In order to strengthen the competitiveness of the Japanese financial and capital markets, the Financial Instruments and Exchange Act (FIEA) was amended in 2008. One of the main points of the amendment to the FIEA was to allow for the creation of a new market for professional investors. The amendment made it possible to establish new, relaxed exchanges, in which participants are limited to professional investors, referred to as "Newly Created Professional Markets".
The Newly Created Professional Markets target emerging companies that find it difficult to become listed on the existing exchanges because of the substantial preparation period required for the listing, as well as foreign companies that do not wish to be listed on the existing Japanese markets because of the heavy burden of disclosure requirements.
Under the amended regulations, the current strict disclosure requirements will not be imposed on issuers in the Newly Created Professional Markets. However, issuers will be required to provide and disclose some information to the targets of solicitation and the owners of the securities when issuing securities - and for each fiscal year thereafter. How to disclose this information will not be heavily regulated; style, language, and accounting standards will be left to self-regulations by the exchange. In order to ensure the accuracy of such information, criminal penalties, administrative monetary penalties and civil liabilities will be imposed on companies that provide false or misleading information or statements.
In addition, because the above principles apply only to specified professional investors, certain requirements to notify the targets of solicitation will be imposed, and usual and strict disclosure regulations will be imposed regarding the solicitation of general investors with respect to such securities, beyond the world of specified professional investors. Also, restrictions will be imposed on the sale and purchase of such securities and of derivatives based on them, as well as on financial instruments business operators acting as intermediaries on such transactions for general investors.
Following the FIEA amendment in 2008, the Tokyo Stock Exchange (TSE) announced on January 29, 2009 the establishment of a new market that will be called the Tokyo AIM (Tokyo Alternative Invest Market). The new market is modelled after London's Alternative Investment Market (AIM), and the launch of Tokyo AIM is expected to take place in spring 2009, subject to the granting of a license by the Financial Services Agency of Japan.
Tokyo AIM, like its London counterpart, will offer flexibility in its regulatory approach. Issuers will be permitted to use either Japanese or English for the disclosure of information, and will have the option to use either International Accounting Standards or US GAAP in addition to Japanese GAAP. Due to the principles-based regulatory approach used by Tokyo AIM, the cost of listing should also be lower as issuers will not be required to file Internal Control (J-SOX) Reports or Quarterly Securities Reports. These features are intended to attract newly developing overseas companies, especially those in Asia, to the Japanese market.
A nominated advisers system, referred to as "J-Nomad", will be introduced for Tokyo AIM and will be based on the nominated adviser system (Nomad) which is central to the regulatory structure of London AIM. J-Nomad has been approved and will be monitored by the TSE. Its function is to assess the suitability of a company for the public market and to ensure the company's ongoing compliance with the Tokyo AIM rules, in particular with regard to disclosure obligations. The key characteristic of the system is that issuers on Tokyo AIM will report or submit documents and will execute certain other procedures through the J-Nomads, which will act in a guardianship-type role. Once a company is on Tokyo AIM, it must retain a J-Nomad at all times.
The J-Nomad must be a corporation, and it must employ at least three qualified persons whom the TSE approves as J-Qualified Executives (J-QE). These are individuals who, in addition to other requirements, have practical experience in the provision of corporate finance advice. The J-QE position is modeled after the Qualified Executives of London AIM, and it is expected that J-QE will play a core role in Tokyo AIM. It is assumed that most of the J-Nomads will be investment banks, just as they are on London AIM.
Tokyo AIM is expected to play an important role in providing opportunities to fund growing Asian companies in Japan, which will strengthen Japan's competitiveness in the global capital markets.
This article first appeared in the latest issue of our bilingual Japan supplement which was distributed together with the April issue of FinanceAsia magazine. If you would like to discuss any of the issues raised in the article, please contact:
Fumihide Sugimoto or Akira Matsuda at Nagashima Ohno & Tsunematsu
Tel: +81-3-3288-7000; Fax: +81-3-5213-7800; e-mail: [email protected]