The Financial Instruments and Exchange Act governs securities disclosure, financial instruments business operators, market operators, tender offers, large shareholding reports, unfair trading, and supervisory measures. Issuers, securities firms, asset managers, listed-company teams, and M&A advisers consult it to identify which disclosure, registration, or market rule applies before turning to Cabinet Orders and Cabinet Office Orders. This article covers selected core provisions of the Act and does not cover stock-exchange listing rules, tax, accounting standards, or transaction-specific securities-law advice.
Securities, Offerings, and Regulated Businesses
The Act's definitions determine whether later disclosure and registration rules apply. Articles 1, 2, 2-2, and 2-3 are the main starting points for reading the statute.
Article 1 states the Act's purpose: to develop disclosure systems for corporate affairs and other matters, set necessary rules for persons conducting Financial Instruments Business, secure proper operation of Financial Instruments Exchanges, make securities issuance and financial instruments transactions fair, facilitate securities circulation, support fair price formation through capital-market functions, and contribute to national economic development and investor protection.
Article 2(1) lists Securities, including government bonds, municipal bonds, corporate bonds, share certificates, share option certificates, investment trust beneficiary certificates, investment securities, specified purpose trust beneficiary certificates, and other instruments stated or designated there. Article 2(2) then deems specified rights to be Securities even where no physical certificate is issued, including trust beneficiary rights, membership rights in certain companies, and collective investment scheme interests meeting the statutory conditions.
Article 2(3) defines Public Offering of Securities, and Article 2(4) defines Secondary Distribution of Securities. Article 2(8) defines Financial Instruments Business through listed acts such as sales and purchase of Securities, derivatives transactions, intermediary and agency activities, underwriting, investment management, and investment advisory activities, subject to the details and exclusions in that paragraph. Article 2-2 and Article 2-3 add rules that refine treatment of electronic records and public-offering concepts for specified instruments.
Securities Registration and Issuer Disclosure
The first major disclosure system concerns issuance and distribution of securities. Articles 4, 5, 7, 13, 15, 24, 24-4-7, and 24-5 show how registration statements, prospectuses, annual reports, quarterly reports, and extraordinary reports fit together.
Article 4 requires notification to the Prime Minister before making a Public Offering or Secondary Distribution of Securities in specified cases, unless an exception applies. Article 5 requires the notification under Article 4 to be made by submitting a Securities Registration Statement stating matters concerning the issuer, securities, and other items required by Cabinet Office Order. Article 7 requires amendment if important matters change or if a required matter needs correction before the registration becomes effective.
Article 13 requires delivery of a prospectus in specified cases involving Public Offerings or Secondary Distributions. Article 15 restricts acquisition or sale connected with a Public Offering or Secondary Distribution before the Securities Registration Statement becomes effective, subject to the rules and exceptions stated there. These provisions make registration effectiveness a transactional timing issue, not only a filing issue.
Article 24 requires specified issuers to submit Annual Securities Reports. Article 24-4-7 requires quarterly reports for issuers that fall within the categories stated there, and Article 24-5 requires Extraordinary Reports when specified events occur. Together, these provisions show that the Act's issuer-disclosure system is not limited to the initial offering stage.
Tender Offers and Large Shareholding Reports
The Act has separate disclosure systems for share acquisitions and large holdings. Articles 27-2, 27-3, 27-8, 27-23, 27-25, and 27-26 are the main entry points for public-company M&A and block-shareholding checks.
Article 27-2 requires a person who conducts a purchase, etc. of share certificates or similar securities outside a Financial Instruments Exchange Market to use a Tender Offer in the cases specified in that article. Article 27-3 requires the Tender Offeror to give public notice of the Tender Offer and submit a Tender Offer Notification Statement to the Prime Minister on the public notice date. Article 27-8 governs amendment of the Tender Offer Notification Statement and related disclosure when required matters change or correction is needed.
Article 27-23 requires a holder whose Share Certificates, etc. Holding Ratio exceeds five percent to submit a Large Shareholding Report to the Prime Minister within the statutory period, except in cases covered by the article's provisos and special rules. Article 27-25 requires an Amendment Report when the holding ratio or other important matters change after a Large Shareholding Report is submitted. Article 27-26 provides special reporting rules for institutional investors and other categories described in that article.
These provisions do not decide whether an acquisition is commercially advisable. They identify filing and disclosure routes that may apply when a transaction involves securities of an issuer covered by the relevant FIEA provisions.
Business Registration and Conduct Rules
The Act also regulates persons who conduct securities, derivatives, investment advisory, and investment management businesses. Articles 29, 29-2, 29-4, 31, 35, 36, 37, 37-3, 37-4, 38, and 40 are core provisions for registration and conduct.
Article 29 states the basic registration rule: a person may not conduct Financial Instruments Business unless registered by the Prime Minister. Article 29-2 requires an applicant for registration to submit a written application stating matters such as trade name or name, capital amount, officers, business type, and other prescribed items. Article 29-4 states grounds on which the Prime Minister must refuse registration, including specified legal disqualifications and organizational or financial conditions.
Article 31 requires a Financial Instruments Business Operator to notify the Prime Minister when specified registered matters change. Article 35 sets the scope of business that a Financial Instruments Business Operator may conduct, including business within its registered category and specified incidental business. Article 36 states duties concerning sincerity and fairness toward customers.
Article 37 restricts advertising and similar acts by requiring statutory indications and prohibiting misleading indications. Article 37-3 requires delivery of a document before conclusion of a contract for a financial instruments transaction, and Article 37-4 requires delivery of a document when such a contract is concluded. Article 38 prohibits specified acts such as false statements, conclusive judgment statements, and other conduct listed in that article. Article 40 requires proper management of business in light of customer knowledge, experience, financial condition, and contract purpose.
Exchanges, Supervision, and Enforcement
The later parts of the Act regulate market infrastructure and give authorities supervisory tools. Articles 80, 84, 106-3, 156-2, 187, 192, 194-7, and 197 are useful landmarks for market operation and enforcement.
Article 80 requires a license from the Prime Minister to establish a Financial Instruments Exchange. Article 84 states that a Financial Instruments Exchange must operate its Financial Instruments Exchange Market fairly and smoothly, and it sets organizational and self-regulatory duties. Article 106-3 requires authorization for establishing a Financial Instruments Exchange Holding Company. Article 156-2 regulates Financial Instruments Clearing Organizations through a licensing system.
Article 187 allows the Prime Minister to order reports or materials from specified persons where necessary for enforcement of the Act. Article 192 authorizes the Prime Minister to petition a court for an injunction against acts that violate the Act or orders based on it where investor protection or public interest requires urgent action. Article 194-7 delegates specified Prime Minister authority to the Commissioner of the Financial Services Agency and other authorities as provided in that article.
Article 197 sets criminal penalties for serious violations listed in that article, including specified false disclosure and unregistered exchange-market conduct. The penalty provisions are only one part of enforcement; administrative orders, reporting obligations, inspections, and court petitions also appear throughout the Act.