Provisional Translation

Points to Note Regarding Article 27-36 of the Financial
Instruments and Exchange Act(Fair Disclosure Rule Guidelines)

April 2018
Planning and Coordination Bureau,
Financial Services Agency

* These guidelines only show a general interpretation of laws and regulationsat present and do not give answers regarding the applicability of laws andregulations to individual cases. It should be kept in mind that theapplicability of laws and regulations to individual cases is to be practicallydetermined in light of the purpose of the laws and regulations for each case
based on the facts found therein. In addition, it is also necessary to keep inmind that different interpretations may be made when the preconditions aredifferent (including new transaction methods for which cautious
considerations are considered necessary from the standpoint of investor
protection) or when the relevant laws and regulations are amended.
*

In addition, in implementing the fair disclosure rule, it is considered
preferable to accumulate practices through dialogues between listedcompanies, etc. and investors. In the future, the interpretations shown inthese guidelines may change in a constructive manner in the process of suchaccumulation of practices.

* These guidelines are not binding on determinations made by investigative
authorities and judicial decisions including the application of penal provisions.
In addition, these guidelines do not guarantee that the Financial Services
Agency (FSA) will make the same interpretations as those shown in theseguidelines in the future.
* It is considered that interpretations and applications of laws and regulations
should be made in a practical manner based on the purpose of the relevantlaws and regulations, not only with respect to the items dealt with in theseguidelines but also in general terms.
*

In these guidelines, “material information” refers to the “undisclosed
material information about the operations, business, or assets of the listedcompany, etc. which has a material influence on investors' investment
decisions” as provided in Article 27-36, paragraph (1) of the Act.
In addition, “business associate” refers to the persons set forth in the itemsof Article 27-36, paragraph (1) of the Act as persons who are assumed to behighly likely to be involved in the purchase and sale, etc. of securities such as
financial instruments business operators.

(Explanatory notes)
Act: Financial Instruments and Exchange Act
Cabinet Office Order on Disclosure of Material Information: Cabinet Officer Order on Disclosure of Material Information under Chapter
II-6 of the Financial Instruments and Exchange Act

Cabinet Office Order on Financial Instruments Business, etc.
: Cabinet Office Order on Financial Instruments Business, etc.

<Table of Contents>
OutlineQ1. Purpose and significance of the fair disclosure rule
What are the purpose and significance of the fair disclosure rule?
Re: Article 27-36, paragraph (1) of the Act
Q2. Scope of information management
What kind of information should a listed company, etc. manage as
information subject to the application of this rule?
Q3. Responses to make when a business associate suggests that the information
which it has received may fall under the category of material information
What are the possible responses a listed company, etc. can make, when it
provides information in relation to its business to a business associate andthe business associate suggests that such information may fall under the
category of material information?
Q4. Handling of discussions on future information of companies
Will the following information be subject to the application of the Rule?
(i) Information exchanged in discussions made between the manager andinvestors with respect to the medium- to long-term corporate strategy orplan, etc.
(ii) Detailed breakdown or supplemental explanations of the pieces of
information which have already been disclosed and estimates of economic
trends which have served as the basis for the disclosed earnings forecast.
(iii) Information which may have an effect on investment decisions whencombined with other information but which, in itself, has no immediate
effect on investment decisions (what is generally called a piece of “mosaic
information”).
Q5. Measures necessary to properly manage material information
1

Article 5 of the Order on Disclosure of Material Information provides
appropriate measures to be taken by any person in order to ensure that thematerial information received in the process of performing a business otherthan a financial instruments business, etc. is not used in conducting afinancial instruments business, etc. before the material information becomes
disclosed, as the measures necessary to properly manage material information.
Specifically, what kind of measures should be taken (re: item (i))?

Q6. Handling of provision of information to parent companies
Article 7, item (i) of the Cabinet Office Order on Disclosure of Material
Information provides that shareholders who receive material information in
relation to a business pertaining to public relations aimed at investors of alisted company, etc. are business associates. Is a listed company, etc. required
to disclose material information that the company has provided to its parent
company, which is a shareholder of the listed company (re: item (ii))?
Q7. Provision of material information to a section engaged in investment banking
services in a securities company
Is it necessary for a listed company, etc. to disclose the information
provided in the following cases?
(i) In the case of providing material information in order to consult with asection engaged in investment banking services in a securities company
about matters such as organizational restructuring or fund procurement(ii) In the case of providing material information when requesting a credit
rating agency to rate bonds, etc.
Re: Article 27-36, paragraph (2) of the Act
Q8. Cases in which it is difficult to disclose the material information at the sametime as the provision of the information
Article 8, item (i) of the Cabinet Office Order on Disclosure of Material
Information prescribes a case where an officer, etc. has provided material
information to a business associate unintentionally as one of the "cases inwhich it is difficult to disclose the material information at the same time as
the provision of the information" provided in Article 27-36, paragraph (2) ofthe Act. What specific cases would fall under such cases referred to in Article
8, item (i) of the Cabinet Office Order?

2

Outline(Purpose and Significance of the Fair Disclosure Rule)
Q1. What are the purpose and significance of the fair disclosure rule?
A.
The provisions of Article 27-36 of the Act (what is generally called the fairdisclosure rule; hereinafter referred to as the “Rule”) have been introduced toensure fair disclosure of information to investors. In addition, introduction of
the Rule is considered to have a positive significance in that it promotes early
disclosure of information by issuers and, eventually, dialogues between issuers
and investors, as a result of the information disclosure rules for issuers being
developed and clarified.
Listed companies, etc. who are subject to the application of the Rule are
expected to actively disclose information in light of the purpose and significanceof the Rule.
Re: Article 27-36, paragraph (1) of the Act(Scope of Information Management)
Q2. What kind of information should a listed company, etc. manage as information
subject to the application of the Rule?
A.
The Rule is applicable to information of a precise nature which has not been
disclosed and which, if it were disclosed, is likely to have a material influence on
the value of securities.
With respect to the information management based on the Rule, for example,
listed companies, etc. may manage material information by any of the following
methods according to their business scales or state of information management.
(i) Global companies, which are engaged in investor relations (IR) activities by
setting their own standard to determine the type of information that may
have a material influence on the value of securities bearing in mind the rulesof other countries, may manage information using such standard.
(ii) Companies engaged in IR activities in accordance with the current insider
trading regulations, etc. may manage the following information, for the time
being: Information subject to the application of the insider trading regulations:3

and Financial closing information (meaning a financial information of a
precise nature relating to annual or quarterly settlement; the same
applies in (iii) below), which has a material influence on the value of
securities.
(iii) Companies facing difficulties in determining the specific piece of financial
closing information which may have a material influence on the value of
securities may manage information subject to the application of insider
trading regulations and financial closing information of a precise nature
which has not been disclosed, as the information subject to the application of
the Rule.
Among these three methods, the method described in (ii) above shows theminimum scope of information management.
(Responses to Make When a Business Associate Suggests That the Information
Which It Has Received May Fall Under the Category of Material Information.)Q3. What are the possible responses a listed company, etc. can make, when it
provides information in relation to its business to a business associate andthe business associate suggests that such information may fall under the
category of material information?
A.
When a listed company, etc. provides information in relation to its business toa business associate and the business associate suggests that such information
may fall under the category of material information, the listed company, etc. canmake the following responses, through dialogues between the two parties:(i) When the listed company, etc. agrees to the suggestion that the relevant
information falls under the category of material information, the listedcompany, etc. will promptly disclose the relevant information.
(ii) When the parties have reached a conclusion that the relevant information
does not fall under the category of material information as a result of a
dialogue between them, the listed company, etc. will not disclose the relevant
information.
(iii) When the listed company, etc. considers that the relevant information falls
under the category of material information but is unsuitable for disclosure,the listed company, etc. will have the relevant business associate bear a dutyof confidentiality and the obligation not to effect purchase and sale, etc. of the
securities issued by the listed company, etc. until the relevant information4

can be disclosed, and will not disclose the relevant information.
(Handling of Discussions on the Future Information of Companies)
Q4. Will the following information be subject to the application of the Rule?
(i) Information exchanged in discussions made between the manager andinvestors with respect to the medium- to long-term corporate strategy or plan,etc.
(ii) Detailed breakdown or supplemental explanations of the pieces of
information which have already been disclosed and estimates of economic
trends which have served as the basis for the disclosed earnings forecast.
(iii) Information which may have an effect on investment decisions whencombined with other information but which, in itself, has no immediate effecton investment decisions (what is generally called a piece of “mosaic
information”).
A.
The Rule is applicable to information of a precise nature which has not been
disclosed and which, if it were disclosed, is likely to have a material influence on
the value of securities.
The answer to the question of whether or not the pieces of informationreferred to in the question above are subject to the application of the Rule may
be as follows.
(i) In general, it is considered that information exchanged in constructive
discussions made between the manager and investors with respect to the
future medium- to long-term corporate strategy or plans, etc. is, in itself, notsubject to the application of the Rule. However, it should be kept in mind that,for example, when specific details of the plan concerning operating profits or
net profits that are planned to be disclosed as the contents of themedium-term management plan are pieces of information which, inthemselves, can be used for making investment decisions and are likely tohave a material influence on the value of securities if they were disclosed andwhen such details of the plan are to be provided to the investors immediately
prior to the disclosure of the medium-term management plan, the provision ofsuch pieces of information may constitute provision of material information.
(ii) In general, it is considered that a detailed breakdown or supplemental

5explanations of the pieces of information which have already been disclosed
and estimates of economic trends which have served as the basis for thedisclosed earnings forecast are, in themselves, not subject to the applicationof the Rule. However, for example, if such supplemental explanations, etc.
contain information on the relation between the company’s businessperformance and contracted forward exchange rate, which is a piece of
information that enables one to easily estimate the future changes in thecompany’s business performance by comparing it with the figures of theactual exchange rate in the following period and thus is likely to have amaterial influence on the values of securities if they are disclosed inthemselves, it should be kept in mind that such piece of information may fallunder the category of material information.
(iii) Generally, information which may have an effect on investment decisions
when combined with other information but which in itself has no immediate
effect on investment decisions (what is generally called a piece of “mosaic
information”), such as information generally provided at factory tours or
sector-by-sector explanatory meetings are, in themselves, considered not to be
subject to the application of the Rule.
(Measures Necessary to Properly Manage Material iInformation)
Q5. Article 5 of the Material Information Disclosure Order provides appropriate
measures to be taken by any person in order to ensure that the material
information received in the process of performing a business other than afinancial instruments business, etc. is not used in conducting a financial
instruments business, etc. before the material information becomes disclosed,
as the measures necessary to properly manage material information.
Specifically, what kind of measures should be taken (re: item (i))?
A.
As one of the appropriate measures to ensure that material information
received in the process of performing business other than financial instruments
business, etc. is not used in conducting financial instruments business, etc.
before the material information becomes disclosed, it is considered necessary toestablish internal rules, etc. (meaning internal rules and the equivalent thereto)
to ensure that the material information received in the process of performing
business other than financial instruments business, etc. is not used in
conducting financial instruments business, etc. before the material information
becomes disclosed, and to provide training for officers and employees on
6compliance with the internal rules or take other measures.
(Handling of Provision of Information to Parent Companies)
Q6. Article 7, item (i) of the Order on Disclosure of Material Information provides
that shareholders who receive material information in relation to businesspertaining to public relations aimed at investors of a listed company, etc. arebusiness associates. Is a listed company, etc. required to disclose material
information that the company has provided to its parent company, which is ashareholder of the listed company (re: item (ii))?
A.
When a listed company, etc. is a subsidiary of another company, there may becases where the listed company, etc. provides material information to the parent
company, etc. for the business management of the corporate group to which thelisted company, etc. belongs. Normally, such provision of material information is
not conducted “in relation to business pertaining to public relations aimed atinvestors” and thus is considered to be not subject to the application of the Rule.
(Provision of Material Information to a Section Engaged in Investment Banking
Services in a Securities Company)
Q7. Is it necessary for a listed company, etc. to disclose the information provided
in the following cases?
(i) In the case of providing material information in order to consult with asection engaged in investment banking services in a securities company
about matters such as organizational restructuring or fund procurement(ii) In the case of providing material information when requesting a credit
rating agency to rate bonds, etc.
A.
Even in a case where a listed company, etc. provides material information in amanner subject to the application of the Rule, if the business associate thatreceives the material information has an obligation under laws, regulations, orcontract to the effect that the business associate must not divulge the material
information (duty of confidentiality) and must not effect purchase and sale, etc.
of the securities issued by the listed company, etc., before the listed company, etc.
discloses the material information, it is not necessary for the listed company, etc.
7

to disclose the material information because non-disclosure of the provided
material information is considered unlikely to damage confidence in the market(the proviso to Article 27-36, paragraph (1) of the Act).
The necessity of disclosure of material information is considered to be as
follows in the cases referred to in the questions.
(i) An employee belonging to a section engaged in investment banking services in asecurities company is prohibited under the Financial Instruments and Exchange Act
and related regulations from conducting transactions of securities to which corporate
information pertains, based on that information (Article 38, item (viii) of the Act;
Article 117, paragraph (1), item (xvi) of the Cabinet Office Order on Financial
Instruments Business, etc.). Meanwhile, a securities company is required under the
Financial Instruments and Exchange Act and related regulations to implement, inconnection with the management of corporate information, measures necessary andappropriate for the prevention of unfair transactions (Article 40, item (ii) of the Act;
Article 123, paragraph (1), item (v) of the Cabinet Office Order on Financial
Instruments Business, etc.). Rules of the Japan Securities Dealers Association, whichhave been established in light of such circumstances, provide matters including thefollowing: that a section engaged in investment banking services which is likely toacquire corporate information in the course of business must manage the corporate
information so that it is not communicated to other sections that do not need suchinformation for their business, such as through physically isolating such informationfrom other sections; and that internal rules, etc. must be established to the effect that
corporate information must not be provided except in certain cases.

Accordingly, with regard to the provision of material information to asection engaged in investment banking services in a securities company
which has such management system in place, non-disclosure of the material
information by the listed company, etc. is considered unlikely to damage
confidence in the market.
(ii) A credit rating agency is required under the Financial Instruments and Exchange
Act and related regulations to implement measures to ensure that any information
which may come to its attention in the course of the performance of the credit rating
business would not be used for any purposes other than the intended purpose andmeasures to prevent the leakage of secrets concerning such information (Article 66-33,
paragraph (1) of the Act; Article 306, paragraph (1), item (xii) of the Cabinet Office
Order on Financial Instruments Business, etc.). Given such circumstance, in the casewhere a listed company, etc. provides material information when requesting a credit
rating agency, which implements such measures, to rate bonds, etc., non-disclosure of
the material information by the listed company, etc. is considered unlikely to damage

8

confidence in the market.

Re: Article 27-36, paragraph (2) of the Act(Cases in Which It Is Difficult to Disclose the Material Information at the Same
Time as the Provision of the Information)
Q8. Article 8, item (i) of the Cabinet Office Order on Disclosure of Material
Information prescribes a case where an officer, etc. has provided material
information to a business associate unintentionally as one of the "cases inwhich it is difficult to disclose the material information at the same time as
the provision of the information" provided in Article 27-36, paragraph (2) ofthe Act. What specific cases would fall under such cases referred to in Article
8, item (i) of the Cabinet Office Order?
A.
Cases that fall under the cases where "an officer, etc. has provided material
information to a business associate unintentionally" referred to in Article 8,
item (i) of the Cabinet Office Order on Disclosure of Material Information are,for example, cases where a listed company, etc. had no plan to provide material
information to a business associate, but its officer, etc. happens to provide thematerial information to that business associate in the flow of conversation.
--------------------------------------------------------------------------Enacted in April 1, 20189