JAPAN Law and Practice Contributed by: Ken Kawai, Shunsuke Aoki, Takeshi Nagase and Keisuke Hatano, Anderson Mori & Tomotsune
• crypto-assets that have been handled by three or more member CAESPs; • crypto-assets that have been handled by one member CAESP for at least six months; • crypto-assets for which the JVCEA has not set any ancillary conditions for handling; and • crypto-assets that are not deemed inappropriate by the JVCEA under the Green List System for any other reason. 6.5 Order Handling Rules Regarding transactions of crypto-assets, the JVCEA’s self-regulatory “Rules Concerning Development of Order Management Systems for Crypto-Asset Exchange Services” regulates the system for order management in CAESPs by stipulating the processes necessary to carry out proper business operations regarding acceptance of orders and processing of contracts from users when CAESPs carry out trans - actions related to the exchange of crypto-assets with users. Specifically, CAESPs are required to formulate internal rules for the development of order manage - ment systems in order to control unfair transactions and to execute transactions on the best terms. 6.6 Rise of Peer-to-Peer Trading Platforms The JVCEA’s self-regulatory “Rules Concerning Devel - opment of Order Management Systems for Crypto- Asset Exchange Services” regulate the system for order management in CAESPs by stipulating the pro - cesses necessary to carry out proper business opera - tions regarding acceptance of orders and processing of contracts from users when CAESPs carry out trans - actions related to the exchange of crypto-assets with users. Specifically, CAESPs are required to formulate internal rules for the development of order manage - ment systems in order to control unfair transactions and to execute transactions on the best terms. 6.7 Rules of Payment for Order Flow There are no specific regulations on payment for order flow in Japan. 6.8 Market Integrity Principles The purpose of the FIEA is to ensure fairness in the issuance of securities and in transactions of financial instruments, etc, in order to facilitate the circulation of securities, ensure fair price formation of financial
instruments and – via full operation of the functions of capital markets – contribute to the sound develop - ment of the national economy and the protection of investors. Accordingly, the FIEA prohibits any person from engaging in unfair transactions in respect of the purchase and sale of securities, other transactions, or derivative transactions. As regards crypto-assets, there have been cases in which undisclosed information (ie, the commence - ment of handling of a new crypto-asset) was leaked outside a CAESP and those who obtained such infor - mation allegedly profited from it. The FIEA also pro - hibits any person from engaging in unfair trading in the spot trading of crypto-assets or crypto-related derivative transactions. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations Given the increased volume of high-frequency trading (HFT) and its influence on the market, Japan imple - mented regulations relating to this type of trading in 2018. Although commonly referred to in English as HFT, this type of trading is known in Japan as “high- speed trading (HST)” ( kousoku torihiki ) pursuant to the FIEA. In line with this terminology, the frequency of trading is not a requirement for HST pursuant to the FIEA. The FIEA specifies certain categories of trading as HST, including: • the sale or purchase (or entrustment thereof) of securities or market transactions of derivatives; • the management of funds or other assets constitut - ing the sale or purchase; and • the execution of over-the-counter derivative trans - actions that cause a counterparty to conduct the sale or purchase. These categories constitute HST when the trading decision is made automatically through an electronic information processing system and the information necessary for the trade based on that decision is communicated through IT to the financial instruments
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