Financial Instruments and Exchange Act

The Prime Minister may order a change of methods by which or conditions under which a securities finance company lends money or securities (limited to lending connected with the business prescribed in Article 156-24, paragraph (1)), if those methods or conditions are found to have become inappropriate in light of general economic conditions or the transactions on the financial instruments exchange market or over-the-counter securities market tend to be unsound, and the Prime Minister finds it to be particularly necessary for facilitating fair purchase and sales on the financial instruments exchange market or over-the-counter securities market as well as for achieving a smooth distribution of securities. In such a case, irrespective of the category of proceeding for hearing statements of opinion under Article 13, paragraph (1) of the Administrative Procedure Act, the Prime Minister must conduct a hearing.

The representative director or representative executive officer of a securities finance company must be a person that is not the officer or employee of a financial instruments business operator.

The provisions of the proviso to Article 331, paragraph (2) of the Companies Act (including as applied mutatis mutandis pursuant to Article 335, paragraph (1) of that Act) and of Article 332, paragraph (2) (including as applied mutatis mutandis pursuant to Article 334, paragraph (1) of that Act); Article 336, paragraph (2); and the proviso to Article 402, paragraph (5) of that Act do not apply to a securities finance company.

A person that falls under any of the following persons may not become the director, accounting advisor, company auditor, or executive officer of a securities finance company.

a person specified by Cabinet Office Order as being unable to properly perform their duties due to a mental of physical disorder; or

a person falling under any of the provisions of Article 82, paragraph (2), item (iii), (a), (b), or (e).

The officer of a securities finance company loses that position if that officer comes to fall under a person provided for in the preceding paragraph.

If the Prime Minister discovers that a person has become the officer of a securities finance company by wrongful means, or if a securities finance company or its officer violates a law or regulation or a disposition by a government agency which is based on a law or regulation, the Prime Minister may order the securities finance company to dismiss that officer.

A securities finance company that conducts the business referred to in Article 156-27, paragraph (1), item (i), (iii), or (iv) must take the measures specified in the following items in accordance with the category of cases set forth in each of those items:

if there is a designated dispute resolution organization for securities finance companies (meaning a designated dispute resolution organization for which the category of dispute resolution services is the specified services of a securities finance company (meaning the specified services of a securities finance company as defined in Article 156-38, paragraph (7); hereinafter the same applies in this paragraph); hereinafter the same applies in this Article):measures to conclude a basic contract for the implementation of dispute resolution procedures in connection with the specified services of a securities finance company with a single designated dispute resolution organization for securities finance companies; or

if there is no designated dispute resolution organization for securities finance companies:complaint processing measures and dispute resolution measures in connection with the specified services of a securities finance company.

If a securities finance company takes measures to conclude a basic contract for the implementation of dispute resolution procedures pursuant to the provisions of the preceding paragraph, it must publicly announce the trade name or name of the designated dispute resolution organization for securities finance companies that is the other party to the basic contract for the implementation of dispute resolution procedures.

The provisions of paragraph (1) do not apply to the period specified in the following items in accordance with the category of cases set forth in each of those items:

a case that formerly fell under the case set forth in paragraph (1), item (i), which has come to fall under the case set forth in item (ii) of that paragraph:the period that the Prime Minister specifies as the period necessary for taking the measures set forth in paragraph (1), item (ii) at the time of granting the authorization to discontinue dispute resolution services, etc. under Article 156-60, paragraph (1) or at the time of rescinding the designation under Article 156-61, paragraph (1);

a case that formerly fell under the case set forth in paragraph (1), item (i), in which the discontinuation of the dispute resolution services, etc. of a single designated dispute resolution organization for securities finance companies under that item has been authorized pursuant to Article 156-60, paragraph (1) or the designation under Article 156-39, paragraph (1) of a single designated dispute resolution organization for securities finance companies under that item has been rescinded pursuant to Article 156-61, paragraph (1) (excluding a case set forth in the preceding item):the period specified by the Prime Minister as the period necessary for taking the measures set forth in paragraph (1), item (i) at the time of granting that authorization or making such rescission; or

a case that formerly fell under the case set forth in paragraph (1), item (ii), which has come to fall under the case set forth in item (i) of that paragraph:the period specified by the Prime Minister as the period necessary for taking the measures set forth in that item at the time of the designation under Article 156-39, paragraph (1).

If a securities finance company violates a law or regulation or a disposition by a government agency which is based on a law or regulation, the Prime Minister may rescind its license or order the suspension of all or part of its business during a fixed period of no longer than six months.

Irrespective of the category of proceeding for hearing statements of opinion under Article 13, paragraph (1) of the Administrative Procedure Act, before seeking to order the suspension of business pursuant to the provisions of the preceding paragraph, the Prime Minister must conduct a hearing.

Beyond issuing an order under Article 156-29, if the Prime Minister finds it to be necessary and appropriate in the public interest or for the protection of investors as concerns a securities finance company's business operations or the state of its assets, the Prime Minister may, to the extent necessary, order the securities finance company to change its business outline or business methods, or otherwise take measures that are necessary for improving its business operations or the state of its assets.

Irrespective of the category of proceeding for hearing statements of opinion under Article 13, paragraph (1) of the Administrative Procedure Act, before seeking to issue an order under the provisions of the preceding paragraph, the Prime Minister must conduct a hearing.

When the Prime Minister finds it to be necessary and appropriate in the public interest or for the protection of investors, the Prime Minister may order a securities finance company or the person that a securities finance company has entrusted with its business (including a person that has received entrustment from the person (including entrustment at two or more degrees of separation from the original entrustment); hereinafter the same applies in this Article) to report or submit materials that should serve as a reference with regard to the business or assets of the securities finance company, and may have the relevant officials inspect the state of the business or assets, or the books, documents, and any other articles, of a securities finance company or the person that a securities finance company has entrusted with its business (but may only have the relevant officials inspect the person that a securities finance company has entrusted with its business as is necessary in connection with the business or assets of the securities finance company).

Each business year, pursuant to the provisions of Cabinet Office Order, a securities finance company must prepare a business report and submit it to the Prime Minister within three months after the end of the business year.

The following particulars do not become effective without the authorization of the Prime Minister:

a resolution to discontinue the business of a securities finance company (limited to the business prescribed in Article 156-24, paragraph (1)), or a resolution to dissolve a securities finance company; and

a merger, company split, or transfer or acquisition of all or a part of business operations, to which a securities finance company is the party.

The procedures for implementing the provisions of Article 156-23 through the preceding Article and other necessary particulars for the implementation are specified by Cabinet Office Order.