Guidelines on Investment Restrictions on Derivative Transactions, etc.
Established on December 21, 2007
Revised on September 19, 2008
Revised on December 20, 2012
Revised on July 17, 2014
Revised on November 20, 2014
Revised on July 16, 2015

1. Purpose
The purpose of these Guidelines is to state the basic principles of proper management and operation of aMember Management Company (meaning a Member that is an Investment Trust Management Company as
defined in Article 2, Paragraph 11 of the Act on Investment Trusts and Investment Corporations (Act No.
198 of 1951); the same shall apply hereafter ) so that such Member does not infringe on the investment
restrictions on Derivative Transactions etc. (hereinafter referred to as the “Derivative Transactions” ) set
forth in Article 130, Paragraph 1, Item 8 of the Cabinet Office Order on Financial Instruments Business (ActNo. 52 of 2007; hereinafter referred to as the “Cabinet Office Ordinance” ) and Article 17 of the Rules on
Management of Investment Trusts, etc.

2. Basic Principle and Treatment
With regard to the method of managing investment pertaining to Derivative Transactions, the Member
Management Company shall provide for risk management method in the internal rules with reference to therisk management method set forth in “3.,” and shall properly manage and perform such investment so as notto commit the prohibited acts set forth in the Cabinet Office Order.
It should be noted that the risk management methods described in the Guidelines are merely examples anddo not preclude a Member Management Company from prescribing in its internal rules other risk
management measures that such member deems appropriate.

3. Examples of Risk Management Methods(1) In the event that investment is to be made only in real assets such as stocks and bonds and no investment
instructions are to be given for Derivative Transactions, (including cases where investment instructions
are not actually given for Derivative Transactions for the investment trust property for which DerivativeTransactions are available for investment instructions), it is considered that no special management isnecessary.
(2) Where investment instructions for Derivative Transactions are to be given solely for the purpose ofhedging, any one of the following measures in (i) through (iii) can be selected and applied.
(3) Where investment instructions for Derivative Transactions are to be given for other purposes than forhedging (including the case of giving investment instructions for Derivative Transactions for both
hedging purpose and non-hedging purpose in an investment trust), either of the following (ii) or (iii)
may be selected for application.

－1－(i)

Simple method
Method of management that prevents the notional principal amount of the Derivative
Transactions engaged from exceeding the total net asset value of the concerned investment trust
property(ii) Standard Method
Method of management that controls the risk amount under 80% of the total net asset value of theinvestment trust property. Such risk amount shall be derived from adopting the standard methodfor calculating the market risk equivalent among other methods of calculating the market risk
equivalent according to the capital adequacy requirements for Financial Instruments BusinessOperators (according to Notification No. 59 of the Financial Services Agency, “Establishment ofStandards for Calculating Market Risk Equivalent, Counterparty Risk Equivalent andFundamental Risk Equivalent concerned with Financial Instruments Business Operators” ).
(Note)‐Calculation method shall be applied for the entire portfolio, not limited to derivativeproducts. (The same applies in (iii).)‐

Market risk equivalent shall be calculated by multiplying the exposure value of individual
investment target by ratio set forth in the “Establishment of Standards for Calculating
Market Risk Equivalent, Counterparty Risk Equivalent and Fundamental Risk Equivalentconcerned with Financial Instruments Business Operators.”‐

For derivative products, calculation shall be made by basically converting to the position of
the underlying assets and then multiplying such converted amount by the relevant ratio. In
the event that the position of the derivative product equals the corresponding position of
the underlying asset, such positions may be set off against each other.

(iii) VaR method
Method of management that keeps the risk amount under 80% of the total net asset value of theinvestment trust property. Such risk amount shall be derived from adopting the method for
calculating the market risk equivalent under the internal control model (VaR method) among
other methods of calculating the market risk equivalent according to the capital adequacy
requirements for Financial Instruments Business Operators.
(Note)‐The holding period shall be 10 business days or more in principle. However, if mainly
dealing with those with high liquidity such as listed futures instruments, the holding period
may be five business days or more.

‐

It is essential for the Member Management Company to appropriately manage the situation
at the time of stress. In this case, in addition to the calculation method of applying to theconcerned portfolios the relevant historical data during the stress period after specifying
such period of 12 months that should include the period of stress, it is also consideredappropriate for each Member Management Company to prescribe proper management
practices.
－2－‐

It is essential for the Member Management Company to appropriately manage their risk byutilizing measures such as back-testing of their risk measurement model. In such a case, inaddition to setting the multiplier at 3 to 4, they may select an appropriate multiplier.

4. Inclusion of investment restrictions on Derivative Transactions in the investment trust contract anddisclosure of risk management measures
With regard to investment trusts for which the basic terms and conditions of the investment trust stipulate that
Derivative Transactions may be made, the management method of Derivative Transactions as set forth in theGuidelines shall be included in the basic terms and conditions of the investment trust, and published on thewebsite of the investment management company in accordance with the provisions of Article 38 of the Rules
on Investment Reports, etc. Pertaining to Investment Trusts and Investment Corporations.

Supplementary Provision
The Guidelines shall come into effect on December 21, 2007.

Supplementary Provision
The amendments shall come into effect on October 1, 2008.

Supplementary Provision
The amendments shall come into effect on January 4, 2013.

Supplementary Provision
The amendments shall come into effect on December 1, 2014.
* The amended provisions are as follows:(1)

Revisions to the title and Articles 1 and 2 of the Guidelines.

(2)

Revisions to (1) through (3) and establishment of (i), (ii), and (iii) concerned with Article 3.

(3)

Establishment of Article 4.

Supplementary Provision
The amendments shall come into effect on December 1, 2014.
* The amended provisions are as follows:
Revisions to Articles 1 and 2

Supplementary Provision
The amendments shall come into effect on July 16, 2015.
* The amended provisions are as follows:
Revisions to Article 4.

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