Management Business), and (c) when a person engaged in Investment Advisory Business overseas is to conduct Investment Advisory Business for Investment Management Business Operators or trust banks (limited to those conducting Investment Management Business).

- For business scheme cases, see section 2 (2) 2) (i) , (ii), (v), (ix), 3), and 4) (i).

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3) Exemptions pertaining to businesses carried out under entrustment from a group company engaged in a Financial Instruments Business in a foreign country (Article 16(1)(ii) and (viii) of Cabinet Office Ordinance on Definitions)

(Applicable businesses: Type I Financial Instruments Business A., Type II Financial Instruments Business A.)
 Registration for Type I Financial Instruments Business or Type II Financial Instruments business is not required to conduct a business related to intermediation, brokerage, or agency for purchase and sale of securities or derivatives transactions under entrustment from a group company engaging in Investment Management Business in a foreign country in compliance with the laws and regulations of the said country (affiliated foreign investment specialist) if the following conditions are satisfied (Article 16(1)(ii) of Cabinet Office Ordinance on Definitions):

(a) the person to conduct said business has been registered as a Financial Instruments Business Operator for the Investment Management Business;

(b) the business is intermediation, brokerage or agency for purchase and sale of securities or derivatives transactions that the affiliated foreign investment specialist conducts as its investment management; and

(c) The customers as counterparties of the intermediation, brokerage or agency consist of Financial Instruments Business Operators or Registered Financial Institutions (except in transactions conducted at financial instruments exchanges).
 

(Applicable business: Investment Management Business B.)
 Registration for Investment Management Business (discretionary investment business) is not required when a Financial Instruments Business Operator is entrusted by a group company (affiliated foreign financial instruments business operator) engaged in Type I Financial Instruments Business or Type II Financial Instruments Business in a foreign country in compliance with the  laws and regulations of the said country to conduct any of the businesses listed below (Article 16(1)(viii) of Cabinet Office Ordinance on Definitions).

(a) Purchase and sale of securities or a derivatives transaction conducted under a contract in which it is provided that, upon obtaining consent from the affiliated foreign financial instruments business operator for purchase or sale as well as the issues of the securities, said financial instruments business operator may decide the volume and price

(b) Purchase and sale of securities or a derivatives transaction conducted under a discretionary trading contract with the affiliated foreign financial instruments business operator in which it is provided that the Financial Instruments Business Operator decides on purchase or sale of the securities and on the issues, volume and price in connection with a transaction on the account of the affiliated foreign financial instruments business operator, and with regard to which the Financial Instruments Business Operator has notified the competent authority of the specified matters in advance
 

4) Exemptions pertaining to businesses for management of foreign investment trusts (Article 16 (1) (ix)-2 of Cabinet Office Ordinance on Definitions)

(Applicable business: Investment Management Business C.)
 Registration for Investment Management Business (investment trust management business) is not required when a person engaging in investment trust management business in a foreign country in compliance with the laws and regulations of the said country (such as management company of a foreign-based trust-type fund) is to invest money contributed by a person who holds the rights indicated on the beneficiary securities of a foreign investment trust.
 

5) Exemptions pertaining to management businesses of a partnership-type fund conducted by entrusting all of the investment authority to an Investment Management Business Operator or Registered Financial Institution (collectively, the “Investment Management Business Operator, etc.”) (Article 16(1)(x) of Cabinet Office Ordinance on Definitions)

(Applicable business: Investment Management Business D.)
 Registration for Investment Management Business (fund management business) is not required when a person engaging in investment management (self-management) of a partnership-type fund enters into a discretionary investment contract with an Investment Management Business Operator, etc. to entrust all of its fund management authority to the said Investment Management Business Operator, etc. and when all of the requirements below are satisfied.

(a) In an investment contract (such as partnership agreement), (i) a statement to the effect that all of the fund management authority is entrusted, and the trade name and name of said Investment Management Business Operator, etc., (ii) an outline of the discretionary investment contract, and (iii) the amount of remuneration to be paid under the discretionary investment contract, are specified.

(b) In the investment contract and discretionary investment contract, (i) that said Investment Management Business Operator, etc. will engage in the Investment Management Business for investors in a loyal manner, and (ii) that said Investment Management Business Operator, etc. will carry out Investment Management Business, etc. while paying the due care of a prudent manager for investors, are specified.

(c) In the investment contract and discretionary investment contract, the transactions with the Investment Management Business Operator, etc. itself or its officers or with other funds managed by itself are restricted by specified means.

(d) The person engaging in investment management of the fund (self-management) manages the invested assets separately from its own property and other managed assets and said Investment Management Business Operator, etc. supervises such segregated management.

(e) The Investment Management Business Operator, etc. has notified the competent authority of the specified matters in advance (any change arising later in the notified matters also should be notified.)

- For business scheme cases, see section 2 (2) 2) (viii).
 

6) Exemptions pertaining to management businesses of a two-tiered fund based on a silent partnership for investments in beneficial interest in real property trust (Article 16(1)(xi) of Cabinet Office Ordinance on Definitions)

(Applicable business: Investment Management Business D.)
 Registration for Investment Management Business (fund management business) is not required to conduct Investment Management Business of the baby fund (self-management) of a two-tiered fund based on a silent partnership (anonymous partnership) contract for investments in real property trust beneficiary rights, and when all of the following requirements are satisfied.

(a) Investors of the baby fund consist exclusively of a single fund under the silent partnership contract (mother fund), and the business operator of the mother fund is an Investment Management Business Operator or a notifier of Specially Permitted Business for Qualified Institutional Investors, etc.

(b) The business operator of the mother fund has notified the competent authority of the specified matters in advance (any change arising later in the notified matters also should be notified.)

- For business scheme cases, see section 2 (2) 2) (viii).
 

7) Exemptions pertaining to management business for a foreign-based partnership-type fund with a small number of domestic investors (Article 16(1)(xiii) of Cabinet Office Ordinance on Definitions)

(Applicable business: Investment Management Business D.)
 Registration for Investment Management Business (fund management business) is not required to conduct investment management of a foreign-based partnership-type fund where: (a) investors in Japan that directly invest in the fund (direct equity holders) consist exclusively of Qualified Institutional Investors* or notifiers of Specially Permitted Business for Qualified Institutional Investors, etc.; (b) investors in Japan that invest in the fund using a fund-of-funds strategy (indirect equity holders) consisting exclusively of Qualified Institutional Investors; (c) the total of the number of direct equity holders and indirect equity holders is less than 10; and (d) the amount of money contributed by direct equity holders does not exceed one-third of the total amount invested for the fund.
- For business scheme cases, see section 2 (2) 2) (ii) , (ix) , and 4) (i).
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8) Exemptions pertaining to investment solicitation and management businesses for a partnership-type fund for professionals (Specially Permitted Business for Qualified Institutional Investors, etc.) (Article 63 of the Act)

(Applicable businesses: Type II Financial Instruments Business B., Investment Management Business D.)
 Registration for Investment Management Business (fund management business) or Type II Financial Instruments Business is not required when an executive partner (such as unlimited liability partner or general partner) of the fund conducts investment management and investment solicitation by means of private placement*2 of a partnership-type fund of which Japanese investors consist exclusively of one or more Qualified Institutional Investors*1 and 49 or less specified investors and where the executive partner notified the competent authority of the specified matters in advance.

*1: Please refer to (Reference 1) (3) “Classification of Investors” (p. 67) for the scope of “Qualified Institutional Investors.”

*2: “Private placement” for a partnership-type fund (collective investment scheme) refers to investment solicitation accepted by less than 500 investors (Article 2(3)(iii) of the Act, Article 1-7-2 of the Order).

Note: Regarding the Specially Permitted Businesses for Qualified Institutional Investors, etc., various changes were made in 2015 revisions to the Financial Instruments and Exchange Act, such as expansion of the scope of matters to be notified and documents to be attached, enhancement of behavior regulations, and limitation of the scope of allowable investors. For more details, please refer to the links below.

- For business scheme cases, see section 2 (2) 2) (ii) , (viii) , (ix) , and 4) (i).

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(3) Classification of investors
 Some exemptions specified in the FIEA are often applicable to a limited scope of investors who are considered to have sufficient knowledge and experience concerning investment. While the scope of such eligible investors varies depending on the exemption, investors are generally classified into 1) Qualified Institutional Investors, 2) Professional Investors, and 3) Qualified Investors. Specific examples of each category are as follows. (For more details, please refer to each relevant provision.)
 

1) Qualified Institutional Investors (Article 10 of Cabinet Office Ordinance on Definitions)

 Financial Instruments Business Operators (limited to those engaged in Type I Financial Instruments Business that falls under securities-related business or Investment Management Business), investment corporations, banks and other financial institutions that receive deposits or savings, insurance companies, call brokers, venture capitals with a capital of at least 500 million yen that have made notification to the FSA Commissioner, investment limited liability partnerships, pension funds with net assets of at least 10 billion yen that have made notification to the FSA Commissioner, investment-type trust companies that have made notification to the FSA Commissioner, those with 1 billion yen or more in the balance of securities that have made notification to the FSA Commissioner (in the case of individuals, limited to those who opened an account for trading of securities at least a year ago), executive partners of a partnership fund with 1 billion yen or more in the balance of securities who have made notification to the FSA Commissioner, the specified purpose companies with 1 billion yen or more in the balance of securities that have made notification to the FSA Commissioner, etc.
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2) Professional investors (Article 2(31) of the Act, Article 23 of Cabinet Office Ordinance on Definitions)

 Qualified Institutional Investors, the State, the Bank of Japan, specified purpose companies, listed companies, stock companies with a capital of at least 500 million yen, Financial Instruments Business Operators, notifier of Specially Permitted Business for Qualified Institutional Investors, etc., foreign corporations, etc.
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●   Information on professional investors (Japanese only)
 

3) Qualified Investors (Article 29-5(3) and (4) of the Act, Article 15-10-7 of the Order, Article 16-6 of FIB Cabinet Office Ordinance) Besides Qualified Institutional Investors and Professional Investors, the following persons:

●  Persons equivalent to Professional Investors
Corporations with a capital or net assets of 50 million yen or more (including affiliated companies thereof), pension funds with 10 billion yen or more of investment-based assets, those with 100 million yen or more of investment-based assets (in the case of individuals, limited to those who opened an account for trading of securities at least a year ago), affiliated companies of Financial Instruments Business Operators or listed companies, etc.

●  Persons that have a close relationship with related Investment Management Business Operators for Qualified Investors 

Affiliated companies of the Investment Management Business Operators for Qualified Investors, officers and employees, and relatives thereof, of the Investment Management Business Operators for Qualified Investors or its affiliated companies, and subcontractors of the management business of the Investment Management Business Operators for Qualified Investors, etc.


 

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