Outline of the Report of the First Subcommitteeof the Financial System Council

December 24, 2003

Financial Services Agency, Japan

Financial Services Agency, Japan

Outline of the FSC Report (1)• December 2003
– Report of the First Subcommittee of the Financial
System Council (‘FSC’)• Reviewing developments after the ‘Financial Big-Bang’ andproposing necessary reforms with a view to reestablishing
the financial system with market functions set as its core
• Planning to submit a bill to the regular Diet session to revise
the Securities and Exchange Law, in addition to a planned
submission of a bill to complete establishment of the uniform
securities settlement system including dematerialization ofshares
Financial Services Agency, Japan2

Outline of the FSC Report (2)1. Institutional Framework for Competition amongMarkets– Enhancing competition between exchanges andproprietary trading system (PTS)– Introduction of best execution obligation

Financial Services Agency, Japan3

Outline of the FSC Report (3)2. Enhancement of Disclosure System(1) Review of the prospectus: providing valuable
information for investment decision of investors,
based on the nature of each financial products•Prospectus of investment trusts– The prospectus shall be edited in three parts:
1. obligatory information,
2. additional information available on request, and3. publicly disclosed information.
– This is to make investors to obtain necessary information
easily; this is not a reduction or simplification of the prospectus•

Prospectus of all securities (including investment trusts)– Easing naming limitation, ensuring avoidance ofmisunderstanding by investors– Simplifying conditions for electronic delivery of the prospectus

Financial Services Agency, Japan4

Outline of the FSC Report (4)2. Enhancement of Disclosure System(2)Deregulation of the tender offer system: developingof rational framework in response to economicrealities•

Adding further exemptions to the compulsory tender offersystem

Financial Services Agency, Japan5

Outline of the FSC Report (5)3. Strengthening Functions and Regime of MarketSurveillance(1)Strengthening functions of market surveillance:broadening tools of enforcement actions as effective
countermeasures to various types of illegal activities
to enhance confidence in securities markets• Introduction of administrative civil money penalty on breachof fair transaction rules and disclosure requirements• Enhanced use of injunctive orders against disclosure
violation• Expansion of explicit civil liabilities caused by disclosure
violation
Financial Services Agency, Japan6

Outline of the FSC Report (6)(2)Review of market surveillance regime: ensuring
effectiveness and efficiency of the whole market
surveillance regime• Administrative regime– Integrating functions relevant to securities markets surveillance
activities, such as inspections of securities businesses, to theSESC• SROs– Ensuring independence of self-regulatory functions from otherfunctions– Reviewing allocation of roles of inspections among the SESCand SROs
Financial Services Agency, Japan7

Outline of the FSC Report (7)4. Investor Protection in Investment Services
5. Promotion of Investor Education
6. Broadening a Scope of Banks’ Securities
Business– Removal of ban on a securities intermediary service
for banks with appropriate firewalls– Making clear that market-inducting businesses suchas providing advises toward public offering or listing
are permissible businesses for banks– Promoting more participation in individual investors and SMEs tomarketsFinancial Services Agency, Japan8