Financial Sector

June 2006

Deregulation To Ease Japanese Marketing Of Foreign Funds
The Financial Services Agency plans to terminate as early as the summer of 2007 the registration requirement for overseas managers that want to market their funds in Japan. This move will effectively lift the heavy financial burden imposed on these firms when they enter the Japanese market. Under current law, foreign companies planning to market their investment trusts in Japan must register these products, requiring them to submit 200-300 pages of Japanese-language materials and to hire lawyers. The result is to discourage the marketing in Japan of funds and real estate investment trusts (REITs) that are listed abroad. Domestic securities firms had urged the lifting of this effective restriction on marketing. With the approval last week of legislation revising the law governing investment trusts, the FSA will amend related regulations, ending the registration requirement. The agency is also considering doing away with a similar requirement for overseas REITs. But given the recent instability in real estate prices abroad, this may be postponed. (The Nihon Keizai Shimbun, June 15, 2006)

TSE Unveils Proposed Reforms To Enhance Market Transparency
Companies traded on the Tokyo Stock Exchange will be required to release details of their planned mergers and acquisitions under draft proposals for revising the bourse's regulations. Assessment of listed firms' oversight systems and mandated disclosure of start-ups' corporate governance will also be introduced through the regulation update. These tighter rules are aimed at enhancing transparency in the Tokyo markets in the wake of a series of corporate scandals involving accounting fraud and insider trading, among other cases. The draft plan was presented Tuesday by TSE President and Chairman Taizo Nishimuro to a stock exchange advisory panel that reports to Financial Services Minister Kaoru Yosano. The proposal is expected to be formally approved by the TSE board on June 22. One of the key features of the revision is increased disclosure on M&As. Listed firms planning stock swaps and corporate mergers will be required to show in detail how they have come to determine their stock swap ratios, as well as make public their business and capital relationships with target firms. Ties with third parties charged with calculating stock swap ratios will also be disclosed. The proposal also calls for creation this year of rules on releasing information on certain fundraising programs. For instance, those planning large issues of new shares, private placements and issues of moving strike convertible bonds must state information such as the legal opinions and how they chose buyers. The TSE also plans by next year to introduce a new oversight framework for listed companies. Those that have drastically changed management structures will have their internal control systems examined, while those traded on the Mothers market for start-ups will be required to regularly report on their internal control programs. The bourse will also consider imposing punishments such as financial penalties and stock trading suspensions on firms that have distorted their financial statements and engaged in misconduct that undermines investor confidence. The draft also proposes unification of the TSE's seven types of trading units, which are said to confuse investors and are blamed for erroneous orders. The consolidation is planned for 2009, when paper stock certificates will be eliminated. Given the anticipated heavy burden on listed firms, this issue will be handled by a designated team of outsiders to be formed this autumn. In addition to these moves planned for the next several years, the TSE will also weigh some medium-term measures. One is to redefine the roles of each of its markets -- the first and second sections and the Mothers market -- and review their listing and delisting standards. Establishing a framework for the unified management of personal information on listed firms' senior executives will also be discussed as part of efforts to combat insider trading. (The Nihon Keizai Shimbun, June 14, 2006)