Financial Instruments and Exchange Act

When an application is filed for the authorization referred to in paragraph (1) of the preceding Article or in the proviso to paragraph (4) of that Article, the Prime Minister must examine whether the application conforms to the following criteria:

the applicant for authorization's exercise of the subject voting rights is not likely to impair the sound and appropriate operation of the business of the financial instruments clearing organization;

the applicant for authorization has a sufficient understanding of the public nature of the business of a financial instruments clearing organization; and

the applicant for authorization has sufficient social credibility.

The provisions of Article 156-4, paragraph (2) (excluding item (i)) apply mutatis mutandis to the authorization referred to in paragraph (1) and in the proviso to paragraph (4) of the preceding Article. In this case, in Article 156-4, paragraph (2), the phrase "the preceding paragraph" is deemed to be replaced with "Article 156-5-6, paragraph (1)", the phrase "Article 156-17, paragraph (1) or (2)" is deemed to be replaced with "Article 156-17, paragraph (1) or (2); Article 156-20-14, paragraph (1) or (2)", the phrase "Article 106-28, paragraph (1)" is deemed to be replaced with "Article 106-28, paragraph (1); Article 155-6; Article 155-10, paragraph (1)"; and any other necessary technical replacement of terms is specified by Cabinet Order.

If an application is filed for the authorization referred to in the provisions of Article 156-5-5, paragraph (1) or in the proviso to paragraph (4) of that Article and the Prime Minister finds it inappropriate to grant that authorization, the Prime Minister must notify the applicant for authorization and have the relevant official conduct a hearing.

Upon deciding to grant or not to grant the authorization under the provisions of Article 156-5-5, paragraph (1) or the proviso to paragraph (4) of that Article, the Prime Minister must notify the applicant for authorization of the in writing without delay.

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 the major shareholder of a financial instruments clearing organization (meaning a person that holds a number of subject voting rights that is equal to or greater than the threshold holding ratio, in a financial instruments clearing organization that has been incorporated after obtaining Article 156-5-5, paragraph (1) authorization or that has obtained the authorization referred to in that paragraph or in the proviso to paragraph (4) of that Article; hereinafter the same applies in this Section) to report or submit materials that should serve as a reference in connection with the business or assets of the financial instruments clearing organization, and may have the relevant officials inspect the documents and other articles of such a major shareholder (but only as is necessary in connection with the business or assets of the financial instruments clearing organization).

If the major shareholder of a financial instruments clearing organization violates a law or regulation, or if it is found that the conduct of a major shareholder is likely to impair the sound and appropriate operation of the business of the financial instruments clearing organization, the Prime Minister may rescind the major shareholder's Article 156-5-5, paragraph (1) authorization or the authorization referred to in the proviso to paragraph (4) of that Article, or order the major shareholder to take measures that are necessary from a supervisory perspective.

A person that has the authorization referred to in Article 156-5-5, paragraph (1) or in the proviso to paragraph (4) of that Article rescinded pursuant to the provisions of the preceding paragraph must take the necessary measures to become the holder of a number of subject voting rights in a financial instruments clearing organization which is less than the threshold holding ratio, within three months from the day that the authorization is rescinded.

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

If a person that has obtained Article 156-5-5, paragraph (1) authorization does not become the holder of a number of subject voting rights that is equal to or greater than the threshold holding ratio, or does not incorporate as a company or other corporation that holds a number of subject voting rights that is equal to or greater than the threshold holding ratio within six months from the day on which that person obtains the authorization, that authorization ceases to be effective. In such a case, the person that obtained the authorization must notify the Prime Minister of this without delay.

If the major shareholder of a financial instruments clearing organization has become the holder of a number of subject voting rights that is less than the threshold holding ratio, the authorization referred to in Article 156-5-5, paragraph (1) or in the proviso to paragraph (4) of that Article ceases to be effective. In such a case, the person that was formerly a major shareholder must notify the Prime Minister of this without delay.

The provisions of Article 156-5-3, paragraph (2) apply mutatis mutandis if the provisions of Article 156-5-5, paragraphs (1) through (5); Article 156-5-6, paragraph (1); Article 156-5-8; Article 156-5-9, paragraph (2); and the preceding Article are applicable. In such a case, the term "hold" in Article 156-5-3, paragraph (2) is deemed to be replaced with "acquire or hold", and the term "has" in item (i) of that paragraph is deemed to be replaced with "has, or will have".

Pursuant to the provisions of its business rules, a financial instruments clearing organization may assume, novate, or bear in other ways the obligations of a person other than a business counterparty to financial instruments obligation assumption services (meaning a business counterparty to financial instruments obligation assumption services as defined in Article 2, paragraph (28); hereinafter the same applies in this paragraph) based on a subject transaction (meaning a subject transaction as defined in Article 2, paragraph (28); hereinafter the same applies in this Chapter) conducted by a person other than a business counterparty to financial instruments obligation assumption services, on a regular basis.

A financial instruments clearing organization may not conduct business other than financial instruments obligation assumption services, etc. and business incidental to the services; provided, however, that this does not apply if the financial instruments clearing organization obtains the approval of the Prime Minister pursuant to the provisions of Cabinet Office Order, for business related to financial instruments obligation assumption services or commodity transaction debt assumption services, etc. (meaning commodity transaction debt assumption services, etc. as defined in Article 170, paragraph (2) of the Commodity Derivatives Transaction Act; the same applies hereinafter) and business incidental thereto which is found to carry no risk of compromising the financial instruments clearing organization's proper and reliable performance of financial instruments obligation assumption services.

If a financial instruments clearing organization discontinues the business for which it has obtained the approval referred to in the proviso to the preceding paragraph, it must notify the Prime Minister of this pursuant to the provisions of Cabinet Office Order.

The Prime Minister may attach conditions to the approval referred to in the proviso to paragraph (2).

The conditions referred to in the preceding paragraph must constitute the minimum level of conditions that are necessary for the public interest and the protection of investors.

A financial instruments clearing organization must conduct its business pursuant to the provisions of its business rules.

The following matters must be specified in the business rules:

that the business set forth in paragraph (1) of the preceding Article is conducted, if applicable;

the transactions giving rise to obligations that are subject to financial instruments obligation assumption services (or, if the business set forth in paragraph (1) of the preceding Article is conducted, financial instruments obligation assumption services, etc.; hereinafter the same applies in this paragraph, Article 156-10 and Article 156-11-2, paragraph (1));

the particulars of the requirements for becoming the counterparty to the financial instruments obligation assumption services (hereinafter referred to as a "clearing member");

the particulars of the taking over, novating, or other bearing of obligations that the clearing organization performs as financial instruments obligation assumption services, and the particulars of the performance of such obligations;

the particulars involved in ensuring the performance of the obligations of a clearing member;

the particulars of brokerage for clearing of securities, etc.;

if collaborative financial instruments obligation assumption services (meaning collaborative financial instruments obligation assumption services as prescribed in Article 156-20-16, paragraph (1); hereinafter the same applies in this item) are performed, the particulars of the collaborative financial instruments obligation assumption services; and

other particulars specified by Cabinet Office Order.

It is prohibited for the officer (if an officer is a corporation, the person that performs those duties) or employee of a financial instruments clearing organization, or for a person that has held any of these positions, to divulge or misappropriate any secret learned in connection with the business of that organization.

It is prohibited for the officer (if an officer is a corporation, the person that performs those duties) or employee of a financial instruments clearing organization, or for a person that has held any of these positions, to utilize information learned in the course of duty for a purpose other than the business uses of the financial instruments clearing organization for which the information is provided.

A financial instruments clearing organization must not subject any particular clearing member to unfair and discriminatory treatment.

A financial instruments clearing organization must take measures to ensure the proper performance of financial instruments obligation assumption services, such as specifying in its business rules that if a loss is incurred due to financial instruments obligation assumption services, a clearing member bears all of that loss.

If a financial instruments clearing organization makes provisions in its business rules for a clearing deposit (meaning money or other property (limited to that which is specified by Cabinet Office Order) deposited with a financial instruments clearing organization by a clearing member as collateral against the performance of obligations; hereinafter the same applies in this Article), and a clearing member causes damage to the financial instruments clearing organization by defaulting on an obligation, the financial instruments clearing organization that incurs the damage has the right to receive payment from the clearing deposit that has been deposited by the clearing member that caused the damage, in preference over other creditors

If a financial instruments clearing organization makes provisions in its business rules for the method of netting off outstanding obligations (meaning obligations which have arisen from subject transactions, etc. (meaning subject transactions, transactions on a commodity market (meaning transactions on a commodity market as defined in Article 2, paragraph (10) of the Commodity Derivatives Transaction Act), or over-the-counter commodity derivatives transactions (meaning over-the-counter commodity derivatives transactions as defined in paragraph (14) of that Article); hereinafter the same applies in this Article) that a clearing member has conducted, and which the clearing organization has assumed from the other parties to the subject transactions, etc. or has novated or has borne in other ways as financial instruments obligation assumption services or commodity transaction debt assumption services, etc., claims (limited to claims with the same content as those obligations) that the clearing organization has acquired against the clearing member as the consideration for the obligations which have arisen out of subject transactions, etc. and which the clearing organization has borne for that clearing member, and collateral; hereinafter the same applies in this paragraph), the method of allocating collateral to cover outstanding obligations, or other means of settling outstanding obligations, and when special liquidation proceedings, bankruptcy proceedings, rehabilitation proceedings, or reorganization proceedings commence for a clearing member, the calculation of the amount of the claim that the financial instruments clearing organization or the clearing member has in terms of outstanding obligations and other means of settlement in relation to those proceedings, are to be in accordance with the provisions of the business rules.

In bankruptcy proceedings, rehabilitation proceedings, or reorganization proceedings, the claims provided for in the preceding paragraph which a financial instruments clearing organization has are bankruptcy claims, rehabilitation claims, or reorganization claims, and the claims provided for in that paragraph which a clearing member has are the property that is part of the bankruptcy estate, rehabilitation debtor's assets, the property of the corporation in need of reorganization, or the property of the cooperative financial institution in need of reorganization.

A financial instruments clearing organization must obtain the authorization of the Prime Minister if it seeks to change its articles of incorporation or business rules.