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As part of the Japanese government's securities market reform, amendments to the Cabinet Order and the Cabinet Office Ordinances relating to the Securities and Exchange Law took effect on April 1 2003. There are two key points to the amendments. First, the amendments require disclosures to the Japanese public securities market to be more informative and credible. Secondly, the amendments modify the requirements for private placements in order to encourage the development of Japanese private securities markets.

Informative disclosure

Changes to corporate disclosure require the company to disclose the following three items in its securities registration statement and annual securities report: (i) business risk factors; (ii) management's discussion and analysis of financial condition and results of operations; and (iii) corporate governance conditions. The amendments also provide examples of the above three items for guidance.

In addition, a representative of the directors of a company may voluntarily attach a paper in which the representative confirms the appropriateness of the statements made in a securities registration statement, an annual securities report and a semi-annual securities report to such documents.

Private market enlargement

The Securities and Exchange Law provides two types of private placements in which an issuer does not have to file the registration statement as an initial offering disclosure obligation: (i) private placement to a small number of investors; and (ii) private placement to qualified institutional investors.

Private placements to a small number of investors may solicit no more than 49 investors. Before the amendments, all solicitations to qualified institutional investors were included in calculating the 49 investors. But now, solicitations to qualified institutional investors are not included in the calculation if the number of qualified institutional investors is less than 250 and certain transfer restriction requirements are satisfied.

Before the changes, shares or other equity-linked securities could not be offered as securities for private placements to qualified institutional investors. But after the amendments, in general if a class of shares is not publicly traded and certain transfer restriction requirements are satisfied, this class of shares or securities linked to these shares may be offered as securities in private placements to qualified institutional investors.

The amendments have also expanded the definition of qualified institutional investors. Certain venture capital companies and venture capital limited partnerships established or formed in Japan are now included as qualified institutional investors.

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