Securities Settlement Systems

Japan has launched a series of reforms towards a more integrated securities settlement system. These initiatives are outlined in a report "Towards Japan Securities Settlement Systems and Infrastructure Reform", linked below. Major goals for 2004 include

• a globally competitive and advanced Paperless DVP Settlement System for book-entry of corporate bonds and investment trusts, and
• Straight Through Processing that improves system efficiency and improves Japan's competitive position.

The Japanese Government Bond Clearing Corporation (JGBCC) was established as a central counterparty for Japanese Government Bond (JGB) transactions and will start operations by the end of 2004 or early 2005. The JGBCC is an important development toward T+1 settlement for JGBs.

The Japan Securities Depository Center (JASDEC) established the JASDEC DVP Clearing Corporation, which will provide clearing services when the DVP settlement system for non-exchange transaction deliveries is implemented in May 2004.

Disclosure Documents in English Language

The Financial Services Agency has asked the Financial System Council to discuss the possibility of allowing English language submission of disclosure documents, such as the Prospectus and Securities Report. At present, foreign entities (companies, governments, investment trusts, etc.) are required to submit disclosure documents in Japanese.

Tax Reforms

The Ministry of Finance releases annually a set of tax reforms for the year. The reforms have streamlined and steadily lowered tax rates in recent years as part of government efforts to revitalize the economy. The tax reform package for 2006 is at the link below.

Included also here is the proposed US-Japan Tax Treaty in 2004.

Revisions to Securities and Exchange Law

A draft of the revised Securities and Exchange Law was submitted to the parliament in March 2004. Key points include strengthening market surveillance functions and frameworks, and expanding the scope of investor protection.

New Legislative Framework for Investor Protection – “Financial Instruments and Exchange Law”

Bills for new legislative framework for investor protection were submitted to the Diet (Japanese Legislature) in March 2006. The passage of the bills in the Diet and the promulgation of the legislations were subsequently held on 07 June 2006 and 14 June 2006, respectively.

Basic contents of the legislations are (1) establishing cross-sectional framework of a wide range of financial instruments and services, including establishment of a comprehensive definition of collective investment scheme and wide-ranging definition of derivatives; (2) enhancing disclosure requirements; (3) increasing the maximum criminal penalties against various market frauds and expanding the scope of penalties against “misegyoku”; and (4) providing organization structures for self-regulatory functions of exchanges in the form of stock corporations. Copies of the summary of the contents of the legislations of March and June 2006 are provided below.