JAPAN Law and Practice Contributed by: Daisuke Tanimoto, Etsuko Yamazaki and Miki Okuda, Anderson Mōri & Tomotsune
CFEA Provisions The CFEA prohibits any off-market act aimed at pro - viding and/or receiving a monetary difference based on quotations of domestic commodities exchanges, unless a licensed Commodity Derivatives Business Operator or a Specified OTC Commodity Derivatives Transactions Dealer that has made a notification to the MAFF or the METI is a party thereto. If a licensed Commodity Derivatives Business Operator or a noti - fied Specified OTC Commodity Derivatives Transac - tions Dealer is a party, dealing in the relevant OTC Commodity Derivatives Transaction will be considered legal for the purpose of the Criminal Code. Other Acts The Banking Act (Act No 59 of 1981, as amended) and other legislation regulating Financial Institutions licensed in Japan provide that certain types of OTC derivatives transactions are included in the legitimate business of such Financial Institutions. OTC deriva - tives transactions that are entered into by such Finan - cial Institutions pursuant to those statutes should also be considered not contrary to the Criminal Code. If an OTC Financial Derivatives Transaction, an OTC Commodity Derivatives Transaction or any other derivatives transaction is not authorised by law and there is no legitimate reason for it, there is a theoreti - cal risk that it could be deemed a form of gambling. 2.6 Exemptions, Non-Derivative Products and Spot Transactions Exemptions for Transactions With Eligible Investors 1. OTC derivatives Exemptions from the registration requirement under the FIEA or the licensing requirement under the CFEA are available, in cases where counterparties to OTC derivatives are limited to certain eligible investors. The scope of such eligible investors is different depend - ing on the types of underlying assets (ie, securities, crypto-assets, other financial instruments and com - modities) to which the relevant OTC derivatives refer. (1) Exemption from the Type I FIBO registration requirement under the FIEA As an exemption from the Type I FIBO registration requirement, the FIEA provides that for non-securities-
related OTC Financial Derivatives Transactions that are not Specified OTC Financial Derivatives Transac - tions (as defined in 3.1.3 Mandatory Trading ) and do not refer to crypto-assets etc, a person will not be considered to be conducting a Financial Instruments Business by acting as a principal, intermediary, broker or agent in such transactions where the counterparties thereto are limited to the following entities (“Eligible Financial Derivatives Investors”): • (i) Type I FIBOs; • (ii) Registered Financial Institutions; • (iii) qualified institutional investors (QIIs); • (iv) stock corporations ( kabushiki kaisha ) with a paid-up capital of JPY1 billion or more; and • (v) overseas persons equivalent to (i) to (iv) above. In addition, a person conducting the business of OTC Financial Derivatives Transactions referencing crypto- assets etc solely outside Japan pursuant to the laws of the foreign jurisdiction will not be deemed to be conducting a Financial Instruments Business by enter - ing into such transactions from outside Japan where the counterparties are limited to the following entities: • the government of Japan or the Bank of Japan; • FIBOs and Financial Institutions that engage in OTC Financial Derivatives Transactions referencing crypto-assets etc in the course of business; • Financial Institutions, trust companies or foreign trust companies (only if they conduct OTC Finan - cial Derivatives Transactions referencing crypto- assets etc for the purpose of investments or on the account of trustors under trust agreements); and • FIBOs that engage in investment management business (only if such entities conduct any act related to investment management business). (2) Exemption from the regulation of Foreign Securities Dealer under the FIEA As mentioned in 2.4 Listed v Over-the-Counter , a Foreign Securities Dealer is generally prohibited from acting as a principal, intermediary, broker or agent in securities-related OTC Financial Derivatives Transac - tions with an end user located in Japan. This general prohibition does not apply where the securities-related OTC Financial Derivatives Transactions are effected from outside of Japan:
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