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The Japanese government has amended laws that relate to securities exchanges In order tto cope with global competition among stock markets. The amendments were promulgated on May 30 2003 and will take effect on April 1 2004. Of the amendments, three changes are of particular importance.

Firstly, the amendments established a law to approve and regulate foreign securities exchange terminals in Japan. Although several foreign securities exchanges operate terminals in Japan, no regulations exist to govern their activities and to protect Japanese investors. Since investor protection legislation differs under the securities laws of other jurisdictions, the amendments seek to ensure that foreign securities exchanges meet certain standards. The amendments provide that any registered securities company may trade securities on an approved foreign securities exchange through the terminals of registered securities companies in Japan.

Secondly, after the amendments take effect an approved foreign securities dealer may directly trade securities on a Japanese securities exchange, even if that foreign securities dealer does not have a branch office located in Japan, so long as the dealer has a representative in Japan. Prior to the amendments, unless a foreign securities dealer had a branch office located in Japan, it could not trade on any Japanese securities exchange. However, to increase the number of traders on Japanese exchanges, it has become increasingly important to allow foreign securities dealers to directly trade through Japanese securities exchanges even though they do not maintain a branch office in Japan. To protect against unfair trading, the government authority is authorized to supervise these foreign securities dealers.

Finally, prior to the amendments, no shareholder of a Japanese securities exchange could hold greater than 5% of the total voting rights in an exchange. This limitation has made it difficult for Japanese securities exchanges to establish ownership relationships and business alliances with other exchanges inside and outside Japan. The amendments changed the maximum voting rights from 5% to up to 50% of the total voting rights in a Japanese securities exchange and permitted the establishment of securities exchange holding companies that may hold up to 100% of the total voting rights of a securities exchange. Any shareholder holding at least 20% of the total voting rights of a securities exchange or a securities exchange holding company will be subject to certain governmental supervision.

The Japanese government also made similar changes with respect to financial futures exchanges.

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