Financial Instruments and Exchange Act

A financial instruments business operator, etc. must not perform any of the following acts in connection with the investment management business it conducts; provided, however, that this excludes acts set forth in items (i) and (ii) which are specified by Cabinet Office Order as being unlikely to result in insufficient investor protection, harm the fairness of transactions, or cause the financial instruments business to lose credibility:

making an investment that involves a transaction with the financial instruments business operator, etc. or its director or executive officer;

making an investment that involves a transaction being conducted between or among investment properties;

making an investment in a particular financial instrument, financial index, or option, which involves a transaction being conducted for which there is no justifiable basis, with the aim of using fluctuations in the price, index, figure, or amount receivable based on the transaction, to benefit itself or a third party other than the rights holder;

making an investment that involves a transaction being conducted under terms and conditions that are different from the ordinary terms and conditions, and that are detrimental to the rights holder's interests;

making a purchase and sale or other transaction of securities on its own account using information about a transaction that it has conducted as an investment;

providing an economic benefit to a rights holder or a third party or having a third party provide an economic benefit to a rights holder or third party, in order to cover the whole or part of a loss that a rights holder has incurred due to a transaction conducted as an investment in investment property, or in order to add to the profit that a rights holder has accrued from a transaction conducted as an investment in investment property (unless this is done to cover the whole or part of a loss incurred due to problematic conduct or a loss caused to the principal of an investment rust 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 the right holder and the financial instruments business operator, etc.); and

beyond what is set forth in the preceding items, any act specified by Cabinet Office Order as resulting in insufficient investor protection, harming the fairness of transactions, or causing a loss of confidence in the financial instruments business.

A financial instruments business operator, etc. may entrust the whole or part of the authority to make investments on behalf of a rights holder to another financial instruments business operator, etc. (limited to one does investment management business) or other person specified by Cabinet Order, but only if the matters specified by Cabinet Office Order are stipulated in a contract or other juridical act set forth in any of the following items:

the contract set forth in Article 2, paragraph (8), item (xii), (a) or (b);

a contract concerning the rights indicated on securities or other rights specified by Cabinet Order as prescribed in Article 2, paragraph (8), item (xiv); and

a contract or other juridical act concerning the rights set forth in Article 2, paragraph (8), item (xv), (a) through (c) or other rights specified by Cabinet Order as prescribed in that item.

When a financial instruments business operator, etc. entrusts pursuant to the provisions of the preceding paragraph, it must indicate the objects and policy of investment to the person entrusted, and must, pursuant to the provisions of Cabinet Office Order, take measures for ensuring that the business pertaining to the entrustment is performed properly, such as management of the status of investment.

With regard to the application of the provisions of Article 42, paragraph (1) if a financial instruments business operator, etc. has entrusted another business operator, etc. or other persons the authority to make investments pursuant to the provisions of paragraph (1), the term "financial instruments business operator, etc." in Article 42, paragraph (1) is deemed to be replaced with "financial instruments business operator, etc. (including a person specified by Cabinet Order that is referred to in Article 42-3, paragraph (1) and that has been entrusted by the financial instruments business operator, etc. pursuant to that paragraph; the same applies in the following paragraph and the following Article)".

A financial instruments business operator, etc. must manage investment property separately from its own property and other investment property, pursuant to the provisions of Cabinet Office Order, in connection with the investment management business (limited to the business of performing the act specified in Article 2, paragraph (8), item (xv)) it conducts.

A financial instruments business operator, etc. must not, for any reason, receive a deposit of money or securities from a customer, or have a person specified by Cabinet Order as being closely related to the financial instruments business operator, etc. deposit a customer's money or securities, in connection with the investment management business it conducts (limited to the business of performing the acts specified in Article 2, paragraph (8), item (xii); hereinafter the same applies in this and the following Articles), unless it does so as securities, etc. management, or unless it does so in a case that is specified by Cabinet Order; provided, however, that this does not apply if the financial instruments business operator, etc. performs any of the acts set forth in Article 2, paragraph (8), items (i) through (iv), item (xviii) or item (xix), or commodity-related market derivatives transactions in connection with its investment management business on behalf of a customer, and such a deposit is necessary for the settlement of the transaction conducted through such an act.

A financial instruments business operator, etc. must not lend money or securities to a customer or perform intermediation, brokerage, or agency for a third party's lending of money or securities to a customer in connection with the investment management business it conducts; provided, however, that this does not apply if a financial instruments business operator lends money or securities to a customer in the course of a margin transaction prescribed in Article 156-24, paragraph (1), or if it performs any of these acts in a case that is specified by Cabinet Order.

With regard to investment property, a financial instruments business operator, etc., pursuant to the provisions of Cabinet Office Order, must periodically provide the known right holders of that investment property with information on the status of investment of the investment property and other particulars specified by Cabinet Office Order; provided, however, that this does not apply in the cases specified by Cabinet Office Order as those in which, even if that information is not provided to the right holders, this will not compromise the protection of the right holders.

When a financial instruments business operator, etc. provides information pursuant to the provisions of the preceding paragraph in connection with the investment management business it conducts (limited to the business of performing the act set forth in Article 2, paragraph (8), item (xv)), it must notify the Prime Minister of that information without delay, pursuant to the provisions of Cabinet Office Order; provided, however, that this does not apply if the number of right holders to a single investment property is the number specified by Cabinet Order or less, or in other cases specified by Cabinet Office Order as those in which the protection of investors is not compromised.

The provisions of Chapter IV of the Trust Business Act do not apply if a financial instruments business operator, etc. engages in investment management business.

A financial instruments business operator, etc. must engage in securities, etc. management with the due care of a prudent manager toward its customers.

A financial instruments business operator, etc. must manage the following securities (excluding the securities to be managed under the following paragraph) in the way specified by Cabinet Office Order as a reliable and orderly way of managing property, and must do so separately from its own property:

the securities that a customer deposits with the financial instruments business operator, etc. pursuant Article 119 (limited to those deposited in connection with securities-related derivatives transactions) or securities that a customer deposits with the financial instruments business operator, etc. pursuant to Article 161-2; and

the securities in the possession of the financial instruments business operator, etc. on the account of a customer or securities that a customer has deposited with the financial instruments business operator, etc. (excluding securities set forth in the preceding item, securities that a financial instruments business operator, etc. may use pursuant to a contract, and securities specified by Cabinet Order), in connection with transactions involved in securities services or other services specified by Cabinet Office Order as being incidental to securities services (excluding over-the-counter derivatives transactions (limited to transactions to be made with a financial instruments business operator that is engaged in securities services and is registered as referred to in Article 29 to engage in type-I financial instruments business as the counterparty, and other transactions that are specified by Cabinet Office Order in consideration of the characteristics of the counterparty to the transaction) and other transactions specified by Cabinet Order; hereinafter referred to as "transactions related to subject securities" in item (ii) of the following paragraph, Article 79-20 and Article 79-49).

As regards the money or securities set forth in the following items, a financial instruments business operator, etc. must manage the amount of money calculated pursuant to the provisions of Cabinet Office Order as the amount to be refunded to the customer in the event that the financial instruments business operator, etc. discontinues its financial instruments business (including services of a registered financial institution; hereinafter the same applies in this paragraph) or otherwise ceases to operate in the financial instruments business, separately from its own assets, and must establish a trust with a trust company, etc. in Japan, pursuant to the provisions of Cabinet Office Order, for the purpose of managing the amount of money to be refunded to the customer in the event that the relevant financial instruments business operator, etc. discontinues its financial instruments business or otherwise ceases to operate in the financial instruments business:

money that a customer deposits with the financial instruments business operator, etc. (limited to money deposited in connection with securities-related derivatives transactions) pursuant to Article 119, or money that a customer deposits with the financial instruments business operator, etc. pursuant to Article 161-2;

money on the account of a customer or money that a customer deposits with the financial instruments business operator, etc. (excluding the money set forth in the preceding item) in connection with a transaction related to subject securities; and

securities set forth in the items of the preceding paragraph that have been furnished as security pursuant to Article 43-4, paragraph (1).

A financial instruments business operator must periodically undergo an audit by a certified public accountant or audit by an audit corporation, pursuant to the provisions of Cabinet Office Order, as regards the management conditions under the preceding two paragraphs.