Commercial Trusts and the Japanese Financial
Instruments and Exchange Act
Hiroyuki Kansaku（The University of Tokyo）
Beneficial interests of trust that are not materialized on paper
are generally deemed as Type-2 securities in the Japanese Financial
Instruments and Exchange Act（FIEA）. Type-2 securities, such as
beneficial interests of trust, are subject to laxer disclosure regulations
than Type-1 securities, such as stocks and bonds, as well as financial
instruments business regulations by the Act.
According to the FIEA, an issuer of beneficial interests of trust is⑴ a settlor who has discretionary power of management of the trust
property, ⑵ a trustee who has discretionary power of managementof the trust property, contributed to the trust by investors with cash,in which the settlor becomes the first beneficiary by way of the trust
contract, or ⑶ a settlor and a trustee in another trust other than in⑴ and ⑵. Beneficial interests of trust as Type-2 securities are issued
when ⅰ a settlor sells the beneficial interests of trust to a third
party in trust, after which the settlor becomes the first beneficiary
due to the trust contract, excluding a trust whose initial trust asset
is collectively pooled and managed, or ⅱ the trust contract becomes
effective in another trust other than in ⅰ .
The disclosure obligation is addressed to the issuer. The current
definition of an“issuer of beneficial interests of trust,”described above,
allows for the manipulation and arbitrage of regulations by means ofstructuring the trust scheme. A de lege ferenda trust itself should be
an issuer, although a trust is not a juridical personality, because trust
property is substantially segregated from the trustee’s individual― 167 ―

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property and the trust is itself an entity. In addition to the trust itself,
the person who is most suitable for disclosing true and fair view of thetrust should be appointed as the disclosure obligation addressee.
The current regulations regarding when beneficial interests oftrust are issued are justified because investors own beneficial interestsof trust only after they are transferred by the settlor—who has
become the first beneficiary—to the third party, namely the investors
in the case of abovementioned ⅰ .
Financial instruments business regulations will be applied when
beneficial interests of trust are issued, publicly offered, distributed,underwritten, sold, or dealt. The scope of the regulations is coupledwith the disclosure regulations via the definition of issuer and the pointof issuance. Nevertheless, the definition of the disclosure regulations
does not ensure the appropriateness of business regulations. For
example, there could be loopholes within business regulations in cases
where ⒜ the trustee has discretionary power of management of thetrust property, ⒝ the trust property is not collectively pooled andmanaged, and ⒞ the settlor holds the beneficial interests of trust andbecomes the first beneficiary. In this case, the issuer is the trustee, andthe beneficial interests of trust as Type-2 securities are issued at thepoint of transfer of the beneficial interests of trust by the settlor to thethird party. Financial instruments business regulations do not apply
to the inducement and conclusion of the trust contract because selfoffering by a trustee is not regulated by the FIEA and the securities
are not yet issued at the point of conclusion of the contract. Therefore,
disclosure regulations and business regulations should be decoupled.

― 168 ―