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Issuance disclosure regulations under the Financial Instruments and Exchange Act – BUSINESS LAWYERS

What are disclosure regulations?

 direct finance(See:[Series]Fundamentals of Finance Law”Part 1 What is Finance Law?”) ininvestor protectionWhenEnsuring the soundness of the marketis a fundraiser forRegulating issuersfor investors,Information on securities to be issued(Securities information)orInformation about the issuer(Corporate information) are required to be properly disclosed.Disclosure regulation(Reference:[Series]Fundamentals of Finance Law”Vol.5 Financial Regulation Law”). Disclosure regulations for investor protection are mainly enforced by the Financial Instruments and Exchange Act.

Types of disclosure regulations: issuance disclosure regulations and continuous disclosure regulations

The disclosure system (regulation) based on the Financial Instruments and Exchange Act includes (1)Disclosure system for issuing securitiesisIssuance disclosure systemand (2)Continuous Disclosure System Implemented by Listed Companies, etc.isContinuous disclosure system(Reference:[Series]Fundamentals of Finance Law”Vol.5 Financial Regulation Law”). In this article, we will explain issuance disclosure regulations.

Issuance disclosure regulation

When Issuance Disclosure Regulations Apply

Issuance disclosure regulationsOffering of securitiesorsale(Financial Instruments and Exchange Law Article 2, Paragraph 3, Paragraph 4, Article 4, Paragraph 1).

Eligibility for securities

Subject to disclosure regulations under the Financial Instruments and Exchange Act are:private law securities(My book “Finance Law – Fundamentals of Financial Law and the Essence of Advanced Financial Transactions(See Shoji Homu, 2016) Chapter 8, Section 2 “Securities”)Securities under the Financial Instruments and Exchange Actis. Securities under the Financial Instruments and Exchange Act include:Paragraph 1 SecuritiesWhenParagraph 2 securities(So-calleddeemed securities) exist. Paragraph 1 securities are divided into (1) securities (stocks, corporate bonds, etc.) specified in Article 2, Paragraph 1 of the Financial Instruments and Exchange Act, and (2) specified in the first half of Article 2, Paragraph 2 of the Financial Instruments and Exchange Act.Right to display securitiesand ③Specified Electronically Recorded Monetary Claimsconsists ofParagraph 2 securities are stipulated in each item of Article 2, Paragraph 2 of the Financial Instruments and Exchange Act.Trust beneficiary rightorNarrowly defined collective investment scheme interests(Reference:[Series]Fundamentals of Finance Law”Part 3 What is Structured Finance/Asset Finance?”).

In the case of Paragraph 2 securities with low liquidity, the holdings of investment funds that mainly invest in securitiesSecurities investment business rights, etc.(Article 3, Item 3 of the Financial Instruments and Exchange Law), and other Paragraph 2 securities are not subject to disclosure regulations. The figure below summarizes the above.

[Regulations on disclosure of securities under the Financial Instruments and Exchange Act]

article Type of securities Existence and content of disclosure regulations
Article 2, Paragraph 1 Paragraph 1 securities Disclosure restrictions apply
Article 2, Paragraph 2
front/middle
(Rights to display securities/
Specified Electronically Recorded Monetary Claims)
Items of Article 2, Paragraph 2
(Collective Investment Scheme Shares, etc.)
Paragraph 2 securities Securities investment business rights, etc.
(Investment-type funds, etc.)
There are disclosure regulations, but there are differences in disclosure requirements
Other than those above
(business-type funds, etc.)
No disclosure restrictions

Source: Created by the author based on figures from Mitsuo Kondo et al.

offering and offering

(1) Offering and selling

the issuer of the securities,Originally issued (primary)Secondly, soliciting applications from many investors to acquire newly issued securities (Acquisition solicitation)ofRecruitmentIt’s called.In the sense of contrasting with private placementpublic offeringAlso called again,of securities already issuedWhen reselling (secondary)In addition, soliciting offers to sell or offers to buy from a large number of investorsofsale(Article 2, Paragraph 4 of the Financial Instruments and Exchange Law).manyIn the case of Paragraph 1 Securities,50 or more(Article 2, Paragraph 3, Item 1 of the Financial Instruments and Exchange Act, Article 1-5 and Article 1-8 of the Order for Enforcement of the Financial Instruments and Exchange Act), in the case of Paragraph 2 Securities500 or more(Article 2, Paragraph 3, Item 3 of the Financial Instruments and Exchange Law, Article 1-7-2 and Article 1-8-5 of the Order for Enforcement of the Financial Instruments and Exchange Law).In the case of Paragraph 2 securities, whether or not they fall under the offering is determined by the number of counterparties to the solicitation for acquisition.Number of persons who acquired (possessed) in response to solicitation for acquisitionis the standard. Disclosure regulations apply in the event of offerings and offerings.

When disclosure regulations apply, (i) prior to the offering or secondarysecurities registration statement(ii) to the other party (investor) to whom the solicitation is made, the information stated in the securities registration statement in advance or at the same time statedprospectus(Article 13, Paragraph 1, Article 15, Paragraph 2 of the Financial Instruments and Exchange Law), and continuous disclosure is required.

(2) Private placement and private offering

As an exception to public offerings and secondary distributions subject to disclosure regulations, items not subject to disclosure regulationsprivate placementorprivate saleIt’s called.private placementOriginally issued (primary)(Article 2, Paragraph 3, Item 2 of the Financial Instruments and Exchange Law, etc.)When reselling (secondary)(Article 2, Paragraph 4, Item 2, A, B, H, etc. of the Financial Instruments and Exchange Act).

 private placementWhen the number of parties to solicit purchases is small(Small group private placement) and (2) Professionals (financial institutions, etc.) who can make their own risk judgments =Qualified Institutional Investor(Article 2, Paragraph 3, Item 1 of the Financial Instruments and Exchange Act, Cabinet Office Ordinance on Definitions Provided in Article 2 of the Financial Instruments and Exchange Act (Definition Cabinet Order) When the necessity of disclosure is low because it is limited to Article 10) (professional private placement) exists. In 2008, ③Private Placement for Specified Investorssystem was created.Specified investoris a broader concept that includes qualified institutional investors (Article 2, Paragraph 31 of the Financial Instruments and Exchange Act, Article 23 of the Ordinance on Definitions), and a private placement with only specified investors is a private placement for specified investors.private saleA similar type exists in

In addition, a small number of private placements andsmall group private saleSo, to an unspecified number of people, professional private placement andpro private saleThen, for those other than professionals (qualified institutional investors),In order to prevent the securities from being resold, certain restrictions are imposed on the resale of the securities.(Resale restrictions), the resale restriction is indicated by the noticeobligation to notifyis imposed (Article 23-13 of the Financial Instruments and Exchange Law).

(3) Summary

In light of the above, the chart below illustrates the requirements for offerings and private placements and the associated financial regulations.

[Recruitment and private placement]

definition regulation (condition)
Recruitment soliciting the acquisition of many
+
Other than private placement

(i) Submission of securities registration statement
(Article 5 of the Financial Instruments and Exchange Act)

(ii) Delivery of prospectus
(Article 13, Paragraph 1, Article 15, Paragraph 2 of the Financial Instruments and Exchange Act)

(iii) Continuous disclosure (Note 3)

private placement

(1) Small private placement (based on number of people)
Less than 50 (Note 1)

(i) Resale restrictions
(ii) Issuance of notice

(2) Professional Private Placement (Investor Criteria) (Note 2)
Qualified Institutional Investors Only

(i) Resale restrictions
(ii) Issuance of notice

(3) Specified Investor Private Placement (Investor Criteria) (Note 2)
Professional investors only

(i) Resale restrictions
(ii) No need to issue a notice (Note 4)

Note 1) For Paragraph 1 securities. Less than 500 for Paragraph 2 securities.

Note 2) Only for Paragraph 1 securities. Not applicable to Paragraph 2 Securities.

Note 3) Refers to the obligation to continuously submit securities reports, etc.

Note 4) However, it is necessary to notify by other methods (exchange rules, methods specified by OTC market operators, etc.).


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