This article was written as of May 2024.

On May 15, 2024, the Diet passed into law an amendment to the Financial Instruments and Exchange Act and to the Act Concerning Investment Trusts and Investment Corporations that contains a number of important measures (the "Amendment"). This Amendment has as its aim the further revitalization of capital markets in Japan¹. Although the contents of the Amendment are wide-ranging, the following paragraphs will focus on provisions that facilitate the entry of investment managers into the market and that are meant to help revitalize the distribution of unlisted securities.

First, the Amendment provides measures intended to achieve the goal of making Japan an “asset management nation” as announced by the Government in 2023. This goal will, it is hoped, be realized by easing the entry of investment managers into the market. In order to help arrive at this objective, (i) a voluntary registration system will be established for businesses that provide entrusted services for middle- and back-office operations. If a person who wishes to register as an investment management business entrusts middle- and back-office operations to a registered business, the registration requirements for such an investment management business (its personnel structure requirements and capital requirements) will be eased; and (ii) an investment management business operator will be able to outsource its entire authority to manage funds such as fund management companies, which are common in Europe and the United States.

In addition, in order to stimulate the distribution of unlisted securities, (i) in principle, as long as securities or funds are not deposited in a brokerage business dealing in the unlisted securities of professional investors, the requirements for the registration of a Type 1 Financial Instruments Business (a "Type 1 License"), including capital requirements, a capital adequacy ratio, and the application of subsidiary business regulations, will be relaxed; moreover, (ii) whereas under current laws, an electronic securities brokerage business between multiple parties requires Proprietary Trading System (PTS) approval, following the Amendment, in cases where only specified unlisted securities are handled and the trading volume is limited, it will be possible to conduct the brokerage business by registering as a Type 1 Financial Instruments Business without seeking PTS approval.

The Amendment will, in principle, come into effect on the date specified by a Cabinet Order within a period not exceeding one year from the date of promulgation. It will be necessary to pay close attention to the relevant subordinate legal framework as it is modified in response to the Amendment in the upcoming months.

¹See also https://www.fsa.go.jp/common/diet/ (in Japanese).