Financial Instruments and Exchange Act

A financial instruments business operator, etc. may entrust the whole or part of the authority to make investments on behalf of a rights holder to another financial instruments business operator, etc. (limited to one does investment management business) or other person specified by Cabinet Order, but only if the matters specified by Cabinet Office Order are stipulated in a contract or other juridical act set forth in any of the following items:

the contract set forth in Article 2, paragraph (8), item (xii), (a) or (b);

a contract concerning the rights indicated on securities or other rights specified by Cabinet Order as prescribed in Article 2, paragraph (8), item (xiv); and

a contract or other juridical act concerning the rights set forth in Article 2, paragraph (8), item (xv), (a) through (c) or other rights specified by Cabinet Order as prescribed in that item.

When a financial instruments business operator, etc. entrusts pursuant to the provisions of the preceding paragraph, it must indicate the objects and policy of investment to the person entrusted, and must, pursuant to the provisions of Cabinet Office Order, take measures for ensuring that the business pertaining to the entrustment is performed properly, such as management of the status of investment.

With regard to the application of the provisions of Article 42, paragraph (1) if a financial instruments business operator, etc. has entrusted another business operator, etc. or other persons the authority to make investments pursuant to the provisions of paragraph (1), the term "financial instruments business operator, etc." in Article 42, paragraph (1) is deemed to be replaced with "financial instruments business operator, etc. (including a person specified by Cabinet Order that is referred to in Article 42-3, paragraph (1) and that has been entrusted by the financial instruments business operator, etc. pursuant to that paragraph; the same applies in the following paragraph and the following Article)".

A financial instruments business operator, etc. must manage investment property separately from its own property and other investment property, pursuant to the provisions of Cabinet Office Order, in connection with the investment management business (limited to the business of performing the act specified in Article 2, paragraph (8), item (xv)) it conducts.

A financial instruments business operator, etc. must not, for any reason, receive a deposit of money or securities from a customer, or have a person specified by Cabinet Order as being closely related to the financial instruments business operator, etc. deposit a customer's money or securities, in connection with the investment management business it conducts (limited to the business of performing the acts specified in Article 2, paragraph (8), item (xii); hereinafter the same applies in this and the following Articles), unless it does so as securities, etc. management, or unless it does so in a case that is specified by Cabinet Order; provided, however, that this does not apply if the financial instruments business operator, etc. performs any of the acts set forth in Article 2, paragraph (8), items (i) through (iv) or commodity-related market derivatives transactions in connection with its investment management business on behalf of a customer, and such a deposit is necessary for the settlement of the transaction conducted through such an act.

A financial instruments business operator, etc. must not lend money or securities to a customer or perform intermediation, brokerage, or agency for a third party's lending of money or securities to a customer in connection with the investment management business it conducts; provided, however, that this does not apply if a financial instruments business operator lends money or securities to a customer in the course of a margin transaction prescribed in Article 156-24, paragraph (1), or if it performs any of these acts in a case that is specified by Cabinet Order.

With regard to investment property, a financial instruments business operator, etc., pursuant to the provisions of Cabinet Office Order, must periodically provide the known right holders of that investment property with information on the status of investment of the investment property and other particulars specified by Cabinet Office Order; provided, however, that this does not apply in the cases specified by Cabinet Office Order as those in which, even if that information is not provided to the right holders, this will not compromise the protection of the right holders.

When a financial instruments business operator, etc. provides information pursuant to the provisions of the preceding paragraph in connection with the investment management business it conducts (limited to the business of performing the act set forth in Article 2, paragraph (8), item (xv)), it must notify the Prime Minister of that information without delay, pursuant to the provisions of Cabinet Office Order; provided, however, that this does not apply if the number of right holders to a single investment property is the number specified by Cabinet Order or less, or in other cases specified by Cabinet Office Order as those in which the protection of investors is not compromised.

The provisions of Chapter IV of the Trust Business Act do not apply if a financial instruments business operator, etc. engages in investment management business.

A financial instruments business operator, etc. must engage in securities, etc. management with the due care of a prudent manager toward its customers.

A financial instruments business operator, etc. must manage the following securities (excluding the securities to be managed under the following paragraph) in the way specified by Cabinet Office Order as a reliable and orderly way of managing property, and must do so separately from its own property:

the securities that a customer deposits with the financial instruments business operator, etc. pursuant Article 119 (limited to those deposited in connection with securities-related derivatives transactions) or securities that a customer deposits with the financial instruments business operator, etc. pursuant to Article 161-2; and

the securities in the possession of the financial instruments business operator, etc. on the account of a customer or securities that a customer has deposited with the financial instruments business operator, etc. (excluding securities set forth in the preceding item, securities that a financial instruments business operator, etc. may use pursuant to a contract, and securities specified by Cabinet Order), in connection with transactions involved in securities services or other services specified by Cabinet Office Order as being incidental to securities services (excluding over-the-counter derivatives transactions (limited to transactions to be made with a financial instruments business operator that is engaged in securities services and is registered as referred to in Article 29 to engage in type-I financial instruments business as the counterparty, and other transactions that are specified by Cabinet Office Order in consideration of the characteristics of the counterparty to the transaction) and other transactions specified by Cabinet Order; hereinafter referred to as "transactions related to subject securities" in item (ii) of the following paragraph, Article 79-20 and Article 79-49).

As regards the money or securities set forth in the following items, a financial instruments business operator, etc. must manage the amount of money calculated pursuant to the provisions of Cabinet Office Order as the amount to be refunded to the customer in the event that the financial instruments business operator, etc. discontinues its financial instruments business (including services of a registered financial institution; hereinafter the same applies in this paragraph) or otherwise ceases to operate in the financial instruments business, separately from its own assets, and must establish a trust with a trust company, etc. in Japan, pursuant to the provisions of Cabinet Office Order, for the purpose of managing the amount of money to be refunded to the customer in the event that the relevant financial instruments business operator, etc. discontinues its financial instruments business or otherwise ceases to operate in the financial instruments business:

money that a customer deposits with the financial instruments business operator, etc. (limited to money deposited in connection with securities-related derivatives transactions) pursuant to Article 119, or money that a customer deposits with the financial instruments business operator, etc. pursuant to Article 161-2;

money on the account of a customer or money that a customer deposits with the financial instruments business operator, etc. (excluding the money set forth in the preceding item) in connection with a transaction related to subject securities; and

securities set forth in the items of the preceding paragraph that have been furnished as security pursuant to Article 43-4, paragraph (1).

A financial instruments business operator, etc. must periodically undergo an audit by a certified public accountant (this includes a foreign certified public accountant as prescribed in Article 16-2, paragraph (5) of the Certified Public Accountants Act (Act No. 103 of 1948); the same applies in Article 193-2 and Article 193-3) or audit by an audit corporation, pursuant to the provisions of Cabinet Office Order, as regards the management conditions under the preceding two paragraphs.

A financial instruments business operator, etc. must, with regard to transactions related to the acts listed in Article 2, paragraph (8), item (ii) or (iii) for commodity-related market derivatives transactions (hereinafter referred to as "commodity-related market derivatives transactions brokerage, etc." in this Article, the following Article and Article 79-20) or transactions related to the business prescribed in Article 35, paragraph (1) specified by Cabinet Office Order as a business incidental to a business related to commodity-related market derivatives transactions brokerage, etc. (hereinafter collectively referred to as "subject commodity derivatives transaction-related transactions" in Article 79-20 and Article 79-49), manage the money or securities deposited from a customer under the provisions of Article 119 or other property deposited from a customer, or money or other property belonging to the account of a customer, separately from the operator, etc.'s own property pursuant to the provisions of Cabinet Office Order.

A financial instruments business operator, etc. must manage the money or securities that a customer deposits pursuant to Article 119 and other security deposits and securities in connection with the derivatives transactions, etc. it conducts (excluding those that fall under securities-related derivatives transactions, etc., commodity-related market derivatives transactions, or commodity-related market derivatives transactions brokerage, etc.; the same applies in the following paragraph), separately from its own property, pursuant to the provisions of Cabinet Office Order.

A financial instruments business operator, etc. must manage the money and other assets that are equivalent to the amount of financial instruments that are part of the customer's account in connection with the derivatives transactions, etc. it conducts, pursuant to the provisions of Cabinet Office Order.

If a financial instruments business operator, etc. furnishes the securities in its possession on a customer's account or securities deposited with it by a customer as collateral, or lends such securities to another person, it must obtain written consent from that customer pursuant to the provisions of Cabinet Office Order.

A financial instruments business operator, etc. must, when furnishing as security the commodity possessed by the financial instruments business operator, etc. based on a customer's account (including instruments or certificates issued in relation to deposited commodity; hereinafter the same applies in this paragraph) or a commodity deposited to the financial instruments business operator, etc. from a customer or loaning such commodities to another person, with regard to the business related to the acts listed in Article 2, paragraph (8), item (ii), (iii) or (v) for commodity-related market derivatives transactions, obtain written consent from the customer pursuant to the provisions of Cabinet Office Order.

The provisions of Article 34-2, paragraph (12) apply mutatis mutandis to the written consent prescribed in the preceding two paragraphs.