Financial Instruments and Exchange Act

A securities finance company must be a stock company whose amount of stated capital exceeds the amount that is specified by Cabinet Order as being necessary and appropriate in order for it to perform the business prescribed in paragraph (1) of the following Article.

A person seeking use the clearing framework of a financial instruments exchange market operated by a financial instruments exchange or the clearing framework of an over-the-counter securities market operated by an authorized financial instruments firms association, to engage in the business of lending, to the members, etc. of that financial instruments exchange or to the association members of that authorized financial instruments firms association, the money or securities that are needed for the settlement of purchase and sales and other transactions of securities that a financial instruments business operator effects by granting credit to a customer (hereinafter referred to as a "margin transaction") or for the settlement of a transaction specified by Cabinet Order, must be licensed by the Prime Minister.

A stock company seeking the license referred to in the preceding paragraph must submit a written application to the Prime Minister, in which it states the following particulars:

its trade name and amount of stated capital;

the names and locations of its head office, branch offices, and other business offices; and

the names of its officers.

The articles of incorporation, documents giving a business outline and stating the business methods, and other documents specified by Cabinet Office Order must accompany the written application referred to in the preceding paragraph.

The provisions of Article 81, paragraph (3) apply mutatis mutandis to the articles of incorporation referred to in the preceding paragraph.

When a written application under the provisions of paragraph (2) of the preceding Article is submitted, the Prime Minister must examine whether the applicant is sufficiently qualified to conduct business as a securities finance company, in light of its personnel structure, credit status, and capacity for fund procurement.

If, as a result of having conducted an examination pursuant to the provisions of the preceding paragraph, the Prime Minister finds that an application conforms to the criteria in that paragraph, the Prime Minister must grant the license, except in a case that falls under any of the following items:

the license applicant is not a stock company with a stated capital exceeding the amount specified by Cabinet Order which is referred to in Article 156-23;

the license applicant is not a stock company (meaning a stock company that has the following organs):

a board of directors; or

a company auditor, a supervisory committee, or a nominating committee, etc.;

the license applicant is a person that falls under Article 29-4, paragraph (1), item (i), (c);

the license applicant is a company that has had the license referred to in Article 80, paragraph (1) rescinded pursuant to the provisions of Article 148 or Article 152, paragraph (1); a company that has had the license referred to in Article 156-2 rescinded pursuant to the provisions of Article 156-17, paragraph (1) or (2); a company that has had the license referred to in paragraph (1) of the preceding Article rescinded pursuant to the provisions of Article 148 or Article 156-32, paragraph (1) as applied mutatis mutandis pursuant to the following Article; a company that has had the registration referred to in Article 29 rescinded pursuant to the provisions of Article 52, paragraph (1), Article 53, paragraph (3), Article 54, or Article 57-6, paragraph (3); a company that has had the registration referred to in Article 66 rescinded pursuant to the provisions of Article 66-20, paragraph (1); a company that has had the registration referred to in Article 66-27 rescinded pursuant to the provisions of Article 66-42, paragraph (1); a company that has had the registration referred to in Article 66-50 rescinded pursuant to the provisions of Article 66-63, paragraph (1) or Article 66-64; a company that has had the registration referred to in Article 66-71 rescinded pursuant to the provisions of Article 66-85, paragraph (1); a company that has had the registration referred to in Article 12 of the Act on the Provision of Financial Services and the Development of the Accessible Environment Thereto (limited to the registration related to the type of securities, etc. intermediary business operations) rescinded pursuant to the provisions of Article 38, paragraph (1) of that Act (excluding items (ii), (iii), and (v)); or the license applicant is a company that had a license or registration of the same kind obtained in a foreign country rescinded pursuant to the provisions of a foreign law or regulation that is equivalent to this Act or the Act on the Provision of Financial Services and the Development of the Accessible Environment Thereto (including permission or any other administrative disposition similar to such a license or registration); for which five years have not passed since the date of the rescission;

the license applicant is a company that has a person falling under any of the categories in Article 82, paragraph (2), item (iii), (a), (b) and (e) as a director, accounting advisor, company auditor, or executive officer; or

the license application, or a document or electronic or magnetic record that is required to be attached to it contains a false statement or false record regarding a material particular.

The provisions of Articles 83 and 148 apply mutatis mutandis to the license of a securities finance company. In this case, in Article 148, the phrase " any of the categories in the items of Article 82, paragraph (2)" is deemed to be replaced with " any of the categories in the items of Article 156-25, paragraph (2)".

A securities finance company may conduct the following business in addition to the business prescribed in Article 156-24, paragraph (1), to the extent that such concurrent business does not obstruct the execution of the business prescribed in that paragraph:

the lending and borrowing of securities (excluding the business prescribed in Article 156-24, paragraph (1)), or intermediation or agency for the lending and borrowing of securities;

the lending of money to financial instruments business operators (excluding business prescribed in Article 156-24, paragraph (1));

the lending of money to the customers of financial instruments business operators; and

other business specified by Cabinet Office Order.

If a securities finance company seeks to conduct business prescribed in any of the items of the preceding paragraph, it must notify the Prime Minister of this pursuant to the provisions of Cabinet Office Order.

A securities finance company may conduct business for which it has obtained the approval of the Prime Minister, in addition to business prescribed in paragraph (1) of this Article and Article 156-24, paragraph (1).

If a securities finance company seeks the approval referred to in the preceding paragraph but the Prime Minister finds that the securities finance company's concurrent engagement in the business for which it seeks approval would impede its execution of the business prescribed in Article 156-24, paragraph (1), the Prime Minister may refuse to grant the approval referred to in the preceding paragraph, after notifying the securities finance company and having the relevant official conduct a hearing.

A securities finance company must obtain the authorization of the Prime Minister if it seeks to change the business outline or business methods for business prescribed in Article 156-24, paragraph (1), or to reduce its stated capital.

A securities finance company must notify the Prime Minister pursuant to the provisions of Cabinet Office Order if it seeks to set or change the conditions for lending money or securities (limited to lending in connection with the business prescribed in Article 156-24, paragraph (1)), to increase its stated capital, or to change its trade name.

If a securities finance company comes to fall under any of the following items, it must notify the Prime Minister of this without delay, pursuant to the provisions of Cabinet Office Order:

a particular set forth in Article 156-24, paragraph (2), item (ii) or (iii) changes;

it discontinues the business to which the notification referred to in paragraph (2) of the preceding Article pertains; or

it discontinues the business to which the approval referred to in paragraph (3) of the preceding Article pertains.