Financial Instruments and Exchange Act

A financial instruments exchange must perform self-regulatory services in an appropriate manner, in accordance with this Act and with its articles of incorporation and other rules, in order to ensure the fair purchase and sale of securities and market derivatives transactions on the financial instruments exchange market, as well as to protect investors.

The term "self-regulatory services" as used in the preceding paragraph means the following services conducted in respect of a financial instruments exchange:

services related to the listing and delisting of financial instruments, financial indexes, or options (hereinafter referred to as "financial instruments, etc." in this Chapter) (excluding those specified by Cabinet Office Order);

the investigation of members', etc. compliance with laws and regulations, dispositions by government agencies which are based on laws and regulations, with the articles of incorporation and other rules, and with the principle of good faith in transactions; and

other services specified by Cabinet Office Order as necessary for ensuring fairness in transactions on a financial instruments exchange market.

With the authorization of the Prime Minister, a financial instruments exchange may entrust all or part of the self-regulatory services of the financial instruments exchange to a self-regulatory organization (meaning a corporation incorporated pursuant to the provisions of Subsection 1-2 of the following Section for the purpose of performing self-regulatory services (meaning self-regulatory services as prescribed in paragraph (2) of the preceding Article; hereinafter the same applies in this Chapter); hereinafter the same applies in this Chapter).

The Prime Minister may attach conditions to the authorization under the preceding paragraph.

The conditions referred to in the preceding paragraph must constitute the minimum necessary conditions in light of the purpose of the authorization, or for securing the reliable implementation of the things related to the authorization.

In addition to the entrustment referred to in the provisions of paragraph (1), a financial instruments exchange may entrust another person with part of the self-regulatory services of the financial instruments exchange (limited to services connected with a specified financial instruments exchange market that are specified by Cabinet Office Order as services which handle particulars other than those that affect the basis of investor protection, taking into account the content of those services; hereinafter referred to as "specified services" in this Article and Article 102-19).

If a financial instruments exchange seeks to entrust specified services pursuant to provisions of the preceding paragraph, it must take measures to ensure the proper implementation of such specified services, pursuant to the provisions of Cabinet Office Order.

If, pursuant to the provisions of paragraph (4), a specified incorporated financial instruments exchange (meaning a specified incorporated financial instruments exchange as prescribed in Article 105-4, paragraph (2); hereinafter the same applies in this paragraph) entrusts another person with its specified services, this must be based on the decision of the self-regulatory committee of the specified incorporated financial instruments exchange with regard to that entrustment.

A financial instrument exchange seeking the authorization referred to in paragraph (1) of the preceding Article must submit a written application for authorization to the Prime Minister in which it states the following particulars:

its name;

the name of the self-regulatory organization it will entrust (hereinafter referred to as an "entrusted self-regulatory organization" in this Chapter);

a business outline of the self-regulatory services it will entrust; and

other matters specified by Cabinet Office Order.

Documents giving the details of the entrustment agreement and other documents specified by Cabinet Office Order must accompany the written application for authorization referred to in the preceding paragraph.

The provisions of Article 81, paragraph (3) apply mutatis mutandis in the case of the application for authorization referred to in paragraph (1). In this case, the phrase "the articles of incorporation" is deemed to be replaced with "documents giving the details of the entrustment agreement".

When an application for authorization under the provisions of paragraph (1) of the preceding Article is filed, the Prime Minister must examine whether the application conforms to the following criteria:

the entrusted self-regulatory organization has obtained Article 102-14 authorization;

the entrustment agreement appropriately and clearly specifies the cost calculation method under entrustment in a way that allows a self-regulatory organization to conduct the self-regulatory services with which it is entrusted;

the entrustment agreement stipulates that the entrusted self-regulatory organization will not utilize information learned in connection with the self-regulatory services under entrustment for a purpose other than use in the self-regulatory services for which the information is provided; and

beyond what is provided for in the preceding three items, the content of the entrustment agreement is sufficient to ensure the proper implementation of the self-regulatory services at the entrusted self-regulatory organization.

If an application for authorization under the provisions of Article 85-2, paragraph (1) is filed and the Prime Minister finds it inappropriate to grant that authorization, the Prime Minister must notify the applicant for authorization and have the relevant officials conduct a hearing.

Upon deciding to grant or not to grant the authorization under the provisions of Article 85, paragraph (1), the Prime Minister must notify the applicant for authorization of this in writing without delay.

Beyond what is provided for in Article 84, a financial instruments exchange is to investigate the compliance of a person engaged in high-speed trading with laws and regulations and dispositions by government agencies which are based on laws and regulations and to take any other necessary measures, in accordance with this Act and with its articles of incorporation and other rules, in order to ensure the fair purchase and sale of securities and market derivatives transactions on the financial instruments exchange market, as well as to protect investors.

The provisions of this Act (excluding Article 84) apply by deeming the services related to the measures referred to in the preceding paragraph as self-regulatory services.

A financial instruments exchange must use the Japanese characters 取引所 (pronounced "torihikijo", meaning "exchange") in its name or trade name.

A person that is not a financial instruments exchange must not use a term in its name or trade name which could give rise to the misconception that it is a financial instruments exchange.

A financial instruments exchange must stipulate in its articles of incorporation that the members, etc. are to observe laws and regulations, dispositions by government agencies which are based on laws and regulations, and the financial instruments exchange's articles of incorporation, operational rules, brokerage contract rules, and other rules (hereinafter simply referred to as the "rules" in this Article) as well as the principle of good faith in transactions, and that if a member, etc. violates a law or regulation, a disposition by a government agency which is based on a law or regulation, or the rules, or if it engages in an act that is contrary to the principle of good faith in transactions, the financial instruments exchange will impose a surcharge on that member, etc., order the suspension or restriction of its purchase and sales of securities or market derivatives transactions on the financial instruments exchange market or its entrustment with brokerage for clearing of securities, etc. for such transactions, or expel it from the financial instruments exchange (or rescind its trading license, if it is a trading participant).

A financial instruments exchange may not engage in business other than the operation of financial instruments exchange markets and business incidental thereto; provided, however, that if it obtains the authorization of the Prime Minister pursuant to the provisions of Cabinet Office Order, it may engage in the business of designating numbers for identifying parties to financial instruments transactions (excluding transactions on financial instruments exchange markets), the business of operating a market for carrying out transactions involving international cooperation emission reductions (meaning international cooperation emission reductions as defined in Article 2, paragraph (8) of the Act on Promotion of Global Warming Countermeasures (Act No. 117 of 1998)), the business of operating the necessary market for effecting commodity futures transactions (but only if this is done by an incorporated financial instruments exchange), the business of operating a market for carrying out any other transactions specified by Cabinet Office Order as being similar to financial instruments transactions, or business incidental thereto, and it may engage in services which are common to two or more companies (including financial instruments membership corporations) that belong to the financial instruments exchange group (meaning a group consisting of a financial instruments exchange and its subsidiary companies (meaning subsidiary companies as defined in Article 87-3, paragraph (3); hereinafter the same applies in this paragraph, paragraphs (6) through (8) of that Article, and Article 87-4-2, paragraph (1)); hereinafter the same applies in this paragraph and Article 87-4-2) or the financial instruments exchange holding company group (meaning a group consisting of a financial instruments exchange holding company and its subsidiary companies; hereinafter the same applies in this paragraph and Article 106-23) to which the financial instruments exchange (hereinafter referred to as "the relevant exchange" in this paragraph) belongs (limited to cases where these two or more companies include a financial instruments exchange) and which are specified by Cabinet Office Order as services that, if performed by the relevant exchange, contribute particularly to the uniform and efficient management of the services of the financial instruments exchange group or the financial instruments exchange holding company group, on behalf of those two or more companies (excluding the relevant exchange).

If an application is filed for the authorization referred to in the proviso to the preceding paragraph, and the Prime Minister finds that the business to which the application pertains may impair confidence in the public nature of the business of the financial instruments exchange or may obstruct the operation of the financial instruments exchange markets and the sound and appropriate operation of business incidental thereto, the Prime Minister must not to grant that authorization.

The provisions of Article 30-2 apply mutatis mutandis to the authorization referred to in the proviso to paragraph (1).