JAPAN Trends and Developments Contributed by: Daniel Jarrett and Hirofumi Kaji, Atsumi & Sakai
Security tokens (decentralised platform) Regulations related to security tokens At the time of writing, there is no definition of security tokens under Japanese law. That being said, security tokens that can be classified as “paragraph (1) securities” under the Financial Instruments and Exchange Act (Act No 25 of 1948) are referred to as “electronically recorded transferable rights” under that Act. Electronically recorded transferable rights are those rights in respect of securities that are indicated as having financial value that can be transferred using an electronic data processing system. The trans - fer of financial value using an electronic data processing system is generally considered to refer to distributed ledger technologies such as blockchain. Purpose of security tokens It is anticipated that security tokens will enable retail investors to trade in real time, and will further lower the administrative costs of such investors. This is intended, in turn, to improve operational efficiency and increase the con - venience of transactions for retail investors. In addition, lower transaction costs will allow for smaller investment units, which is expected to contribute to an increase in the number of retail investors. Security token projects Security token projects are booming. The main growth areas, as further described below, can be particularly seen in the real estate and bond sectors. I) Real estate In July 2021, the Kenedix realty token Shibuya Jinnan , a real estate-backed security token, was issued. The aim of launching this security token project was to issue real estate-backed securi -
after the announcement of the US presidential election results. Although the yield remains at a low level, it does appear that the financial environment in Japan has at least returned to the world of positive interest rates. New Centralised and Decentralised Platforms Centralisation and decentralisation For originator financial institutions (being those institutions that securitise the underlying assets and on-sell them to investors, charging com - mission thereon), securitisation can provide an exit strategy that is comparable in some ways to loan syndication and private placement. There - fore, ensuring that securitisation opportunities are available and accessible to a broad base of investors will be crucial to developing larger transactions going forward. On the other hand, decentralised methods that do not involve a centralised recording institu - tion have recently emerged. These methods can include selling smaller-denomination secu - rities to retail investors by way of security tokens (which can therefore be more easily purchased by retail investors). Further, there is a trend towards making the value of private placements smaller in order to try and reach a wider range of investors, and such trends continue to gather momentum. Another observable trend is that centralised exchanges (where loan receivables transactions are conducted through such an exchange) are helping to bring OTC trading closer to market trading. These will now be considered in more detail.
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