Financial Instruments and Exchange Act

A financial instruments business operator, etc. must not engage in any of the following acts in connection with the investment advisory and agency business or investment management business it conducts:

using fraudulent means, committing assault, or using intimidation in connection with the conclusion or cancellation of an investment advisory contract, discretionary investment contract, or contract specified in Article 2, paragraph (8), item (xii), (b); and

promising a customer, at the time of solicitation, that any loss that may arise will be compensated in whole or in part.

A financial instruments business operator, etc. must not engage in any of the following acts:

making an offer or promise, or having a third party make an offer or promise, in connection with a purchase and sale or other transaction of securities (excluding a purchase and sale with a repurchase requirement and a predetermined repurchase price, and other transactions specified by Cabinet Order) or a derivatives transaction (hereinafter collectively referred to as a "purchase and sale or other transaction of securities, etc." in this Article), to a customer or to a person designated by the customer, that in the event that the customer (if a trust company, etc. (meaning a trust company or a financial institution that has obtained the authorization referred to in Article 1, paragraph (1) of the Act on Engagement in Trust Business by a Financial Institution; the same applies hereinafter) conducts the purchase and sale of securities or a derivatives transaction on the account of a person that establishes a trust based a trust contract, this includes the person that establishes the trust; hereinafter the same applies in this Article) incurs a loss from the securities or derivatives transaction (hereinafter collectively referred to as "securities, etc." in this Article), or in the event that a predetermined amount of profit does not accrue from those securities, etc., the financial instruments business operator, etc. or a third party will cover the whole or part of the loss or provide the customer or a third party with an economic benefit to supplement its profits;

making an offer or promise, or having a third party make an offer or promise, in connection with a purchase and sale or other transaction of securities, etc., to a customer or to a person designated by the customer, that the financial instruments business operator, etc. or a third party will cover the whole or part of a loss that the customer has incurred in connection with the relevant securities, etc., or will add to the profits that the customer has accrued in connection with those securities, etc.; and

providing an economic benefit to a customer or third party, or having a third party provide an economic benefit to a customer or third party, in connection with a purchase and sale or other transaction of securities, etc., in order to cover the whole or part of a loss that the customer has incurred in connection with the relevant securities, etc., or in order to add to the profit that the customer has accrued in connection with those securities, etc.

The customer of a financial instruments business operator, etc. must not engage in any of the following acts:

being party to, or having a third party be party to, the promise referred to in item (i) of the preceding paragraph (but only if that promise is based on a request that the customer makes personally or has a third party make), with the financial instruments business operator, etc. or a third party, in connection with a purchase and sale or other transaction of securities, etc.;

being party to, or having a third party be party to, the promise referred to in item (ii) of the preceding paragraph (but only if that promise is based on a request that the customer makes personally or has a third party make), with the financial instruments business operator, etc. or a third party in connection with a purchase and sale or other transaction of securities, etc.; and

receiving an economic benefit that is provided as referred to in item (iii) of the preceding paragraph or having a third party receive such an economic benefit (but only if this is based on a promise referred to in any of the preceding two items, if that promise is based on a request that the customer makes personally or has a third party make, and if the economic benefit is provided based on a request that the customer makes personally or has a third party make) from a financial instruments business operator, etc. or a third party, in connection with a purchase and sale or other transaction of securities, etc.

The provisions of paragraph (1) do not apply if the offer, promise, or provision of an economic benefit as referred to in the items of that paragraph is done in order to cover the whole or a part of a loss incurred due to problematic conduct (meaning illegal or wrongful conduct by a financial instruments business operator, etc. or its officer or employee, which is specified by Cabinet Office Order as a potential cause of a dispute between a financial instruments business operator, etc. and its customer; hereinafter the same applies in this and the following Sections); provided, however, that with regard to the offer or promise referred to in item (ii) of that paragraph or the provision of an economic benefit as referred to in item (iii) of that paragraph, this only applies if the financial instruments business operator, etc. receives confirmation from the Prime Minister in advance that the loss to be covered was incurred due to problematic conduct, or in a case that is otherwise specified by Cabinet Office Order.

The provisions of paragraph (1) (limited to the part that involves item (iii)) do not apply if the economic benefit referred to in that item has been provided by a financial instruments business operator, etc. (limited to a person that performs the acts set forth in Article 2, paragraph (8), item (ix) on a regular basis; the same applies in paragraph (6)) to cover the whole or part of a loss caused to the principal of an investment trust (meaning the investment trust defined in Article 2, paragraph (3) of the Act on Investment Trusts and Investment Corporations; hereinafter the same applies in paragraph (6) and Article 42-2, item (vi)) specified by Cabinet Office Order as those of which beneficial interest is acquired or held for the purpose of providing it for paying or receiving money in the purchase and sale of securities or any other transactions between a customer and a financial instruments business operator, etc.

The provisions of paragraph (2) do not apply if the promise referred to in item (i) or (ii) of that paragraph is a promise to cover the whole or part of a loss incurred due to problematic conduct, or if the economic benefit referred to in item (iii) of that paragraph is provided in order to cover the whole or part of a loss incurred due to problematic conduct.

The provisions of paragraph (2) (limited to the part that involves item (iii)) do not apply if the economic benefit referred to in that item has been provided by a financial instruments business operator, etc. to cover the whole or part of a loss caused to the principal of the investment trust referred to in paragraph (4).

A person seeking to receive the confirmation referred to in the proviso to paragraph (3) must submit a written application stating the fact regarding which confirmation is sought and other particulars specified by Cabinet Office Order to the Prime Minister pursuant to the provisions of Cabinet Office Order, accompanied by a document specified by Cabinet Office Order as being necessary for proving the relevant fact.

A financial instruments business operator, etc. must conduct its business in such a manner that the state of its business operations does not fall under any of the following items:

its issuance of a solicitation in connection with an act that constitutes a financial instruments transaction which is found to be inappropriate in light of customer knowledge, customer experience, the state of customer assets, or the purpose for which a financial instruments transaction contract is concluded, results in or is likely to result in insufficient investor protection; and

beyond what is set forth in the preceding item, the state of business operations is such that the financial instruments business operator, etc. is found not to have taken measures to ensure the appropriate handling of customer information it has obtained in the course of the business, or business operations are otherwise in a state specified by Cabinet Office Order as one that is contrary to the public interest or that is likely to compromise the protection of investors.

A financial instruments business operator, etc., pursuant to the provisions of Cabinet Order, must establish a policy and method for executing orders from customers for the purchase and sale of securities and derivatives transactions (excluding those specified by Cabinet Order; hereinafter referred to as "transactions of securities, etc." in this Article) under the best terms and conditions (hereinafter referred to as the "best execution policy, etc." in this Article).

A financial instruments business operator, etc. must disclose its best execution policy, etc. pursuant to the provisions of Cabinet Office Order.

A financial instruments business operator, etc. must execute orders for transactions of securities, etc. in accordance with its best execution policy, etc.

Before accepting an order from a customer for a purchase and sale of securities listed on a financial instruments exchange, purchase and sale of over-the-counter traded securities, or other transaction specified by Cabinet Order, a financial instruments business operator, etc., pursuant to the provisions of Cabinet Office Order, must provide the customer in advance with information on its best execution policy, etc. for the relevant transaction; provided, however, that this does not apply if it has already provided such information (or information on the revised policy, if its best execution policy, etc. has been revised).

If a financial instruments business operator, etc. is so requested by a customer within a period specified by Cabinet Office Order after executing the customer's order for a transaction of securities, etc., it must provide the customer, pursuant to the provisions of Cabinet Office Order, with information on an explanation that the order has been executed in accordance with its best execution policy, etc. and other particulars specified by Cabinet Office Order.

With regard to the rights set forth in Article 2, paragraph (2), item (v) or (vi) or the securities set forth in Article 2, paragraph (1), item (xxi) (limited to those specified by Cabinet Order) or the rights set forth in Article 2, paragraph (2), item (vii) (limited to those specified by Cabinet Order), a financial instruments business operator, etc. must not perform any of the acts set forth in Article 2, paragraph (8), item (i) or (ii), or items (vii) through (ix) unless the relevant right or securities are specified by Cabinet Office Order as those for which a contract or other juridical act involving the right or securities ensures that the money invested or contributed for the right or securities (including anything specified by Cabinet Order as being similar to money; hereinafter the same applies in this Article) is managed separately from the assets that belong to the person conducting the relevant business conducts by allocating such money, and is managed separately from any other assets connected with other business conducted by that person.

A financial instruments business operator, etc. must not conduct any of the acts specified in Article 2, paragraph (8), items (vii) through (ix) with regard to the rights set forth in Article 2, paragraph (2), item (v) or (vi) or the rights set forth in item (vii) of that paragraph (limited to rights specified by Cabinet Order as having an economic nature similar to the rights set forth in item (v) or (vi) of that paragraph), knowing that the money invested or contributed for such rights (including anything specified by Cabinet Order as being similar thereto; hereinafter the same applies in this Article) is not allocated to the business that is to be conducted by allocating that money.

With regard to rights in a lending business, etc., a financial instruments business operator, etc. must not perform the acts set forth in Article 2, paragraph (8), item (i), item (ii), or items (vii) through (ix) unless the rights are those specified by Cabinet Office Order as ones for which it is ensured, in the contract or other juridical act pertaining to those rights in a lending business, etc., that information on the status of the business subject to investment pertaining to those rights is provided to the person who holds those rights.

With regard to rights in a lending business, etc., a financial instruments business operator, etc. must not perform the acts set forth in Article 2, paragraph (8), items (vii) through (ix) knowing that the information that should be provided to the person who holds those rights based on the contract or other juridical act prescribed in the preceding Article has not been provided.