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07 February 2009

FSA Japan newsletter January 2009

Topics of the January edition include articles explaining steps taken with regard to building up a framework of regulation of CRAs and disclosure systems in Japan.

Topics of the January edition includes articles explaining steps taken with regard to building up a framework of regulation of CRAs and disclosure systems in Japan.


Framework of regulation of credit rating agencies

In light of the importance of credit rating agencies as elements of the information infrastructure of the financial and capital markets as well as responses to the various problems pointed out regarding them and international developments toward introducing and strengthening regulation of them, it is necessary to introduce regulation on credit rating agencies.


From the viewpoint of ensuring the independence of credit rating, the prevention of conflicts of interest, the quality of, and fairness in, the rating process and transparency for market participants, such as investors, it will be appropriate to introduce a new framework of regulation as follows:


Ø       To require registered credit rating agencies to (i) perform the duty of good faith, (ii) disclose information regarding their rating policies and (iii) establish control systems regarding the prevention of conflicts of interest and to (iv) prohibit them from assigning ratings in cases where they own securities issued by the rated entity.


Ø       To impose restrictions on the solicitation of customers by financial instruments business operators using credit ratings assigned by unregistered rating agencies.


Ø       To empower supervisors to require credit rating agencies to submit reports, conduct onsite inspections on their offices and order them to improve their business operations.


Alliances among Financial Instruments Exchanges and Commodity Exchanges

In order to enable the mutual trading of products between financial instruments and commodity exchanges under the current framework of regulation which subjects financial products and transactions to the Financial Instruments and Exchange Act and commodity derivative transactions to the Commodity Exchange Act, the government must quickly work out specific plans.


Basic concepts:

Ø       To allow flexible options for alliances, such as forming alliances directly between exchanges themselves or through a subsidiary or a holding company.


Ø       To streamline regulation and supervision by eliminating overlapping regulatory and supervisory processes while properly ensuring that the purposes of both acts are observed.


Ø       To strengthen cooperation between the regulators of financial instruments and commodity products in dealing with inappropriate transactions that concern both financial instruments and commodity product markets.


Review of disclosure system

In light of practical processes of securities transactions as well as the needs of investors and issuers, it will be appropriate to implement the following measures in order to ensure that investment information is made easily available to investors when they need it:


Ø       To revise the credit rating requirements, which constitute the eligibility requirements for the use of the shelf registration system, and reform the shelf registration system so as to improve convenience for users.


Ø       To improve the mandatory prospectus regarding investment trust securities so as to provide investors with easy-to-understand, concise information important for investment decisions and simplify the procedures for the electronic provision of the prospectus.


Ø       Regarding the concept of the secondary distribution, to remove the requirement for the “uniform conditions” in light of the increasingly cross-border, complex and diverse nature of securities transactions and make regulation of the provision of information more flexible in light of the practical work processes involved in such transactions.




© FSA Japan

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