Financial Instruments and Exchange Act

The term "general customer" as used in this Chapter means a customer of a financial instruments business operator's (limited to a financial instruments business operator that conducts securities services prescribed in Article 28, paragraph (10) (hereinafter referred to as the "securities-related business" in this Chapter) or business related to commodity-related market derivatives transactions brokerage, etc. (hereinafter referred to as the "commodity derivatives transaction-related business" in this Chapter); hereinafter the same applies in this Chapter) head office or other domestic business office or office (with regard to a financial instruments business operator that is a foreign corporation, its business office or office in Japan) which conducts a transaction related to subject securities or subject commodity derivatives transaction-related transactions with that financial instruments business operator (excluding the qualified institutional investors, states, local governments, and other persons specified by Cabinet Order).

Notwithstanding the provisions of the preceding paragraph, if a first financial instruments business operator conducts a transaction related to subject securities or subject commodity derivatives transaction-related transactions with a second financial instruments business operator on the account of the first financial instruments business operator's general customer, the first financial instruments business operator is deemed to be the general customer of the second financial instruments business operator, and the provisions of this Chapter apply.

The term "customer assets" as used in this Chapter means the following:

the money and securities that a general customer deposits with a financial instruments business operator pursuant to the provisions of Article 119 (limited those deposited in connection with securities-related derivatives transactions) and money and securities that a general customer deposits with a financial instruments business operator pursuant to the provisions of Article 161-2;

the money, securities or other property deposited to a financial instruments business operator from a general customer under the provisions of Article 119 specified by Cabinet Office Order and Ministry of Finance Order (limited to those deposited in relation to commodity-related market derivatives transactions);

money on the account of a general customer and money that a general customer deposits with a financial instruments business operator (other than money prescribed in item (i)) in connection with securities-related business (excluding over-the-counter derivatives transactions or other transactions specified by Cabinet Order; the same applies in item (v));

the money belonging to the account of a general customer or money deposited to a financial instruments business operator from a general customer, with regard to a transaction related to commodity derivatives transaction-related business (excluding the money prescribed in item (ii));

securities on the account of a general customer or securities that a general customer deposits with a financial instruments business operator (other than securities prescribed in item (i), securities that a financial instruments business operator may expend pursuant to a contract, and securities specified by Cabinet Order), in connection with a transaction linked to the securities-related business;

the securities or commodities belonging to the account of a general customer (including instruments or certificates issued in relation to deposited commodities; hereinafter the same applies in this item) or securities or commodities deposited to a financial instruments business operator from a general customer (excluding those listed in item (ii), securities or commodities that a financial instruments business operator may consume under a contract, and other securities or commodities specified by Cabinet Order), with regard to a transaction related to commodity derivatives transaction-related business; and

anything other than what is set forth in each of the preceding items, which is specified by Cabinet Order.

The purpose of an investor protection fund (hereinafter referred to as a "fund" in this Chapter and the Supplementary Provisions) is to ensure the protection of investors through payments to general customers pursuant to the provisions of Article 79-56, paragraph (1) and through other services, thereby maintaining the credibility of securities transactions or commodity-related market derivatives transactions.

A fund has legal personality.

The address of a fund is the address at which its principal office is located.

A fund must use the Japanese characters 投資者保護基金 (pronounced "toushisha hogo kikin", meaning "investor protection fund") in its name.

A person that is not a fund must not use the characters "投資者保護基金" in its name.

A fund must register pursuant to the provisions of Cabinet Order.

Particulars that must be registered pursuant to the provisions of the preceding paragraph may not be asserted against a third party until after their registration.

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

The scope of persons eligible for membership in a fund is limited to financial instruments business operators.

If a financial instruments business operator seeks to join a fund, the fund must not refuse it and must not attach unreasonable conditions to its joining the fund, unless entry into the fund is restricted for a special reason related to business type or for any other legitimate reason.

A financial instruments business operator (excluding one that is specified by Cabinet Order) must join any single fund, as a member.

A person seeking to engage in financial instruments business (limited to securities-related business and commodity derivatives transaction-related business; hereinafter the same applies in this Chapter) after obtaining Article 29 registration or an Article 31, paragraph (4) registration of a change (excluding a person specified by Cabinet Order) must go through the process for joining any single fund at the same time as applying for the registration or the registration of the change.

A person that has gone through the process for joining a fund pursuant to the provisions of the preceding paragraph becomes a member of that fund at the time that the person becomes registered or has the change registered as referred to in that paragraph.

When a financial instruments business operator joins a fund or if it changes the fund to which it belongs, it must notify the Prime Minister of this without delay.

A financial instruments business operator that is a member of a fund is withdrawn from the fund to which it belongs by operation of law for the following reasons:

discontinuation of a financial instruments business operator's financial instruments business (this includes an Article 31, paragraph (4) registration of a change indicating that the financial instruments business operator stops conducing securities-related business and commodity derivatives transaction-related business, and also includes a foreign corporation's discontinuation of financial instruments business at all of the business offices and offices it has established in Japan) or the dissolution of the financial instruments business operator (with regard to a financial instruments business operator which is a foreign corporation, this includes the commencement of liquidation at a business office or office it has established in Japan); or

the Article 52, paragraph (1) or (4); Article 53, paragraph (3); Article 54; or Article 57-6, paragraph (3) rescission of an Article 29 registration.

A person that is withdrawn from a fund pursuant to the provisions of the preceding paragraph is deemed to continue to be a financial instruments business operator and a member of that fund for the purpose of the application of Articles 79-52 through 79-61.

A financial instruments business operator may not withdraw from the fund to which it belongs unless the withdrawal is for a cause set forth in any of the items of paragraph (1) or unless it becomes the member of another fund with the approval of the Prime Minister and the Minister of Finance.

Even if a financial instruments business operator withdraws from the fund to which it belongs (excluding a case of withdrawal pursuant to the provisions of paragraph (1)), it incurs the obligation to pay the amount calculated by the fund pursuant to the provisions of its operational rules as burden charge, for the amount of costs that the withdrawn financial instruments business operator is required to bear out of the amount of the costs required for the services the fund provides for the financial instruments business operator in connection with any notice under the provisions of Article 79-53, paragraph (1) or paragraphs (3) through (5), that the relevant fund receives up until the operator's withdrawal from the fund.

When an application is filed for the approval referred to in paragraph (3), the Prime Minister and the Minister of Finance must not grant that approval unless the following requirements are satisfied:

the financial instruments business operator has repaid in full the obligation it bears as a member, to the fund from which it seeks to withdraw, by the time of filing the application for approval, and its performance of the obligation prescribed in the preceding paragraph is expected to be reliable; and

the financial instruments business operator gone through the process for joining another fund as a member.

In order to incorporate a fund, 20 or more financial instruments business operators that seek to become its members must become the founders.

After preparing the articles of incorporation and operational rules, the founders must invite persons seeking to become members, and hold an organizational meeting, issuing public notice of the articles of incorporation and operational rules as well as the date, time, and place of the meeting by two weeks prior to the day of the meeting.

The approval of the articles of incorporation and operational rules and decisions about other necessary particulars for incorporation of a fund must be made by the resolution at the organizational meeting.

The articles of incorporation and operational rules may be amended at the organizational meeting.

The items of organizational meeting business that are referred to in paragraph (3) are decided with at least a two-thirds majority of the votes of attendees, at a meeting where at least half of the financial instruments business operators that have proposed themselves as members to the founders before the opening of the meeting (hereinafter, each such financial instruments business operator is referred to as an "expected member" in this Article) and the founders, are present.

Notwithstanding the provisions of Article 79-42, paragraph (1), matters that are necessary for business operations in the business year that includes the day of establishment of a fund (including the budget and financial plan) may be decided by organizational meeting resolution.

The provisions of Article 79-43 apply mutatis mutandis to the items of business at an organizational meeting that are referred to in the preceding paragraph. In this case, in that Article, the term "all members" is deemed to be replaced with "the financial instruments business operators that have proposed themselves as members to the founders before the opening of the meeting, and the founders".

Each of the expected members holds an equal voting right for organizational meetings.

An expected member not attending an organizational meeting may vote in writing or by proxy.

An expected member may, in lieu of voting in writing based on the provisions of the preceding paragraph, vote by electronic or magnetic means (meaning by means of using an electronic data processing system or by any other means using information and communications technology that Cabinet Office Order and Ministry of Finance Order specify; the same applies in Article 79-44-4, paragraph (3)), pursuant the provisions of the articles of incorporation.

The provisions of paragraphs (8) and (9) do not apply if it is otherwise provided for in the articles of incorporation.

If an organizational meeting resolution concerns the relationship between a fund and a specific expected member, that expected member has no voting right.