Financial Instruments and Exchange Act

At the application of a financial instruments business operator that is the subject of a notice (excluding a distressed financial instruments business operator) or the agent of the beneficiary of a trust prescribed in Article 43-2, paragraph (2) that is connected to a financial instruments business operator that is the subject of a notice, a fund may loan the necessary funds for the expeditious performance of obligations connected with the refunding of customer assets (hereinafter referred to as a "loan of funds for refunds") to such a person, within the limits of the amount that is found to be necessary.

A person that files an application for a loan of funds for refunds must be recognized by the Prime Minister to satisfy all of the following requirements with regard to the relevant loan of funds for refunds (hereinafter such a recognition is referred to as "recognition of eligibility" in this Article), by the time it files that application:

providing a loan of funds for refund is found to be necessary for the expeditious performance of obligations connected with the refund of customer assets; and

it is found to be possible to rely upon the proceeds of a loan of funds for refund being used for the expeditious performance of obligations connected with the refund of customer assets.

Upon granting a recognition of eligibility, the Prime Minister must notify the Minister of Finance and the fund to which the financial instruments business operator that has obtained the recognition of eligibility belongs (or, if the agent of the beneficiary of a trust prescribed in Article 43-2, paragraph (2) that involves a financial instruments business operator has obtained that recognition, the financial instruments business operator) of this.

Upon receiving an application for a loan of funds for refunds, a fund must decide whether to provide the loan of funds for refunds to which that application pertains.

When a fund has made the decision referred to in the preceding paragraph, it must immediately report the particulars of the decision to the Prime Minister and the Minister of Finance.

In addition to performing the acts under the provisions of the Act on Special Measures for the Reorganization Proceedings of Financial Institutions, if a fund finds it to be necessary in order to preserve the fulfillment of a claim that a general customer has against a financial instruments business operator that is the subject of a notice (limited to a claim involving the customer assets of that general customer), the fund has, to the extent necessary, the authority to perform any and all judicial and non-judicial acts that are necessary for preserving the fulfillment of that claim on behalf of that general customer.

A fund must be sincere and fair in its performance of the acts referred to in the preceding paragraph on behalf of a general customer.

A fund must perform the acts set forth in paragraph (1) for general customers with the due care of a prudent manager.

Before performing a judicial pursuant to the provisions of paragraph (1), a fund must notify the general customer that the fund represents in that act, of the content of the act.

A general customer that has received the notice under the provisions of the preceding paragraph may independently perform any judicial act to which that notice pertains by extinguishing the authority of representation of the fund by notifying the fund that the general customer extinguishes the authority of representation.

A fund may be entrusted by a financial instruments business operator that is its member, to conduct services as the agent of the beneficiary of a trust prescribed in Article 43-2, paragraph (2) which is connected to the financial instruments business operator or other services specified by Cabinet Office Order or Ministry of Finance Order as business for contributing to the expeditious refunding of customer assets.

The procedures for implementing the provisions of this Section and other necessary particulars for the implementation are specified by Cabinet Office Order, or Cabinet Office Order and Ministry of Finance Order.

A fund is to set aside funds that it allocates to cover the costs that are required for the services set forth in the items of Article 79-49, paragraph (1) (hereinafter referred to as "funds for investor protection").

Funds for investor protection must not be used other than when they are allocated to cover the costs that are required for the services set forth in the items of Article 79-49, paragraph (1).

A financial instruments business operator must pay burden charges to a fund to which it belongs pursuant to the provisions of the operational rules, so that these can be allocated to funds for investor protection.

Notwithstanding the provisions of the preceding paragraph, a fund may waive the burden charges of a financial instruments business operator that is the subject of a notice, pursuant to the provisions of the articles of incorporation.

The amount of the burden charges referred to in paragraph (1) of the preceding Article is the amount calculated using the calculation method specified in the operational rules.

The method of calculating the burden charges referred to in the preceding paragraph must be specified so as to conform to the following criteria:

the finances of a fund will be balanced in the long term in light of the estimated amount of payments set forth in Article 79-56, paragraph (1) and the costs that are required for services linked to funds for investor protection; and

no particular financial instruments business operator is subject to differential treatment.

The provisions of the preceding paragraph must not be construed as precluding the temporary specification of a method of calculating burden charges that does not conform to the criterion specified in item (i) of that paragraph, if the payment of burden charges so calculated would make it impossible for a financial instruments business operator that is a member to maintain its sound management.

If a financial instruments business operator fails to pay the burden charges by the due date for payment specified by the operational rules, they must pay a delinquency charge to the fund to which it belongs.

The amount of a delinquency charge is calculated by multiplying the amount of unpaid burden charges by an annual rate of 14.5 percent, based on the number of days from the day following the due date for payment until the day of payment.

The procedures for implementing the provisions of this Section and other necessary particulars for the implementation are specified by Cabinet Office Order and Ministry of Finance Order.

The business year of a fund is from April 1 through March 31 of the following year; provided, however, that the business year in that includes the day of establishment of a fund is from the day of establishment to the following March 31.

A fund must prepare a budget and a financial plan for every business year and submit them to the Prime Minister and the Minister of Finance before the commencement of the relevant business year (with regard to a business year that includes the day of establishment of a fund, this means without delay after the establishment of the fund). The same applies if a fund changes the budget or financial plan.

Within three months from the first day of the business year (excluding the business year that includes the day of establishment of a fund), a fund must submit a balance sheet and profit and loss statement, an inventory of property and business report, and a statement of accounts based on their budget category (hereinafter collectively referred to as "financial statements, etc." in this Article) for the previous business year to the Prime Minister and the Minister of Finance, and obtain their approval.

If a fund submits financial statements, etc. to the Prime Minister and the Minister of Finance pursuant to the provisions of the preceding paragraph, an inspector's written opinion about the financial statements, etc. must accompany them.

A fund must keep the financial statements, etc. that have been approved by the Prime Minister and the Minister of Finance as under the provisions of paragraph (1) at its office and make them available for public inspection.

A fund must lay aside all of the surplus in every business year as reserve funds.

The reserve funds referred to in the preceding paragraph may be allocated to cover any deficit carried over from the previous business year, and may be transferred to funds for investor protection.

The reserve funds referred to in paragraph (1) must not be broken into other than as referred to in the preceding paragraph.

If a fund finds it to be necessary in order for it to perform the services set forth in Article 79-49, paragraph (1), items (i) through (iv) and item (vi), it may borrow funds (this includes refinancing) from a financial institution, etc. (meaning a bank, a financial instruments business operator, or any other person specified by Cabinet Office Order or Ministry of Finance Order) with the authorization of the Prime Minister and the Minister of Finance, within the limits of the amount specified by Cabinet Order.

A fund must not invest any surplus funds that arise in the course of business or funds for investor protection except in the following manners:

by holding national government bonds or other securities designated by the Prime Minister and the Minister of Finance;

by depositing them in a financial institution designated by the Prime Minister and the Minister of Finance; or

in other ways specified by Cabinet Office Order and Ministry of Finance Order.

Beyond what is provided for in this Act, necessary particulars relevant to the finances and accounts of a fund are specified by Cabinet Office Order and Ministry of Finance Order.

If the Prime Minister and the Minister of Finance find it to be necessary and appropriate in the public interest or for the protection of investors, they may order a fund to change its articles of incorporation or operational rules, or may otherwise issue it orders that are necessary from a supervisory perspective, in connection with its business. 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 and the Minister of Finance must conduct a hearing.

If a fund violates a law or regulation, a disposition by a government agency which is based on a law or regulation, or its articles of incorporation or operational rules, or if the Prime Minister and the Minister of Finance find that it will be difficult for a fund's services to continue due to the state of its services or assets, and the Prime Minister and the Minister of Finance find it to be necessary and appropriate in the public interest or for the protection of investors, they may rescind the authorization for the incorporation of the fund. 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 and the Minister of Finance must conduct a hearing.

When the Prime Minister and the Minister of Finance find that it is necessary and appropriate in the public interest or for the protection of investors, they may order a fund or a person that a fund has entrusted with its business to submit reports or materials that should serve as a reference with regard to the business or assets of the fund, and may have the relevant officials enter the office of a fund or of the person that a fund has entrusted with its business to inspect its books, documents, and any other articles (but may only have the relevant officials inspect the person that a fund has entrusted with its business as is necessary in connection with the business or assets of the fund).

A fund is dissolved for the following reasons:

general meeting resolution; or

the rescission of authorization for incorporation.

Dissolution on the grounds specified in item (i) of the preceding paragraph does not become effective without the authorization of the Prime Minister and the Minister of Finance.

In the case of a dissolution under the provisions of paragraph (1), item (i) of the preceding Article, a liquidator is appointed at a general meeting. In the case of a dissolution under the provisions of item (ii) of that paragraph, a liquidator is appointed by the Prime Minister and the Minister of Finance.

If there are residual assets after the payment of the obligations of a fund, the liquidator, pursuant to the provisions of Cabinet Office Order and Ministry of Finance Order, must cause the residual assets to vest in each of the other funds that the members join.

Beyond what is provided for in the preceding paragraph, required measures in connection with the dissolution of a fund may be specified by Cabinet Order within the scope that is reasonably determined to be necessary.