On June 1 2008, an amendment to the Financial Instruments and Exchange Law and Cabinet Office Ordinance took effect, revising the English-Language Disclosure System. The system, adopted in December 2005 for issuers of foreign exchange traded funds (ETFs), allows some foreign issuers to provide disclosure documents in English rather than Japanese. The revisions have created a new disclosure system with reduced requirements for increased participation and scope and could have a significant effect on foreign issuers. However, although the revisions aimed to relax requirements for foreign issuers, the overall burden may not prove to be so different.
The new English-Language Disclosure System allows for such disclosure from a variety of issuers and across a number of different document types. Before the revisions took effect, English-language disclosure had only been allowed for issuer of ETFs. Under the new system, foreign issuers of any type of security can submit English-language reports if the disclosure documents can be filed in a foreign jurisdiction under the laws or regulations of that jurisdiction, and provided that the FSA finds that the use of the English-Language Disclosure System does not impair public interest or conflict with any requests for investor protection. Also, before the new system was adopted, documents that could be prepared in English had been limited to: (i) the annual securities report; and (ii) the semiannual report. Under the new system, English-language reports may be submitted in place of the following Japanese-language documents: (i) the annual securities report; (ii) the semiannual report; (iii) the quarterly report; (iv) amendments to (i) through (iii); (v) confirmation by management (kakuninsho); (vi) the internal control report; (vii) amendments to (v) and (vi); and (viii) the report from parent companies.
Although the revisions were aimed at relaxing requirements, the new disclosure system may not significantly decrease the overall burden on foreign issuers. First, it may be argued that the group of documents that may be submitted in the English language is not broad enough. For example, insofar as the system only aims to reduce the burden on foreign issuers when preparing continuous disclosure documents, the new system does not apply to the securities registration statement. Also, a foreign issuer cannot submit a securities registration statement which inserts a copy of the latest English-language reports (Kumikomi-hoshiki, similar to Form 2 in the US), securities registration statements which make reference to the latest English-language reports (Sansho-Hoshiki, similar to Form 3 in the US), or a shelf-registration statement, even if it continuously submits English-language reports for a certain period. Second, even if a foreign company satisfies the requirements for submitting English-language reports, it must still prepare a number of documents in Japanese. For example, a foreign company that submits an English-language report (Gaikoku-gaisha-hokoku-sho) instead of a Japanese-language annual securities report is required to prepare Japanese-language documents in addition, such as: (i) a summary of the foreign company report; (ii) a document that describes material items in the annual securities report form; (iii) a document that describes items in the annual securities report form that are not included in the foreign company report; and (iv) a table of comparisons between the contents of the annual securities report and the foreign company report, and so on. As these documents represent a significant amount of Japanese-language preparation, the overall language burden on foreign issuers may not be drastically reduced even if the new system is adopted.
For these reasons and because of the relative novelty of the changes, it is still not clear how much of an effect the new English-Language Disclosure System will have on foreign issuers. Regardless of this, the new system does provide several new options to foreign issuers with respect to continuous disclosure obligations.