Financial Instruments and Exchange Act

The operational rules of a fund must state the particulars of the payments to general customers under the provisions of Article 79-56, paragraph (1), the particulars of the method of calculation of burden charges and their payment, and other particulars specified by Cabinet Office Order and Ministry of Finance Order.

A fund must obtain the authorization of the Prime Minister and the Minister of Finance if it seeks to change its operational rules.

When it is necessary in order for a fund to perform its services, that fund may request a financial instruments business operator that is its member to submit reports or materials that should serve as a reference with regard to the state of the business or assets of that financial instruments business operator.

A financial instruments business operator that has been requested to submit reports or materials that should serve as a reference with regard to the state of its business or assets pursuant to the provisions of the preceding paragraph, must submit the reports or materials without delay.

The Prime Minister may issue materials to a fund or allow a fund to inspect the same, if the fund has so requested and the Prime Minister finds this to be particularly necessary in order for the fund to perform its services.

If a financial instruments business operator that is a member of a fund falls under any of the following items, it must immediately notify the fund to which it belongs of this:

its Article 29 registration is rescinded pursuant to the provisions of Article 52, paragraph (1); Article 53, paragraph (3); Article 54; or Article 57-6, paragraph (3);

it files a petition to commence bankruptcy proceedings, rehabilitation proceedings, reorganization proceedings, or special liquidation proceedings (or if the financial instruments business operator is a foreign corporation, it files a petition to commence bankruptcy proceedings, rehabilitation proceedings, reorganization proceedings, or special liquidation proceedings in Japan, or a petition of the same kind in the country where its head office is located based on the laws and regulations of that country);

it discontinues its financial instruments business (including the registration of change set forth in Article 31, paragraph (4) to the effect that it stops conducting securities-related business and commodity derivatives transaction-related business, and with regard to a financial instruments business operator that is a foreign corporation, this includes the discontinuation of financial instruments business at all business offices and offices it has established in Japan; hereinafter the same applies in this item) or is dissolved (with regard to a financial instruments business operator that is a foreign corporation, this includes the commencement of liquidation of the business offices and offices it has established in Japan) or it issues a public notice of its discontinuation of financial instruments business, etc. under the provisions of Article 50-2, paragraph (6) or of its dissolution; or

it becomes subject to an order for the suspension of all or part of the business under the provisions of Article 52, paragraph (1) (limited to a case falling under item (ix) of that paragraph).

If a fund receives a notice under the provisions of the preceding paragraph, it must immediately report this to the Prime Minister and the Minister of Finance.

If the Prime Minister issues any of the following dispositions with regard to a financial instruments business operator that is a member of a fund, the Prime Minister must immediately notify the Minister of Finance and the fund to which that financial instruments business operator:

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; or

an order for the suspension of all or part of the business under the provisions of Article 52, paragraph (1) (limited to the case falling under item (ix) of that paragraph).

The Prime Minister must, when having filed a petition for commencement of reorganization proceedings under the provisions of Article 377, paragraph (1) of the Act on Special Treatment of Corporate Reorganization Proceedings and Other Insolvency Proceedings of Financial Institutions, a petition for commencement of rehabilitation proceedings under the provisions of Article 446, paragraph (1) of that Act, and a petition for commencement of bankruptcy proceedings under the provisions of Article 490, paragraph (1) of that Act with the court with regard to a financial instruments business operator which is a member of a fund, immediately notify to that effect to the Minister of Finance and the fund to which the relevant financial instruments business operator belongs.

If the Prime Minister receives a notice under the provisions of Article 379; Article 448; or Article 492 of the Act on Special Treatment of Corporate Reorganization Proceedings and Other Insolvency Proceedings of Financial Institutions or any other notice concerning special liquidation proceedings with regard to a financial instruments business operator that is a member of a fund, the Prime Minister must immediately notify the Minister of Finance and the fund to which the financial instruments business operator belongs of this.

If a fund receives a notice under the provisions of paragraph (1) or paragraphs (3) through (5) of the preceding Article, it must, without delay, reach a finding as to whether it is difficult for the financial instruments business operator to which the notice pertains (hereinafter referred to as a "financial instruments business operator that is the subject of a notice") to smoothly perform its obligations in connection with the refunding of customer assets, unless it is found to be clearly unlikely that not reaching such a finding would result in insufficient investor protection.

If a fund, pursuant to the provisions of the preceding Article, reaches the finding that it is difficult for a financial instruments business operator that is the subject of a notice to smoothly perform its obligations in connection with the refunding of customer assets, it must promptly specify the period and place of notification set forth in paragraph (1) of the following Article and other matters specified by Cabinet Order and issue public notice of the same.

If a public notice under the provisions of Article 197, paragraph (1) of the Bankruptcy Act (including as applied mutatis mutandis pursuant to Article 209, paragraph (3) of that Act) or a notice under the provisions of paragraph (5) is issued or if any other cause specified by Cabinet Order occurs with regard to a financial instruments business operator that is subject to the finding referred to in the preceding paragraph (hereinafter referred to as a "distressed financial instruments business operator") after the fund has issued public notice pursuant to the provisions of the preceding paragraph, the fund may change the period of notification with regard to which it has issued the public notice pursuant to the provisions of that paragraph.

If a fund changes the period of notification pursuant to the provisions of the preceding paragraph, it must issue public notice of the particulars of the change without delay.

When a fund specifies the matters prescribed in paragraph (1) or if it changes the period of notification pursuant to the provisions of paragraph (2), it must immediately report this to the Prime Minister and the Minister of Finance.

The bankruptcy trustee must notify the fund upon providing the notice under the provisions of Article 197, paragraph (1) (including as applied mutatis mutandis pursuant to Article 209, paragraph (3) of the Bankruptcy Act) or Article 204, paragraph (2) of the Bankruptcy Act or upon receipt of permission under the provisions of Article 208, paragraph (1) of that Act in connection with the bankruptcy proceedings of the distressed financial instruments business operator.

At the request of the general customer of a distressed financial instruments business operator, the fund is to pay the amount calculated pursuant to the provisions of Cabinet Office Order and Ministry of Finance Order on any claim that the general customer has against the distressed financial instruments business operator as of the day that the fund issues public notice pursuant to the provisions of paragraph (1) of the preceding Article (limited to a claim for the customer assets of the relevant general customer), and which the fund, pursuant to the provisions of Cabinet Order, finds would be difficult for the distressed financial instruments business operator to smoothly pay (hereinafter referred to as "claims to be compensated").

Notwithstanding the provisions of the preceding paragraph, a fund is not to make the payment referred to in that paragraph to the officer of a distressed financial instruments business operator or to any other person specified by Cabinet Order.

A request set forth in paragraph (1) may only be made within the period of notification for which public notice is issued pursuant to the provisions of paragraph (1) or (3) of the preceding Article; provided, however, that this does not apply if there has been a natural disaster or if the fund otherwise finds there to be a compelling reason for the failure to make a request within the period of notification.

Notwithstanding the provisions of paragraph (1) of the preceding Article, if the general customer of a distressed financial instruments business operator which makes the request set forth in that paragraph falls under any of the following items, the amount that must be paid by the fund pursuant to the provisions of that paragraph is equivalent to the amount under the provisions of that paragraph less the amount provided for in the relevant item:

if the general customer has provided the whole or a part of the customer assets that are under the claim to be compensated as the subject matter of a security interest:the amount of the relevant whole or part of the customer assets provided as the subject matter of the security interest, as valued pursuant to the provisions of Cabinet Office Order and Ministry of Finance Order (or, if that amount exceeds the amount of the secured claim connected with the security interest, the amount of the secured claim connected with that security interest);

if the general customer has incurred an obligation to the distressed financial instruments business operator:the amount of the obligation (or, if the general customer falls under the preceding item in connection with that obligation, the amount of the obligation less the amount provided for in that item); or

if the customer assets that are subject to the claim to be compensated include a claim to be compensated prescribed in Article 60, paragraph (1) of the Act on Book-Entry Transfer of Corporate Bonds and Shares:the amount of customer assets equivalent to the claims to be compensated set forth in that paragraph, as valued pursuant to the provisions of Cabinet Office Order and Ministry of Finance Order (or, if the provisions of paragraph (5) of that Article apply to those customer assets, that amount less the amount of payment reduced pursuant to the provisions of that paragraph).

With regard to the application of paragraph (1) of the preceding Article and the provisions of the preceding paragraph if a financial instruments business operator is deemed to be a general customer pursuant to the provisions of Article 79-20, paragraph (2), each general customer of the financial instruments business operator which causes the financial instruments business operator to be deemed a general customer has the position of a general customer.

If the amount that must be paid pursuant to the provisions of paragraph (1) of the preceding Article and paragraph (1) exceeds the amount specified by Cabinet Order, the amount specified by Cabinet Order is the amount that must be paid.

If a fund makes the payment referred to in paragraph (1) of the preceding Article, it acquires a claim to be compensated in connection with that payment and in line with the amount it pays, pursuant to the provisions of Cabinet Order.

If a general customer is an individual and that individual receives a payment set forth in Article 79-56, paragraph (1) on a claim to be compensated that the individual holds against a distressed financial instruments business operator (limited to a claim involving securities; hereinafter the same applies in this paragraph), the securities under the claim to be compensated that is connected with that payment (limited to the part of the claim to be compensated that the fund acquires based on that payment) are deemed to transfer from the individual to the fund that makes the payment, based on the amount of payment that the individual receives and at the time the individual receives that payment, and the provisions of the Income Tax Act (Act No. 33 of 1965) and other laws and regulations concerning income tax apply.

Necessary particulars for the application of the special provisions to Article 4-2 and Article 4-3 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957) in a case to which the provisions of the preceding paragraph are applicable are specified by Cabinet Order.