Special Permitted Services for Qualified Institutional Investors, etc.

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1. When forming an investment fund in a partnership, investment limited partnership, or anonymous association under the Civil Code, meeting certain requirements makes it unnecessary to register as a Type II Financial Instruments Business, which is required when offering deemed securities, or as an investment management business, which is required when managing investments.The basis of the article is Article 63, Paragraph 1 of the Financial Instruments and Exchange Law.

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Financial Instruments and Exchange Act

(Specially Permitted Services for Qualified Institutional Investors)

Article 63(1)The provisions of Articles 29 and 33-2 do not apply to the acts set forth in the following items:

(i)the private placement of rights set forth in Article 2, paragraph (2), item (v) or (vi) with qualified institutional investors, etc. (meaning persons that are not qualified institutional investors but that are specified by Cabinet Order (but only if they are they are no greater in number than the number specified by Cabinet Order) and qualified institutional investors; hereinafter the same applies in this Article) that do not fall under any of the following categories, as the counterparties (limited to private placements specified by Cabinet Order as having little likelihood of allowing persons that are not qualified institutional investors, etc. (that is, qualified institutional investors, etc. that do not fall under any of the following categories) to acquire the relevant rights and excluding those specified by Cabinet Office Order as being likely to compromise the protection of investors):

(a)a special purpose company (meaning a special purpose company as provided in Article 2, paragraph (3) of the Act on Securitization of Assets) that issues asset backed securities (meaning asset backed securities as provided in Article 2, paragraph (11) of that Act) which have been acquired by persons other than qualified institutional investors;

(b)the proprietor of a business or a person seeking to become the proprietor of a business in a silent partnership agreement (meaning a silent partnership agreement as provided in Article 535 of the Commercial Code) that concerns the investment business for the rights specified in Article 2, paragraph (2), item (v) or (vi) and that has a person other than a qualified institutional investor as a silent partner; and

(c)a person that is specified by Cabinet Office Order as being equivalent to a person set forth in (a) or (b);

(ii)the act set forth in Article 2, paragraph (8), item (xv), of investing money (including anything specified by Cabinet Order as being similar to money) that has been invested or contributed by a qualified institutional investor, etc. that holds a right set forth in Article 2, paragraph (2), item (v) or (vi) (limited to rights in a business subject to investment (meaning a business subject to investment as provided in Article 2, paragraph (2), item (v)) in which qualified institutional investors, etc. are the only holders of those rights (limited to qualified institutional investors, etc. that do not fall under any of the categories in (a) through (c) of the preceding item)) (excluding those specified by Cabinet Office Order as being likely to compromise the protection of investors).​

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2.  Requirements for specially permitted services for qualified institutional investors, etc.

• At least one Qualified Institutional Investor must be included among the investors in the investment fund.

• The investors in the investment fund must consist of qualified institutional investors and persons other than qualified institutional investors specified by a Cabinet Order (limited to cases where the number of such persons is less than or equal to the number specified by a Cabinet Order).The number of investors in the investment fund must be less than or equal to the number specified by a Cabinet Order.

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Persons Other Than Qualified Institutional Investors Specified by Cabinet Order

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Persons other than qualified institutional investors who may invest in an investment fund in special permitted services for qualified institutional investors, etc. are as follows. The number of such persons must be 49 or less.

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Order for Enforcement of the Financial Instruments and Exchange Act

(Specially Permitted Services for Qualified Institutional Investors)

Article 17-12(1)The persons other than a qualified institutional investor specified by Cabinet Order that are provided for in Article 63, paragraph (1), item (i) of the Act are persons other than a qualified institutional investor that fall under any of the following items at the time when they become a counterparty to a private placement or handling of a private placement involving the rights set forth in Article 2, paragraph (2), item (v) or (vi) of the Act which they acquire:

(i)the State;

(ii)the Bank of Japan;

(iii)a local government;

(iv)a financial instruments business operator, etc.;

(v)a person that, on a regular basis, conducts the act set forth in Article 2, paragraph (8), item (xv) of the Act with regard to the money or any other property invested or contributed by a person that conducts private placements involving the rights set forth in paragraph (2), item (v) or (vi) of that Article or that holds the rights set forth in item (v) or (vi) of that paragraph;

(vi)a person specified by Cabinet Office Order as a person having a close relationship with the person set forth in the preceding item;

(vii)a company that is an issuer of share certificates listed on a financial instruments exchange;

(viii)a corporation whose amount of stated capital is 50 million yen or more;

(ix)a corporation whose amount of net assets (meaning the amount obtained by deducting the amount of liabilities from the amount of assets on the balance sheet) is 50 million yen or more;

(x)a corporation established by a special act of establishment pursuant to the provisions of special laws;

(xi)the specified purpose company prescribed in Article 2, paragraph (3) of the Asset Securitization Act;

(xii)a corporate pension fund that satisfies the requirements specified by Cabinet Office Order in consideration of the status of property and other circumstances;

(xiii)a foreign corporation;

(xiv)an individual that satisfies the requirements specified by Cabinet Office Order in consideration of the status of property and other circumstances; or

(xv)a person specified by Cabinet Office Order as being equivalent to the persons set forth in the preceding items.

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Of these, only No. 14, “an individual that satisfies the requirements specified by Cabinet Office Order in consideration of the status of property and other circumstances” relates to individuals. This definition is as follows:

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Cabinet Office Order on Financial Instruments Business

(Counterparties to Specially-Permitted Business for Qualified Institutional Investors)

Article 233-2

(3)The requirement specified by Cabinet Office Order as prescribed in Article 17-12, paragraph (1), item (xiv) of the Order is to fall under either of the following items:

(i)it is an individual that fulfills all of the following requirements:

(a)judging reasonably from the status of the transactions or other circumstances, the total amount of the assets held by the individual is expected to be 100 million yen or more; and

(b)one year has passed from the day when the individual opened an account with a financial instruments business operator, etc. (including a person that is equivalent to them under foreign laws and regulations) for securities transactions or derivatives transactions;

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The “the total amount of the assets held by the individual” as defined in (a) above are as follows

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Cabinet Office Order on Financial Instruments Business　Article 62, Paragraph (1), Item (ii) 

(a)securities (excluding the securities set forth in sub-items (e) and (f) (limited to contracts that are concluded with a special enterprise operator as defined in Article 2, paragraph (9) of the Act on Specified Joint Real Estate Ventures (Act No. 77 of 1994)));

(b)rights related to a derivative transaction;

(c)specified deposits, etc. prescribed in Article 11-5 of the Agricultural Co-operatives Act (Act No. 132 of 1947), in Article 11-11 of the Fishery Cooperatives Act (Act No. 242 of 1948), in Article 6-5-11 of the Act on Financial Businesses by Cooperative (Act No. 183 of 1949), in Article 89-2 of the Shinkin Bank Act (Act No. 238 of 1951), in Article 17-2 of the Long Term Credit Bank Act (Act No. 187 of 1952), in Article 94-2 of the Labor Bank Act (Act No. 227 of 1953), in Article 13-4 the Banking Act, in Article 59-3 of the Norinchukin Bank Act (Act No. 93 of 2001), and in Article 29 of the Shoko Chukin Bank Limited Act (Act No. 74 of 2007);

(d)the rights related to insurance proceeds, mutual aid benefits, refunds, or other benefits under a specified mutual aid contract prescribed in Article 11-10-3 of the Agricultural Cooperatives Act, a specified mutual aid contract prescribed in Article 12-3, paragraph (1) of the Consumer Cooperatives Act (Act No. 200 of 1948), a specified mutual aid contract prescribed in Article 15-12 of the Fisheries Cooperatives Act, a specified mutual aid contract prescribed in Article 9-7-5, paragraph (2) of the Small and Medium-Sized Enterprise Cooperatives Act (Act No. 181 of 1949), and a specified insurance contract prescribed in Article 300-2 of the Insurance Business Act;

(e)beneficial interest in a trust related to a specific trust agreement prescribed in Article 24-2 of the Trust Business Act;

(f)rights under a specified joint real estate venture contract as defined in Article 2, paragraph (3) of the Act on Specified Joint Real Estate Ventures; and

(g)rights related to transactions on a commodity market (meaning the transactions on a commodity market as defined in Article 2, paragraph (10) of the Commodity Derivatives Transaction Act (Act No. 239 of 1950)), foreign commodity market transactions (meaning the foreign commodity market transactions as defined in paragraph (13) of that Article; the same applies in Article 67, item (i)), and over-the-counter commodity derivatives transactions (meaning the over-the-counter commodity derivatives transactions as defined in Article 2, paragraph (14) of that Act; the same applies in Article 67, item (ii) and Article 123, paragraphs (8) and (12))

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