Post-Tohoku Earthquake: Japanese Financial Regulatory Update

July 14, 2011

Four months have passed since the Tohoku Earthquake. We wish to express our deepest condolences to the victims of this disaster.

This alert is to provide an update for our clients and friends on recent developments in the Japanese financial regulations, especially in light of the Tohoku Earthquake of March 11, 2011.

Overall, post-earthquake measures taken in the financial area appear to have been effective in dealing with the immediate impact of the disaster. While the immediate focus of the Japanese government is the recovery of the Tohoku area, and revenue measures to fund such efforts, financial regulatory policy should resume the general trends described below that pre-date the earthquake. The main theme for the future will be to increase Tokyo’s global competitiveness in the financial markets.

Earthquake Relief

Recent efforts of the Japanese government have focused on the protection of customers of Japanese financial institutions in light of market disruptions after the earthquake. The measures seem to have been largely successful.

On March 13, 2011, Shozaburo Jimi, the Minister for Financial Services, issued statements in response to the Tohoku Earthquake that occurred on March 11, 2011. Full text is available at:

In turn, the Financial Services Agency (the “FSA”) published measures to assist depositors, borrowers and insurance policyholders affected by the earthquake. The FSA requested the financial institutions, especially those located in the devastated areas, to cooperate with these measures. Full text of the measures is available at:

The Japanese Cabinet also submitted a bill to amend the Act on Special Measures for Strengthening Financial Functions on May 27, 2011 which passed on June 22, 2011. This bill will enable the government to inject capital into the financial institutions for credit accommodation in the devastated areas more smoothly.

“The Action Plan for the New Growth Strategy”

Before the earthquake, the FSA drafted and released “The Action Plan for the New Growth Strategy” (the “Action Plan”) on December 24, 2010. The Action Plan was created in response to the Japanese Cabinet decision made on June 18, 2010, called “In the New Growth Strategy — Blueprint for Revitalizing Japan” which positions financial strategy as one of seven important strategic areas. The Action Plan outlines measures to be taken by the fiscal year 2013 in order (i) to support the real economy and enterprises through providing suitable investment opportunities and diverse fund-raising methods, and (ii) for the financial sector as a growing industry to lead the Japanese economy. The Action Plan summarizes these measures in accordance with the three pillars: financing to companies commensurate with borrowers’ size and stage of development; financial sector serving as a bridge between Asian and Japanese economies; and provision of asset management capabilities to utilize Japanese assets safely and effectively. The Action Plan includes several plans for measures noteworthy for foreign financial institutions, including the following:

  • Development of debt capital markets for professional investors;
  • Expansion of the scope of English disclosure by foreign issuers;
  • Change of taxation policy on cross-border transactions; and
  • Promotion of policy coordination regarding financial and capital markets in Asia

Full text, outline and timetable of the Action Plan are available at:

Based on the Action Plan, the Japanese Government is expected to continue its efforts to reform the Japanese financial system. As described below, the introduction of TOKYO PRO-BOND Market and the amendments to the Financial Instruments and Exchange Act (the “FIEA”) and other financial-related acts made in 2011 are examples of measures implemented in accordance with the Action Plan.


A new development is the announcement by TOKYO AIM, Inc. (“TOKYO AIM”) on May 17, 2011, that it has received approval from the FSA for the rules and regulations of its new bond market for professional investors called the “TOKYO PRO-BOND Market”. TOKYO AIM, originally established in 2008, is a joint venture between the Tokyo Stock Exchange and the London Stock Exchange, providing companies with access to equity capital growth, while creating new investment opportunities for Japanese and international professional investors. The TOKYO PRO-BOND Market targets professional investors who are at the core of existing bond markets. The TOKYO PRO-BOND Market features the following:

  • A flexible system that enhances convenience for both issuers and investors;
  • Vastly simplified disclosure requirements at the time of issuance that improve the efficiency of issuance procedures for issuers;
  • Initial and ongoing disclosures that can be made in English only, thereby reducing documentation costs for overseas issuers; and
  • The availability of program listings similar to Euro MTNs that allow for flexible and timely bond issuances in response to market conditions.

The TOKYO PRO-BOND Market is introduced as a part of the Action Plan described earlier.

Text of the press release regarding the TOKYO PRO-BOND Market made by TOKYO AIM is available at:

2011 Amendments to the FIEA

The Japanese Cabinet submitted a bill to amend the FIEA and other financial-related acts including the Act on Specified Loan Commitment Contract (the “ASLCC”) and the Asset Securitization Act (the “ASA”) on April 1, 2011, and the Diet passed it on May 17, 2011. The amendments to these acts (the “2011 Amendments to the FIEAs”) were promulgated on May 25, 2011. The 2011 Amendments to the FIEAs are scheduled to be implemented, in general, within one year after the promulgation.

The 2011 Amendments to the FIEAs meet two aims of the Action Plan — to back up and support the real economy and enterprises and for the financial sector as a growing industry to lead the Japanese economy. The 2011 Amendments to the FIEAs will expand the scope of English disclosure by foreign issuers. Under this new framework, foreign issuers will be permitted to file not only periodic disclosure reports, such as an annual securities report, in English, but also securities registration statements generally filed before offerings of securities in Japan. The FSA expects to encourage foreign issuers to list on a Japanese stock exchange by using this new framework.

The following sets forth major pillars of the 2011 Amendments to the FIEAs:

  • Development of a system for smooth implementation of rights offering (by the amendments to the FIEA);
  • Introduction of measures for investor protection against activities of unregistered financial instruments business operators (by the amendments to the FIEA);
  • Expansion of the categories of borrowers eligible for loan commitment contracts in order to provide new financing tools to mid-sized companies (by the amendments to the ASLCC); and
  • Introduction of flexible rules for asset securitization schemes (by the amendments to the ASA).

In addition, the FSA is in progress of working on amendments to the Cabinet Order and the Cabinet Office Ordinances related to the FIEA to implement certain measures set forth in the Action Plan and the 2011 Amendments to FIEAs. That includes the amendments to the short selling regulations, which will prohibit traders from settling the outstanding short position of the listed shares by using the same shares allocated to them in accordance with the public offering (whether primary or secondary) within the period from publication of such public offering to the determination of the offering price. This aims to prevent unfair trading which can distort the fair pricing of public offering of listed shares. The FSA released the draft amendments on June 24, 2011, and is soliciting public comments on the draft amendments until July 25, 2011.


At the current time, financial institutions and funds will not need to take immediate action in response to the above mentioned changes. With political and budgetary debates continuing after the Tohoku Earthquake, measures to strengthen Japanese global competitiveness in the financial markets will continue to be implemented while their ultimate effects will remain uncertain.

For additional information concerning this alert, please contact the following lawyers:

Kenji Hirooka, Partner, Tokyo Office, +81.3.6721.3190

Hisayo Yasuda, Partner, Tokyo Office, +81.3.6721.3141

Ryota Sekine, Partner, Tokyo Office, +81.3.6721.3189

Toshikazu Sakai, Special Counsel, Tokyo Office, +81.3.6721.3188

Akihito Miyake, Counsel, Tokyo Office, +81.3.6721.3172

Roger Joseph, Partner, Boston Office, 617.951.8247

Anne-Marie Godfrey, Partner, Hong Kong Office, +852.3182.1705

Satoru Murase, Partner, New York Office, 212.705.7854

This article was originally published by Bingham McCutchen LLP.