This article was written as of February 2024.

1. Introduction

The recent amendments to the Financial Instruments and Exchange Act and relevant regulations thereunder (the "FIEA") strengthen the continuous disclosure requirements, while the obligation to submit quarterly reports under the FIEA was abolished.

2. Disclosure requirements recently introduced

2.1 Sustainability and human capital

The FIEA newly introduced disclosure requirements concerning "Policy and Efforts towards Sustainability", including for sustainability governance, risk management, strategies, and indices and targets.

Also, the FIEA newly focused on disclosure requirements concerning the deployment of human capital. The FIEA requests that issuers disclose their strategies, indices and targets for the deployment of human capital in its disclosure requirements concerning "Policy and Efforts towards Sustainability". Certain statistical data relating to human capital issues, such as the difference in wages between men and women, must also now be disclosed under the FIEA.

2.2 Corporate governance

The FIEA has strengthened the existing corporate governance disclosure requirements. For example, the recent amendment requests the issuer to disclose the "specific" contents of discussions of the board of directors and the board of corporate auditors, in addition to the frequency of meetings and attendance.

Also, the FIEA requests the issuer to disclose a summary of the purpose of holding other issuer’s shares, namely, whether such purpose is to conduct a business transaction or a business alliance with such issuer.

3. Disclosure requirements that will become effective in the near future

In addition to 2, above, the FIEA will further strengthen disclosure requirements beginning 2025. According to the recent amendments to the FIEA, such additional requirements include the following:

3.1 Agreements with shareholders regarding the issuer’s governance

In order to ensure the disclosure of agreements which may affect such issuer’s governance, the FIEA requests that the issuer disclose a summary of agreements entered into with a shareholder: (i) to give such shareholder a right to nominate candidates to the issuer’s board of directors or to corporate auditor positions; (ii) to restrict the exercise of the voting rights by such shareholders; and (iii) to request such shareholder’s prior approval for matters to be resolved by the issuer’s shareholder meetings or board of directors meetings. Also, the FIEA requests disclosure of the process followed by the issuer when entering into such agreements, and the effect that such agreements have on the corporate governance of the issuer.

3.2 Agreements with shareholders regarding an increase/decrease in their holdings of the issuer’s shares

The FIEA also requests that the issuer submit a summary of the agreements entered into with the shareholder, disclosing: (i) whether the issuer’s prior approval is required for the disposal of the issuer’s shares held by such shareholder; (ii) whether the purchase of the issuer’s shares above the shareholding ratio agreed between the issuer and such shareholder is restricted; and (iii) whether such shareholder may subscribe to additional shares in the case where there is an issuance of shares by the issuer or where some other event that decreases the shareholding ratio of such shareholder occurs. Similar to (2) above, the FIEA requests the disclosure of the process followed by the issuer for entering into such agreements.

3.3 Financial covenants

The FIEA requests the issuer to disclose certain financial covenants contained in the loan ageements and bonds issued by such issuer.

It should be noted that the FIEA currently requests disclosure of the issuer’s "material contracts for its business", and the above items could therefore be disclosed even under the current regulations. However, the recent amendments expressly request a form of disclosure that specifies the items to be disclosed.

4. Abolition of quarterly reports

Although listed companies in Japan have been required to submit quarterly reports, the recent amendments to the FIEA abolish the obligation to submit such quarterly reports in order to improve the efficiency of corporate disclosure requirements. Quarterly corporate disclosures will now be consolidated into the quarterly disclosure required by stock exchange rules