This article was written as of May 2024.

On December 15, 2023, the Working Group on the Tender Offer System and Large Shareholding Reporting System, etc. issued the "Report of the Working Group on the Tender Offer System and Large Shareholding Reporting System" (the "WG Report"). Subsequently, a proposal to amend the Financial Instruments and Exchange Act was submitted to the Diet and it was passed by the Diet on May 15, 2024 (the "FIEA Amendment"). The FIEA Amendment is expected to come into force within one year from the date of promulgation. The FIEA Amendment includes a provision to make certain changes relating to the system of reporting on large shareholdings (the "Large Shareholding Reporting System"); such as an important change to the scope of "joint holders," who are included in the calculation of the ownership ratio of shares under the Large Shareholding Reporting System.

In this regard, it should be noted that there are two types of "joint holders" as follows:

• Substantive joint holders: Holders who have an agreement to jointly acquire, dispose of, or exercise the voting rights in shares.
• Deemed joint holders: Holders of shares of a particular company who have special relationships, such as capital relationships or familial relationships, with other holders of shares in the same company.

1. Substantive Joint Holders

With respect to substantive joint holders, the FIEA Amendment provides that a person is excluded from the scope of a "substantive joint holder" if all of the following three requirements are met (Article 27-23(5) of the FIEA Amendment):

• (a) All of the holders are persons engaged in Type 1 Financial Instruments Business or Investment Management Business (as defined under the FIEA), banks, or other persons specified by the relevant Cabinet Office Ordinance;
• (b) The purpose of the agreement must not be to jointly perform any "material proposal"; and
• (c) The agreement is an agreement to exercise voting rights or other rights jointly (limited to an agreement specified by the relevant Cabinet Order as an agreement for each exercise of individual rights).

The "material proposal" referred to in (b) above was elaborated on in the explanatory materials that were published together with the FIEA Amendment by the Financial Services Agency (the "Explanatory Materials"). In this regard, it was explained that unless multiple investors make "an agreement that would have a material impact on the management of a company", they would not be considered as joint holders. Currently, this term is not officially clarified under the law, although it is expected that amendments will be made to the relevant Cabinet Order or Cabinet Office Ordinance to clarify this.

With regard to (c) above, a holder will be excluded from the scope of a "substantive joint holder" only if the agreement to jointly acquire, dispose of, or exercise voting rights on shares (which is a requirement of a substantive joint holder as mentioned above) falls under a specific kind of agreement to jointly exercise voting rights (an "agreement for each exercise of individual rights"). It is expected that the Cabinet Order or Cabinet Office Ordinance will specify the "agreement for each exercise of individual rights" in accordance with the recommendation of the WG report, that is, "an agreement for non-continuous exercise of voting rights".

2. Deemed Joint Holders

According to the Explanatory Materials, with regard to deemed joint holders, there are plans to amend the relevant Cabinet Order to include a provision stipulating that holders will be considered to be "deemed joint holders" if certain factors exist, such as where the holders have common directors or have made investments in each other.

In addition, based on the recommendations in the WG report, there has been a push to revise the Stewardship Code to promote collaborative engagement and ensure transparency for substantive holders. We therefore recommend keeping an eye on future developments in this regard.