PLC - Japanese stock exchanges setting up framework for a remote trading participant... Page 1 of 2

Japanese stock exchanges setting up framework for a remotetrading participant system
Resource type: Legal update: archive
Status: Published on 02-Apr-2009
Jurisdiction: Japan

Atsumi & Partners

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The Tokyo Stock Exchange has implemented its new remote trading participant system, enabling
foreign securities firms to trade securities and derivatives in Japan without needing to establish (orappoint) a presence there, as previously required. However, some issues may remain.

On 9 February 2009, the Tokyo Stock Exchange (TSE) implemented its revised rules to effect the
Remote Trading Participant System. The Osaka Stock Exchange (OSE) is currently planning
implementation of a similar system. This system enables foreign securities firms to trade on
Japanese securities and derivatives exchanges directly from overseas by operating their computer
system terminals but without establishing local branches in Japan.
This Remote Trading Participant System is based on a regulatory framework called the Exchange
Trading Authorisation regulation, a special exception to the general rule that requires financial
instruments business operator to register, under the Financial Instruments and Exchange Law(Japanese Law No.25 of 1948, as amended) (FIEL).
The general rule under the FIEL is that no-one can engage in financial instruments business,
including securities and derivatives trades on exchanges in Japan, unless they have beenregistered at the Financial Services Agency of Japan (JFSA) as a financial instruments business
operator. To obtain such registration, securities firms must have their business offices in Japan,
and registered financial instruments business operators, including foreign securities firms, aresubject to requirements for maintaining certain amounts of capital (if engaged in certain types ofbusiness including securities and derivatives trades on exchanges) and certain reserves in Japan.
The Exchange Trading Authorisation framework does not impose requirements of the type referred
to above. This framework is aimed at boosting Japanese exchanges' competitiveness against
foreign exchanges and to enable Japanese exchanges to establish cross-membership
relationships with foreign exchanges. The Exchange Trading Authorisation framework was
implemented this February in the real market operation rules by the TSE as the Remote Trading
Participant System.
One point which may be an issue in operating the Remote Trading Participant System is arequirement for there to be a "representative in Japan". Even though the Exchange Trading
Authorisation framework in the FIEL and the TSE's Remote Trading Participant System intend toomit the requirement that foreign securities firms have real business functions in Japan, theCompanies Law (Japanese Law No. 86 of 2005) has not been changed accordingly. The
Companies Law still requires that any foreign company wishing to do business continuously inJapan must appoint a "representative in Japan" who is domiciled in Japan and has been assigned

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2011/03/02

PLC - Japanese stock exchanges setting up framework for a remote trading participant... Page 2 of 2

comprehensive power to take any actions on behalf of the foreign company with regard to its
business in Japan.
In addition, such representative in Japan must, under the Exchange Trading Authorisation
framework, owe a duty (the breach of which is subject to criminal penalty) to liaise with the JFSA
on behalf of the relevant foreign securities firm (including a duty to respond to the JFSA order tosubmit reports or materials or to allow officials to inspect such reports or materials, and a duty toannually submit to the FSA the foreign securities firms' business report (in Japanese).
This situation may leave parties (such as Japanese law firms) who would consider accepting theposition of representative in Japan in uncertainty about what kind of risk they will take in accepting
the position. Such uncertainty needs to be clarified by the JFSA or other authorities to develop thepractice of the Remote Trading Participant System.

Resource information
Resource ID: 2-385-5631
Published: 02-Apr-2009
Products: PLC Cross-border, PLC Global Finance, PLC US Law Department

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