Financial Instruments and Exchange Act

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

the collaborating clearing organization, etc. (limited to one other than a financial instruments clearing organization or foreign financial instruments clearing organization; hereinafter the same applies in the following paragraph and the following Article) has obtained the same kind of license as that referred to in Article 156-2 or permission or any other administrative disposition similar to such a license in the state where its head office or principal office is located;

the provisions of the articles of incorporation and business rules of the collaborating clearing organization, etc., as well as the provisions of the collaboration agreement, conform to laws and regulations; and the provisions of the articles of incorporation and business rules of the applicant for authorization and the collaborating clearing organization, etc., as well as the provisions of the collaboration agreement, are sufficient to allow collaborative financial instruments obligation assumption services and business of the collaborating clearing organization, etc. (limited to business related to collaborative financial instruments obligation assumption services) to be performed properly and reliably;

the applicant for authorization and the collaborating clearing organization, etc. have a sufficient financial basis to soundly perform collaborative financial instruments obligation assumption services and conduct the business of the collaborating clearing organization, etc. (limited to those related to collaborative financial instruments obligation assumption services) and have good prospects in terms of expected income and expenditures in connection with collaborative financial instruments obligation assumption services;

in light of their personnel structures, the applicant for authorization and the collaborating clearing organization, etc. have sufficient knowledge and experience to perform collaborative financial instruments obligation assumption services and to conduct the business of the collaborating clearing organization, etc. (limited to business related to collaborative financial instruments obligation assumption services) properly and reliably, and have sufficient social credibility;

there is an adequately developed structure and system for properly securing collateral to allocate for settling outstanding obligations, for managing highly reliable facilities in order to facilitate such settlement, and for otherwise executing such settlement properly and reliably;

the articles of incorporation, business rules, or collaboration agreement stipulates that the applicant for authorization will reliably perform the obligations of the other party to a subject transaction by a clearing member that the applicant for authorization bears; and

it is unlikely that the applicant for authorization's engagement in collaborative financial instruments obligation assumption services will compromise its proper and reliable operation of financial instruments obligation assumption services.

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

the collaborating clearing organization, etc. is a person that has not yet had the period specified by Cabinet Order pass since it commenced the same kind of business as financial instruments obligation assumption services in a foreign country based on a foreign law or regulation (unless this falls under a case specified by Cabinet Order);

the collaborating clearing organization, etc. is a person that has been sentenced to a fine (including an equivalent sentence under foreign laws and regulations) for violating the provisions of this Act or the Act on the Provision of Financial Services and the Development of the Accessible Environment Thereto, or for violating the provisions of a foreign law or regulation that is equivalent to one of these Acts, and five years have not passed since the day on which the person finished serving the sentence or ceased to be subject to its enforcement;

the collaborating clearing organization, etc. is a person that has had their license rescinded pursuant to the provisions of Article 156-20-14, paragraph (1) or (2); a person that has had their registration rescinded pursuant to the provisions of Article 52, paragraph (1), Article 53, paragraph (3), Article 57-6, paragraph (3), Article 66-20, paragraph (1), Article 66-42, paragraph (1), Article 66-63, paragraph (1), or Article 66-85, paragraph (1); a person that has had their permission rescinded pursuant to the provisions of Article 60-8, paragraph (1) (including as applied mutatis mutandis pursuant to Article 60-14, paragraph (2)); a person that has had their authorization rescinded pursuant to the provisions of Article 106-7, paragraph (1), Article 106-21, paragraph (1), Article 106-28, paragraph (1), Article 155-6, Article 155-10, paragraph (1), or Article 156-5-9, paragraph (1); or a person that has had their registration referred to in Article 12 of the Act on the Provision of Financial Services and the Development of the Accessible Environment Thereto (limited to the registration related to the type of securities, etc. intermediary business operations) rescinded pursuant to the provisions of Article 38, paragraph (1) of that Act (excluding items (ii), (iii), and (v)); or is a person that had a license or registration of the same kind obtained in a foreign country rescinded pursuant to the provisions of a foreign law or regulation that is equivalent to this Act or the Act on the Provision of Financial Services and the Development of the Accessible Environment Thereto (including permission or any other administrative disposition similar to such a license or registration); for whom five years have not passed since the date of the rescission;

the collaborating clearing organization, etc. has a person falling under any of the provisions of Article 82, paragraph (2), item (iii), (a) through (f) as an officer;

the authority responsible for the enforcement of the foreign law or regulation that is equivalent to this Act in the country where the head office or principal office of the collaborating clearing organization, etc. is located has not given the assurance prescribed in Article 189, paragraph (2), item (i) or has anything else that is found to be equivalent to the assurance; or

the application for authorization or a document or electronic or magnetic record that is required to be attached to it contains a false statement or false record regarding a material particular.

If a collaborating clearing organization, etc. establishes provisions in its business rules for the method of netting off outstanding obligations (meaning obligations which have arisen out of subject transactions conducted by a clearing member and which the collaborating clearing organization, etc. has taken over from the other parties to those subject transactions or has novated or in any other way borne as financial instruments obligation assumption services; claims (limited to claims with the same contents as such obligations) that the collaborating clearing organization, etc. has acquired against a clearing member as the value of the obligations which have arisen out of subject transactions and which the collaborating clearing organization, etc. has borne for the clearing member; and collateral; hereinafter the same applies in this paragraph), the method of allocating collateral to cover outstanding obligations, or other means of settling outstanding obligations, and special liquidation proceedings, bankruptcy proceedings, rehabilitation proceedings, or reorganization proceedings have been commenced for a clearing member, the calculation of the amount of the claim that the collaborating clearing organization, etc. or the clearing member has in terms of the outstanding obligations and other means of settlement in relation to these proceedings, are to be in accordance with the provisions of the business rules.

In bankruptcy proceedings, rehabilitation proceedings, or reorganization proceedings, the claims provided for in the preceding paragraph which a collaborating clearing organization, etc. has are bankruptcy claims, rehabilitation claims, or reorganization claims, and the claims provided for in that paragraph which a clearing member has are the property that is part of the bankruptcy estate, rehabilitation debtor's assets, the property of the corporation in need of reorganization, or the property of the cooperative financial institution in need of reorganization.

If an authorized financial instruments clearing organization is discovered to have fallen under Article 156-20-18, paragraph (2), item (vi) at the time it obtained the authorization referred to in Article 156-20-16, paragraph (1), or it the collaborating clearing organization, etc. subject to that authorization is discovered to have fallen under any of the provisions of Article 156-20-18, paragraph (2), items (i) through (v), the Prime Minister may rescind that authorization.

An authorized financial instruments clearing organization must obtain the authorization of the Prime Minister if it seeks to change a particular set forth in Article 156-20-17, paragraph (1), item (iv) or (v) or a particular stated in a document set forth in paragraph (2), item (i) or (ii) of that Article.

If a particular set forth in Article 156-20-17, paragraph (1), item (ii) or (iii), or a particular stated in a document set forth in paragraph (2), item (iii), (b) or (c) of that Article changes, the authorized financial instruments clearing organization must notify the Prime Minister of this, pursuant to the provisions of Cabinet Office Order.

If an authorized financial instruments clearing organization discontinues collaborative financial instruments obligation assumption services, the authorization referred to in Article 156-20-16, paragraph (1) ceases to be effective. In such a case, the authorized financial instruments clearing organization must notify the Prime Minister of this, pursuant to the provisions of Cabinet Office Order.

If an authorized financial instruments clearing organization or the collaborating clearing organization, etc. subject to the authorization falls under any of the following items and the Prime Minister finds it to be necessary and appropriate in the public interest or for the protection of investors, the Prime Minister may rescind the authorized financial instruments clearing organization's Article 156-20-16, paragraph (1) authorization, order the suspension of all or a part of its collaborative financial instruments obligation assumption services during a fixed period of no longer than six months, order a change in its collaborative financial instruments obligation assumption services, or issue an order prohibiting a part of its collaborative financial instruments obligation assumption services:

the authorized financial instruments clearing organization falls under any of the following:

it becomes unable to satisfy a criterion set forth in any of the items of Article 156-20-18, paragraph (1) (excluding item (i));

it violates the conditions attached to authorization; or

it violates a law or regulation, a disposition by a government agency which is based on a law or regulation, the authorized financial instruments clearing organization's business rules, or the collaboration agreement;

the collaborating clearing organization, etc. subject to authorization falls under any of the following:

it becomes unable to satisfy a criterion set forth in any of Article 156-20-18, paragraph (1), items (i) through (v);

it comes to fall under any of the categories in Article 156-20-18, paragraph (2), items (ii) through (v);

it violates a law or regulation, a disposition by a government agency which is based on a law or regulation, or the business rules of the collaborating clearing organization, etc., or the collaboration agreement.

If the Prime Minister finds it to be necessary in order to reach a disposition based on the provisions of this Chapter, the Prime Minister may seek the opinion of the Bank of Japan.

In brokerage for clearing of securities, etc., the customer that entrusts a person with brokerage for clearing of securities, etc. is deemed to be the person conducting the subject transaction that is connected with the brokerage for clearing of securities, etc., and the provisions of Article 116 (including as applied mutatis mutandis pursuant to Article 132) and Article 119, paragraphs (1) through (3) apply.

In the brokerage of a person's entrustment with brokerage for clearing of securities, etc. in connection with a market derivatives transaction, the customer that entrusts a person with the brokerage for clearing of securities, etc. is deemed to be the person conducting the brokerage for the market derivatives transaction, and the provisions of Article 119, paragraphs (1) through (3) apply.

The procedures for implementing the provisions of Articles 156-2 through the preceding Article and other necessary particulars for the implementation are specified by Cabinet Office Order.