Financial Services Agency
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FSA

2024
May

Monthlymagazine

No.249Provisional
Translation

Contents
Conferences (P1- )P1 Meeting of Directors-General of Local Finance Bureaus– Speeches by State Minister Ibayashi andParliamentary Vice-Minister Kanda –P3 International Forum of Independent Audit Regulators(IFIAR)– Holding of Plenary Meeting in Osaka –Notices (P6-)
P6 Introduction of Recommendation for Payment Order for
Surcharge– The first recommendation against market misconduct withhigh-speed trading –JFSA's Major Activities in April (P9)

Access the online version here
https://www.fsa.go.jp/en/newsletter/index.html

Conference

April 23

Meeting of Directors-General of Local Finance Bureaus– Speeches by State Minister Ibayashi and ParliamentaryVice-Minister Kanda –At the fourth meeting of Directors-General of Local
Finance Bureaus* in the current business year on
April 23, 2024, State Minister Ibayashi andParliamentary Vice-Minister Kanda delivered
speeches.
Outline of the speech by State
Minister Ibayashi

With regard to support for affected business
operators of the 2024 Noto Peninsula Earthquake,the Regional Economy Vitalization Corporation andthe Organization for Small & Medium Enterprises
and Regional Innovation, together with Ishikawa
Prefecture and regional financial institutions,decided to establish Reconstruction of Noto
peninsula earthquake affected business Investment
Limited Partnership, a fund for reconstruction of
Noto Peninsula totaling 10 billion yen in order todeal with the double-debt problem faced by thebusiness operators in future reconstruction. On
April 2, the opening ceremony of a consultation
center for reconstructing industries in the Notoregion, which provides consulting concerning
funding, was held. In the future, it is important forthe center to respond carefully and closely to
consultations from the business operators. While we
ask Local financial institutions operating in thedisaster-stricken areas to provide thorough andmeticulous support for the steady reconstruction of
the livelihoods of the business operators through theuse of this fund, the Local Finance Bureau should
also listen to voices in the disaster-stricken areasand cooperate with local financial institutions to
respond to them accordingly.
With regard to comprehensive measures forrevitalization support, the start of repayment of socalled zero-zero loans reached its final peak in April.
However, from now on, it is necessary to takemeasures such as providing support for business
improvement and business revitalization inaccordance with the actual situation of business
operators, looking one step ahead, rather than just*1

providing cash flow support. In March, the Ministryof Economy, Trade and Industry, the Financial
Services Agency and the Ministry of Financeextended the government's extended thegovernment's coronavirus funding support to theend of June and formulated and announced theHolistic Support Measures for Business Turnaroundof Corporate Borrowers, including measures forstrengthening support for business improvement andbusiness revitalization by public and private
financial institutions. The Financial Services
Agency has revised its supervisory guidelines toinclude measures for strengthening support forbusiness improvement and business revitalizationby private financial institutions looking one stepahead, and for promoting support for business
operators to formulate business reconstructionplans. Local finance bureaus should encourage local
financial institutions to support business operators
as soon as possible based on the measures.

Photo: State Minister Ibayashi delivering a speech

The FSA delegates part of its authority over the inspection and supervision of regional private financial institutions, etc. to the 11 Local Finance Bureaus(including the Okinawa General Bureau of the Cabinet Office) based on laws and regulations. In order to ensure sufficient cooperation between the FSA
and the Local Finance Bureaus, Directors-General of Local Finance Bureaus and FSA officials meet once every three months to discuss a variety of issues.

Outline of the speech by Parliamentary ViceMinister Kanda

With an increasing interest in financial andeconomic education, such as the launch of the
new NISA, the importance of financial andeconomic education for improving financial
literacy is drawing renewed attention. At theinteractive dialogue on April 16, the Prime
Minister, Mr. Kishida has instructed us toaccelerate preparations for the full-scale operationof the Japan Financial Literacy and Education
Corporation (J-FLEC), which is scheduled forAugust this year. The Financial Services Agency
will steadily advance necessary preparations inline with the Prime Minister's instructions and incoordination with relevant organizations. In orderto provide education opportunities nationwide
without regional disparities, it is important for
local finance bureaus to take the lead instrengthening
cooperation
withvariousstakeholders, such as local governments,
educational
institutions
andeconomicorganizations, and to work to create learningspaces in local and regional areas.
We hope that local finance bureaus will work
together with J-FLEC to strengthen the promotionof financial and economic education, while further
deepening the network and trust relationships
established in each region, and identifying needs
and building momentum for financial andeconomic education.
With regard to sustainable finance, it isparticularly important to promote support forregional companies that are positioned in the
supply chain for decarbonization initiatives in theregion. The Financial Services Agency, incooperation with relevant ministries and agencies,
will actively provide regional financial institutions
with information on specific measures forcustomer support, including how to cooperatewith local governments and to utilize subsidized
projects, and work to promote support. We arealso working to promote impact investment(impact finance), which aims to achieve bothsocial or environmental impact and financial
return. In November last year, we launched the
Impact Consortium involving a wide range ofstakeholders, including local companies, regional
financial institutions and local governments. We
are working to expand the initiatives and networkof stakeholders. In March of this year, weformulated and published the Basic Guidelines tofoster and promote a common understanding of

the concept of impact investment. I would like to
ask local finance bureaus to support initiatives thattake advantage of the unique characteristics ofeach region by sharing and developing goodpractices.

Photo: Parliamentary Vice-Minister Kanda
delivering a speech

・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・
At the Meeting of Directors-General of Local
Finance Bureaus, the speeches by the State
Minister and the Parliamentary Vice-Ministercame before Directors-General of Local Finance
Bureaus and senior FSA officials exchanged
opinions on current challenges in financial
administration and FSA initiatives. The
participants shared the awareness concerning
those challenges and confirmed that the FSA and
Local Finance Bureaus will continue joint efforts
for addressing them.
・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・

Photo: Meeting of Directors-General of Local
Finance Bureaus2Conference

April 16 - 18

International Forum of Independent Audit Regulators(IFIAR)
Holding of Plenary Meeting in Osaka

The 24th Plenary Meeting of IFIAR, aninternational organization of audit regulators, washeld at Hotel New Otani Osaka from April 16 to 18
under the auspices of the Financial Services Agency(FSA) and the Certified Public Accountants andAuditing Oversight Board (CPAAOB). The IFIARPlenary Meeting, an annual general meeting for
IFIAR members and stakeholders, was attended by atotal of more than 170 people, including audit
regulators of 48 jurisdictions, the global CEOs ofeach of the Global Public Policy Committee (GPPC)
networks and other stakeholders. The meetingcovered topics which have become increasingly
important in the audit industry in recent years,
including audit firm governance, sustainability
assurance, and the use of technology by audits.

Photo: Opening speech by Mr. Matsui, theChairperson of CPAAOB

The meeting opened with remarks by Mr. Matsui,
the Chairperson of the CPAAOB, and Mr. Nagaoka,
IFIAR Chair, the Deputy Commissioner forInternational Affairs at FSA and the Secretary
General of CPAAOB. Afterwards, a keynote
address and a panel discussion (moderated by IFIAR
Chair, Mr. Nagaoka) were held exploring audit firm
governance as an important issue at present. This
topic was further explored in a breakout session,
with panelists from four IFIAR members sharing thesituation in each jurisdiction and deepening
discussions.
Photo: Keynote address and panel3In the breakout sessions, sustainability assurance
and the use of technology in audits were also
discussed. With regard to sustainability assurance,in light of progress of sustainability reporting,various stakeholders such as regulators, assurance
providers and investors took the stage anddiscussed issues related to the provision of suchinformation from diverse perspectives (Mr.
Sonoda, the Director of the Office of Japanese
Delegation for IFIAR, participated from FSA). As
for the use of technology in audits, several IFIAR
members took the stage and exchanged views on
responses and future prospects in each jurisdiction
from the perspective of the regulators.

International Ethics Standards Board for
Accountants (IESBA)), the IAASB Chair and
IESBA Chair explained the current status andprospects of their activities. Furthermore, a panelof representatives of the external Advisory Groupto an IFIAR's Working Group exchanged opinions
on some topics including stakeholders' perspectives
on audit committees' supervision of corporate
reporting and audit.
On April 17, an official dinner was held, and Mr.
Aoki, the Commissioner of CPAAOB, gave aspeech. Participants deepened their friendship andenjoyed Japanese hospitality.

In addition, in the sessions with the CEOs of the
GPPC networks, the CEOs presented a wide rangeof topics, including their initiatives and recognitionof issues in each network. In the sessions with thestandard-setting entities (the International Auditing
and Assurance Standards Board (IAASB) and the

Photo: Breakout session on sustainability assurance4

We were particularly impressed by the highlyinteractive communication between speakers on the
podium and the audience during each session. The
management of the meeting went smoothly, and we
received many comments of satisfaction from theparticipants.

Photo: Address by Mr. Aoki, the Commissioner of
CPAAOB, at dinner

Since various stakeholders gathered in Osaka fromoverseas for this Plenary Meeting, an event
organized by Nikkei Inc. (Global Accounting and
Auditing Forum, "The Value of Audit andAssurance") and a meeting of the Global
Accounting Alliance (GAA), a forum for theworld's leading professional accountancy bodies
whose members practice in major capital markets,were held there. People disseminated informationand exchanged their opinions meaningfully.

Impressions of personnel in charge: Office ofJapanese Delegation for IFIAR

FSA and CPAAOB hosted the IFIAR Plenary
Meeting this time, for which we had madeconcerted preparations. Our members also createdthe Plenary's logo featuring Osaka Castle andcherry blossoms at the top of this article (on page3). This Plenary Meeting was designed to allow indepth discussions on the most important topics
currently faced by audit regulators in a variety ofsessions, such as keynote address, breakout
sessions, and dialogues with CEOs of GPPC
networks, and it was an important opportunity tocontinue initiatives at IFIAR and other regulators.

5

In addition, the venue, Osaka, and the Japanesehospitality culture were also major factors in thissuccess. This was the first time that an IFIARrelated conference was held in Osaka, and theparticipants had active discussions in the springatmosphere of Osaka, slightly different from
Tokyo. The participants also enjoyed the Japanesehospitality culture at various places, including
Hotel New Otani Osaka, the streets in Osaka andtourist destinations that were a little further way,during their stay.
Furthermore, as mentioned in the main text, theevent of Nikkei Inc. and the GAA meeting were
held in Osaka in conjunction with the IFIARPlenary Meeting, which provided an opportunity
for not only the participants of the Plenary but also
other stakeholders at home and abroad to interact.
This success was thanks to the help of all thepeople who supported and added color to theparticipants' stay. We would like to continue toactively contribute to the activities of IFIAR while
passing on the lessons learned to the subsequent
team members, with our gratitude to all of thesepeople.

Notice

Introduction of Recommendation for Payment Order for Surcharge- The first recommendation against market misconduct with high-speed trading On March 26, 2024, the Securities and Exchange
Surveillance Commission (“SESC”) made thefollowing recommendation for a payment order
for a surcharge to the Prime Minister and theCommissioner of the Financial Services Agency.
This section introduces the summary of thisrecommendation case.
Please refer to the SESC website for informationon the publication of this recommendation case.
<Reference URL>
https://www.fsa.go.jp/sesc/english/news/reco/202
40326-2.html

Recommendation for Payment Order for Surcharge against
Quadeye Trading LLC for Fraudulent means with High-Speed Trading
Example of trading behavior
Summary of the case
The juristic person subject to the payment order fora surcharge in this case was Quadeye Trading LLC(“Quadeye”), a U.S. corporation registered with the
Kanto Local Finance Bureau in Japan to engage inhigh-speed trading. Quadeye managed the assets of
DAX Partners, L.P. (“DAX”), a limited partnershipin the British Cayman Islands, under a discretionary
investment management agreement with Dax.
In this case, Quadeye attempted to mark the close inits favor with high-speed trading. In trading in six
stocks, it placed on-close orders* on the side where
the number of shares ordered was smaller, asubstantial portion of which would be cancelled justbefore the market close, thereby creating anappearance in which an imbalance in the number ofshares with on-close orders was mitigated on theorder book, causing others to misleadingly believethat the on-close orders were intended to be
executed and to make investment decisions based on
this assumption. Then, it cancelled the substantial
portion of the on-close orders one microsecond (1/1
million second) before the close, thereby affecting
the closing price in its favor.

Here is an example of trading behavior in this case.
(1) Before order placement by Quadeye
Before placing orders, Quadeye started
searching for stocks that were in a situation
where the closing price was expected to rise or
fall because the number of shares with on-closeorders was biased toward the buy side or thesell side.
Please refer to the illustration at the right side of
the “Example of Trading Behavior” in theoutline shown on page 8. Before orderplacement by Quadeye, the supply and demandbalance expected at the close was skewed
toward the buy side. Therefore, the stock was ina situation where the closing price was
expected to rise.
(2) Two hours to tens of seconds before the close
Two hours to tens of seconds before the close,
Quadeye placed on-close orders on the side
where the number of shares ordered wassmaller, thereby creating an appearance inwhich an imbalance between the buy side andthe sell side in the number of shares with onclose orders was mitigated on the order book.
In the illustration at the right side of the outline,
you can see that placing on-close sell orders
created an appearance in which an imbalance
between the buy side and the sell side was
mitigated on the supply and demand balance
expected at the close.

* The term “on-close order” means a type of order which will be executed only at the morning or afternoon close.

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(3) Just before the close (one microsecond before)

Within one microsecond before the close, twoacts were done as follows:First, Quadeye placed IOC orders on the
opposite side of its on-close orders. In theillustration, IOC buy orders were immediately
executed to establish a long position.
The term “IOC order” means a type of order,
part or all of which will be immediately
executed at a specified price or better, or becancelled if not executed.
Second, Quadeye cancelled or changed part ofthe on-close sell orders placed in (2) above tosubsequently match the amount of shares
executed by IOC buy orders.
The supply and demand balance expected at
the close in the illustration at the right side of
the outline also shows that part of on-close sellorders were cancelled, which created an
imbalance towards more buy side again.

(4) At the close
At the close, the remaining on-close sellorders were executed at the closing price in
Quadeye's favor. It got profits from the spread
between the closing price and the executed
price of IOC orders within one microsecond
before the close.

The SESC finds that Quadeye engaged in highspeed trading with a program described above insix occasions.

Characteristics of the case(1) This marks the first recommendation for asurcharge against market misconduct by highspeed trading.
High-speed trading is characterized by the useof the method to reduce latency to transmit
information on purchase or sale orders, suchas automatically making decisions on tradingin shares, etc., along with a program, and7

placing orders by the use of colocation
services, which allow market participants to
set up their servers at a location close to the
trading system of the securities exchange.
In this case, in trading in all the six occasions,IOC orders were submitted to establish aposition at the very last one microsecond, i.e.,
1/1 million second before the close. Then, partof on-close orders that had been placed werecancelled to reduce the amount in excess ofthe position established by IOC orders. It canbe thought that such order placement andcancellation would be possible by high-speed
trading only.

(2) To find facts, the SESC appreciates theassistance of overseas financial regulators: theCayman Islands, the United Kingdom and theUnited States. The SESC also appreciates thereferral from the Japan Exchange Regulation.
In addition, the investigative unit of the SESC
finds facts concerning high-speed trading by
Quadeye in collaboration with the Market
Surveillance Division, which is in charge ofanalyzing trade data in market oversight.

Message from the SESC
In Strategy & Policy (the 11th term: 2023-2025),
the SESC has stated that it will work to strengthen
its ability to respond to atypical and new types ofcases.
By making a recommendation for the violation inthis case, we believe that we have demonstrated tothe public the fact that the SESC is also monitoring
atypical and new types of cases, i.e., market
misconduct with high-speed trading, and isensuring market fairness through close cooperation
with overseas financial regulators and selfregulatory organizations.

(Outline)

8

JFSA's Major Activities in April(April 1 to April 30, 2024)
 Overview of Revision Proposals for the Financial Instruments and Exchange Act and Act on
Investment Trusts and Investment Corporations (April 25)
 The Council of Experts Concerning the Follow-up of Japan's Stewardship Code and Japan's
Corporate Governance Code: Twenty-Ninth Meeting (April 18)
 Osaka Plenary Meeting of the International Forum of Independent Audit Regulators (IFIAR)(April 16-18)
 Twentieth Meeting of the "Council for Cooperation on Financial Stability“ (April 11)
 The FSA publishes the status of loans held by all banks as of the end of September 2023,
based on the Financial Reconstruction Act (April 3)
 Revision of "Frequently Asked Questions Regarding “Guidelines for Anti-Money Launderingand Combating the Financing of Terrorism”" (April 2)
 Appointment of the Director of the Financial Research Center (April 1)

The week from May 14 to 20 every year is Problem Gambling
Awareness Week to deepen awareness and understanding ofgambling and other addiction issues. Here is a special page thatsummarizes the outline of gambling and other addictions,consultation services, and initiatives of industry organizations.
https://www.fsa.go.jp/policy/kashikin/gambling/20240514.html

JFSA's official English X (formerly Twitter) accounthttps://x.com/JFSA_en

We are promoting
information dissemination
using X (formerly Twitter) !

Editorial Postscript
It's a beautiful season for fresh greenery, and new buds are starting to appear in Blue Spruce I have grown withcare for several years. This year, I tried a little twist to bend houseplants at home. Even though I have planned
to do it, if I miss the timing, it'll be too late. I can't go against nature, but I feel like I've taken on a newchallenge.
This month's issue introduces the events held in the new fiscal year. I would be happy if you could feel the
progress of flexible financial administration by meeting the relevant parties in person at the right time andresponding to social changes.
YANO Shohei, Director of the Public Relations Office, FSA
Edited and issued by the Public Relations Office, FSA

9(*The opinions expressed in this report are the personal views of the author and do not necessarily reflect the organization
with which the author is affiliated.)