Financial Instruments and Exchange Act

An authorized financial instruments firms association (hereinafter referred to as an "authorized association" in this Chapter) aims to ensure fair and smooth purchase and sales and other transactions of securities and to ensure fair and smooth derivatives transactions, etc., as well as to contribute to the sound development of the financial instruments business and to the protection of investors.

An authorized association may operate a market in which over-the-counter traded securities are traded (but only if the association members (meaning the members of an authorized association; hereinafter the same applies in this Section) conduct the transactions on their own accounts, and if association members provide intermediation, brokerage, or agency; the same applies in Article 67-11, paragraph (1)) (hereinafter referred to as an "over-the-counter securities market"), in order to facilitate the distribution of securities (limited to securities not listed on a financial instruments exchange; the same applies in Article 67-11, paragraph (1)), to ensure fairness in purchase and sales and other transactions of securities, and to contribute to the protection of investors.

For each over-the-counter securities market an authorized association operates, it may prohibit association members from making a purchase of securities as requested by a person other than a professional investor, etc. and a non-resident (excluding the issuer of the securities or any other person specified by Cabinet Office Order) (such a purchase is referred to as a "purchase for a general investor" in Article 67-12, item (v)), as prescribed in its articles of incorporation.

An authorized association is to be a corporation.

A person that is not an authorized association must not use a word in its name which could give rise to the misconception that it is an authorized financial instruments firms association.

An authorized association may be incorporated only by a financial instruments business operator.

A financial instruments business operator must obtain the authorization of the Prime Minister if it seeks to incorporate as an authorized association.

A person set forth in each of the following items is deemed to be a financial instruments business operator in applying the provisions of the preceding two paragraphs; Article 68, paragraphs (1) and (2); Article 78, paragraph (1); Article 79-7, paragraph (1); and Article 79-11, within the scope of performing the services specified in each of those items:

a registered financial institution:the services of a registered financial institution; and

a person that performs the services specified by Cabinet Office Order as being similar to the financial instruments business or services of a registered financial institution:those services.

A person seeking the authorization referred to in paragraph (2) 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 location of its office; and

the names of its officers and names of its association members.

The articles of incorporation and other rules as well as other documents specified by Cabinet Office Order must be attached to the written application for authorization referred to in the preceding paragraph.

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

the provisions of the articles of incorporation and other rules conform to laws and regulations, and are sufficient for ensuring fair and smooth purchase and sales and other transactions of securities and for ensuring fair and smooth derivatives transactions, etc., as well as contributing to the sound development of the financial instruments business and the protection of investors; and

the authorized association to which the application pertains will be organized in a manner that conforms to the provisions of this Act.

If, as a result of having conducted an examination pursuant to the provisions of the preceding paragraph, the Prime Minister finds that an application for authorization conforms to the criteria in that paragraph, the Prime Minister must authorize incorporation, except in a case that falls under any of the following items:

the applicant for authorization is a person that has been sentenced to a fine pursuant to the provisions of this Act, and for whom five years have not passed since the day on which the person finished serving that sentence or ceased to be subject to its enforcement;

the applicant has a person falling under any of the following persons as an officer:

a person specified by Cabinet Office Order as being unable to properly perform their duties due to a mental or physical disorder; or

a person falling under any of the provisions of Article 29-4, paragraph (1), item (ii), (b) through (i);

the written application for authorization or a document attached to it contains a false statement regarding a material particular.

If an application for authorization under Article 67-3, paragraph (1) is filed and the Prime Minister finds it inappropriate to grant that authorization, the Prime Minister must notify the applicant for authorization to that effect and have the relevant official conduct a hearing.

Upon deciding to grant or to refuse to grant the authorization under Article 67-2, paragraph (2), the Prime Minister must notify the applicant for authorization of this in writing without delay.

If an authorized association is discovered to have fallen under any of the categories in the items of Article 67-4, paragraph (2) at the time it obtained its authorization for incorporation, the Prime Minister may rescind its authorization.

An authorized association must not engage in any business for profit.

The articles of incorporation of an authorized association must include the following particulars (limited to an authorized association that operates an over-the-counter securities market, with regard to the particulars set forth in item (xiii)):

the purpose of the authorized association;

its name;

the location of its offices;

the particulars of its association members;

the particulars of its general meetings;

the particulars of its officers;

the particulars of its board meetings and other meetings;

the particulars of its execution of business operations;

the particulars of its improvement in the quality of officers and employees of the association members, and qualities of financial instruments intermediary service providers (limited to financial instruments intermediary service providers whose entrusting financial instruments business operators, etc. are association members; hereinafter the same applies in this Section) and their officers and employees;

the particulars involved in the preparation of rules;

the particulars involved in complaints from investors concerning the operations of the association members or financial instruments intermediary service providers, and dispute resolution;

the particulars of purchase and sales and other transactions of securities solicited by association members or financial instruments intermediary service providers;

the particulars of its over-the-counter securities market;

the particulars of investigations into association members' and financial instruments intermediary service providers' compliance with laws and regulations, dispositions by government agencies which are based on laws and regulations, the articles of incorporation and other rules, and the principle of good faith in their transactions;

the particulars of membership fees;

the particulars of its accounting and assets; and

its method of public notice.

An authorized association must obtain the authorization of the Prime Minister if it seeks to change its articles of incorporation.

If a particular set forth in Article 67-3, paragraph (1), item (ii) or (iii) changes, the authorized association must notify the Prime Minister of this without delay. The same applies when the rules of an authorized association (excluding the articles of incorporation; and with regard to an authorized association that operates an over-the-counter securities market, excluding the rules set forth in Article 67-12) are prepared, if they change, or if they are discontinued.

An authorized association is liable for the damages that its president or board members cause another person in the performance of their duties.

The address of an authorized association is the address at which its principal office is located.

An authorized association that operates an over-the-counter securities market must register the class and issues of securities to be sold and purchased on that over-the-counter securities market in an over-the-counter traded securities register that is kept at the authorized association.

The authorized association set forth in the preceding paragraph must keep a copy of the over-the-counter traded securities register at its office and make the copy available for public inspection, pursuant to the provisions of Cabinet Office Order.

If an authorized association seeks to establish an over-the-counter securities market, it must provide for the following matters in its rules, in connection with the registration under paragraph (1) of the preceding Article and over-the-counter traded securities, and obtain the authorization of the Prime Minister. The same applies if the authorized association seeks to change or discontinue those rules:

the criteria and process for registration, and for rescission of registrations;

the particulars involved in the reporting and announcement of trading prices;

the process for concluding a contract for a purchase and sale or other transaction;

delivery and other means of settlement;

if the authorized association prohibits purchases for general investors pursuant to the provisions of Article 67, paragraph (3), the following matters, in addition to those set forth in the preceding items:

the particulars of limitations imposed on association members' acceptance of requests to entrust them with the purchase and sale of securities on the over-the-counter securities market; and

the content and the means of provision or timing for the disclosure of the specified information on securities and information on the issuer that the issuer of securities for professional investors, etc. that are traded on that over-the-counter securities market (hereinafter referred to as "over-the-counter traded securities for professional investors, etc." in this item) is required to provide or disclose, and necessary particulars otherwise relevant to the provision or disclosure of information on over-the-counter traded securities for professional investors, etc.;

necessary particulars relevant to purchase and sales and other transactions of over-the-counter traded securities, other than the particulars set forth in the preceding items.