Market Profiles

FII Market Entry Requirements for Japan (JGB exempted account)

RBC IS operates a segregated account structure for Japanese Government Bond (JGB) exempted accounts. Taxable JGB’s are held under omnibus account structure.

Please refer to 'Market Account Opening Requirements' for information on the market requirements. Clients are requested to refer to the requirements for information purpose only.

For further information or support around accessing this market, please contact your RBC IS representative.

As of January 1, 2013, the parent company of the Tokyo Stock Exchange, Inc. (TSE), the Tokyo Stock Exchange Group, Inc. (TSE Group) and the Osaka Securities Exchange Co. Ltd. (OSE) have merged and formed the Japan Exchange Group, Inc. (JPX).

Tokyo Stock Exchange (TSE)
The Tokyo Stock Exchange, Inc. (TSE), one of the JPX subsidiary markets, accounts for more than 90% of the total value of all trading on the domestic stock exchanges. After consolidating OSE cash product markets in July 2013, the TSE is comprised of the First Section, Second Section, Mothers Section (high growth and emerging stocks), JASDAQ and TOKYO PRO-Market. The Mothers and JASDAQ trade mainly newly listed companies. 

There are four types of board on the TSE:

• ’Prime’ market, where global companies are listed as the top of TSE markets,
• ’Standard’ market, where major companies with sufficient corporate governance and market liquidity are listed,
• ‘Growth’ market, where relatively new venture businesses with high growth potential, and
• ‘TOKYO PRO-Market’, where ‘professional only’ instruments are listed.

Osaka Exchange
The OSE, which became another JPX subsidiary market in January 2013, operates derivatives markets, including the Nikkei Stock Average Futures (Nikkei 225 Futures). Effective March 24 2014, TSE listed derivatives products, such as JGB Futures, transferred to OSE, making OSE the sole derivatives market among JPX subsidiaries. OSE implemented a new derivative trading system, J-GATE, July 19, 2016.

Multi-Lateral Trading Facilities (MTFs) are licensed in Japan to brokers as Proprietary Trading System (PTS). There are
currently two PTS’s, which are using JSCC for clearing.

Trading is electronic. Orders are matched by open auction with precedence given to sale orders at the lowest prices and purchase orders at the highest prices (time precedence issued for same price orders). Orders are conveyed to the trading floor by computer order-routing systems:

• Stock Trading System for stocks
• Bond Trading System for bonds

ToSTNET-1 (TSE Trading Network System) is a computerised off-hours trading system for large block orders and basket cross orders. This system is designed to respond to the transactional needs of institutional investors.

ToSTNET 2 is the trading system for closing price orders and VWAP orders. This system has been designed for the transactional needs of individual investors.

All transactions are fed into the TSE's mainframe computer system and disseminated instantly to members' offices. 

The TSE has adopted a daily price "limit" system and special bid/offer quote measures, which act as "circuit breakers" to prevent excessive short term price volatility.

ISIN: Yes

Other: Quick code

Financial Services Agency (FSA): responsible for planning of the financial system, as well as, supervision and inspection of financial institutions. The FSA was established on July 1, 2000 under the jurisdiction of the Financial Reconstruction Commission (FRC) through reorganization of the Financial Supervisory Agency (established June 1988) which involved its integration with the Financial System Planning Bureau of MOF.

Securities and Exchange Surveillance Commission (SESC): supervises exchange activities. The exchanges are governed by the Financial Instruments and Exchange Act (FIEA), although there is a strong reliance on self-regulation. Functions include compliance inspections on securities houses, stock exchanges or financial futures brokers to observe codes of conduct for fair trade, daily market surveillance, and the investigation of securities crimes including insider trading, market manipulation and falsified financial statements.

Bank of Japan (BOJ): as the central bank of Japan pursues price stability to maintain economic growth in an environment where inflation is kept under control. Other operations include the issuance of banknotes, the conduct of monetary policy, provision of settlement services and ensuring the stability of Japan's financial system.

Ministry of Finance (MOF): the central government arm responsible for the provision of the budget bill, the issuance of financial policies, the management of tax income and the management of governed property.

Shares are held in book-entry form.

Daily price limit:
The Tokyo Stock Exchange sets "daily price limits" which limit the maximum range of fluctuation within a single trading day to protect investors from excessively volatile markets. The TSE, however, maintains that exchange markets should in principle be free of price and transaction restrictions.

Daily price limits are set in absolute yen according to the previous day's closing price or special quote. As these price limits only prohibit trading beyond set parameters, stocks can continue trading even if they have reached the limit prices, provided prices remain within the parameters.

Please note that special conditions may apply, the above is for reference purposes only.

JPY

There is an OTC Market for equities and Fixed Income in Japan.

Book-Entry: Japan Securities Depository Center, Inc. (JASDEC) clears domestic shares, certain types of bonds listed on the TSE and other exchanges. Exchange transactions are settled delivery-versus-payment (DVP). Non-exchange transactions are settled in DVP mode.

The current JASDECs DVP scheme is based upon a fully collateralised netting system supported by liquidity resources to ensure timely completion of daily settlement. DVP is a mechanism that facilitates simultaneous delivery of securities and counter value funds, thus reducing settlement risk. 

Under the current JASDEC DVP system, all cash and securities are cleared via JASDEC DVP Clearing Co (JDCC), the central counterparty. Each book-entry delivery of securities is processed on a trade-for-trade (gross) basis while payment of funds is on a net basis. JDCC will only execute DVP transactions that satisfy the following conditions.

1. The net debit cash settlement requirement is less than the net debit cap that has been set for a given participant.
2. The assurance value of both the receiver and deliverer must be greater that their own net debit (cash amount)
3. The balance of securities in the deliverer's account must be greater than zero.

Japanese Government Bonds (JGBs) are cleared through the book-entry system of the Bank of Japan (BOJ). Book-entry JGBs are cleared via the Real Time Gross Settlement (RTGS) system.

Dematerialisation:
Whereas equities were historically held in the form of physical certificates, Japan has completed a full dematerialisation of negotiable securities – including listed stocks in 2009.

Trade life cycle diagram:

Financial Services Agency (FSA) has introduced new short-selling rules effective November 5, 2013. The following are the major points with summary changes from the temporary measures since 2008.

1. Adoption of trigger method
The "uptick rule" is now applied only when prices falls below 10% compared to the previous day's closing prices.

2. Lower threshold of short position reporting requirement
The threshold of the reporting requirement is lowered to 0.2%, where investors have been required to report their holdings of short positions though exchange trading members when their short positions reach 0.25% of outstanding issued stocks.

3. Higher threshold of public disclosure requirement
Exchanges have been disclosing publicly the short positions reported from investors through its trading members when they reach 0.25% of outstanding issued stocks. The threshold of public disclosure is now higher to 0.5%.

The scope of requirements are expanded to transactions in the proprietary trading system (PTS), while the regulations have been only applied to transactions executed by the exchanges under the auction method.

For turnaround trades, the date and time of execution of the buy order must precede those of the sell order.

Exchange member brokers are responsible for reporting all short sales at the Stock Exchange. Non-member brokers are expected to report all short sales to their member brokers at time of execution as outlined above.

Japan Securities Clearing Corporation (JSCC) is the central clearing house for listed instruments that nets out all trades executed between members of stock exchanges. Execution information is given to JSCC on a real time basis and securities are cleared on settlement date. The cash is cleared by the BOJ or by the market clearing house's designated bank account. 

JSCC also clears OTC JGB transactions and OTC derivatives which are Credit Default Swaps (CDSs) and Interest Rate Swaps (IRSs).

JASDEC DVP Clearing Corporation (JDCC), a subsidiary of JASDEC, is the central counterpartyof off-exchange trades for both deliverer and receiver through novation of settlement obligations. Provided a DVP instruction satisfies all the executing conditions, securities subject to delivery are delivered from the deliverer's account to JDCC. For each participant, all the payable amounts for receipts of securities and all the receivable amounts for deliveries of securities are netted, leaving a balance that is "paid to" or "received from" JDCC.

Japan Securities Depository Center, Inc. (JASDEC) for equities, convertible bonds, Exchange Traded Funds (ETFs), Real Estate Investment Trusts (REITs) and Preferred Equity Investment etc.

It is acting as the licensed Transfer Institution under the Book-entry Act for dematerialised instruments.

JASDEC is also providing custodial services for domestic exchange listed foreign stockscertificates, etc. Eligible securities (hereby "foreign stock certificates, etc.") are all domestically listed foreign stocks, foreign new share subscription warrants, foreign investment securities (i.e., country funds), foreign investment trust beneficiary rights (i.e., preference securities) and foreign stock depository receipts (i.e., DRs). 

Bank of Japan (BOJ) for Japanese Government Bonds (JGBs), Treasury Discount Bill (T-Bill or JTDB).

The Bank established the JGB Book-entry System in 1980 as an immobilized CSD, and has managed it for 30 years. When dematerialized legal framework was established, the BOJ decided to convert the old JGB Book-entry System that it operated at the time to a new system based on the Act concerning the Book-entry Transfer of Stocks, Corporate Debt Securities, etc. 

BIS is an international organisation and fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Committee on Payments and Market Infrastructures (CPMI) uses three common structural approaches, or models, to categorise the links between delivery and payment in a securities settlement system.

JSCC is operates based on a BIS Model 3 for cash equities and on a BIS Model 1 for OTC JGB. JDCC operates on a BIS Model 2.

Shares and ETFs recorded in JASDEC are held in a fungible pool. The issuers identify the balance held by each shareholder as of Record Date (RD) by means of a General Shareholder Report from participants to JASDEC, where participants are required to automatically report at end-of-day the breakdown of its holding balance on RD. Shareholder name, address and other information are pre-registered at JASDEC acting as information repository.

There is no registration process for bonds, as book-entry record at BOJ/JASDEC participants is granted as the legal record of the holdings.

Securities are registered in the investor’s name, as registrars do not recognize nominee holdings.

There is no central registrar in Japan. Registrars differ depending on the instrument type. Most issuers appoint respective registration agent, known as Transfer Agent (TA) or Administrator of the Shareholder Registry, while others act as the registrar themselves. Currently, three trust banks, two securities agent companies and an investor relations company are acting as such agents.

N/A

Share holdings may be required to be disclosed by the beneficial owner, particularly when holdings reach or exceed prescribed disclosure limits. Investors must ensure that they comply in full by reporting such holdings to the appropriate organisations for this market, within the timeframe required. If you have any questions regarding this issue we encourage you to consult your legal counsel.

Failure to comply with reporting requirements may lead to penalties and/or other sanctions.

An acquisition of more than 10% of a publicly listed stock or any stake of an unlisted stock is deemed to be a direct investment and becomes subject to prior notification/approval requirements of the Ministry of Finance (MOF).

Investors acquiring more than 5% of the issued and outstanding shares of a listed company are required to file a Substantial Shareholding Report within five days of purchasing the stock to theFinancial Services Agency (FSA) via electronic disclosure system called EDINET. The "five-day" is from the trade date and not from the acquisition date. The substantial owner is obliged to also file an amendment with the authority within five days of holding percentage increasing or decreasing by 1% or more, or any material changes in the disclosures made in the Substantial Shareholding Report. There are penalties for failure to report and for reporting of false information. 

The following are some of the requirements which must be disclosed by the ultimate shareholder in order to submit the report:

• the shares name/ its addresses/ listing Stock Exchange name
• the ultimate investor's name/ address/ the detail of the business
• transaction details for the past 60 days (including trade date, quantity, price in case of an OTC transaction)
• the investment purpose
• background of the shares (i.e. collateral, borrowing, repo contracting, etc.)
• source of funding for the purchase of shares

There are actually two types of reporting; one is 'General Report', applicable to ordinary investors, which should be submitted within 5 business days of acquiring 5 percent or more of the issued shares as required by FIEA Article 27-23, or any subsequent fluctuation of 1 percent as required by Article 27-25. The other is ‘Special Report', permitted as an exception to certain financial institutions under certain conditions, which could be submitted twice a month within 5 business days of the two reporting base dates, if such base dates are applied in advance to the regulator, as defined in FIEA Article 27-26. Physical paper reporting is no longer acceptable. A copy of the report needs to be sent to the issuer, as required by FIEA Article 27-27, but under certain conditions, as prescribed in FIEA Article 27-30-11, Paragraph 4, it can be sent by e-mail. The requirement to send a copy of the report to the exchange where the stock is listed was abolished when use of EDINET became mandatory, as prescribed in FIEA 27-30-6.

There is no automatic buy-in procedure in Japan. A buying broker may choose to initiate a buy-in procedure if the seller fails to settle a trade. Buy-ins are seldom enforced on any of the stock exchanges.

JSCC clearing members incurring a fail may request a buy-in. If the defaulting member (the party who has failed to deliver the shares) is unable to clear the failed position within three working days of the date of the buy-in, the JSCC will, with a buy-in notice in hand, implement the buy-in and charge the defaulting member.

For on-exchange equity transactions including PTS trades, under the JSCC rules, when securities delivery is not completed within two business days, a participant incurring a fail may file a request for a buy-in with JSCC. For off-exchange transaction of equities, there are no buy-in procedures or practices.

Securities lending in Japan is used to cover failing transactions and to cover short sales in margin trading. Margin trading is permitted only for stocks nominated by the stock exchanges.

Bond lending is also permitted. The majority of the stock lending market is conducted either over the counter or through one of three dedicated securities financing companies. Lending can take place with brokers acting as intermediaries, or between two counterparties acting as principal. 

The period of a loan of securities is usually within six months, while bonds may be on loan for up to 12 months.

There is an active lending market for JGBs, but the BOJ historically has taken no part in the loan process. However, the BOJ operates a facility, whereby the central bank will sell JGSs with repurchase agreements to provide a temporary supply of JGSs to the market so as to facilitate its money market operations and contribute to the smooth settlement of both JGSs and funds (market liquidity). The BOJ is compelled to sell JGSs, especially in cases where the liquidity of certain issues is bound to decline, and, pose significant adverse effect on the JGS market.

JPX Default Compensation Reserve: JPY 27.9 billion as of March 2019 Default Compensation Reserve can be used in case of default of trading participants where payment/delivering obligations are not performed. No direct protection for any investors.

In Japan, Anti-Money Laundering is governed under the Act concerning Prevention of Transfer of Criminal Proceeds (the Act), which is enhanced in accordance to the Financial Action Task Force on Money Laundering (FATF) recommendations.

The Act was formed in 2008 when the Anti-Organized Crime Punishment Law and the Client Identification Law were integrated under the control of the NPA, which administers Japan's Financial Intelligence Unit (FIU). By the Article 9 of the Act, suspicious transactions are required to be reported to the National Police Agency (NPA).

According to the Japanese ID verification requirements, presentation of the following is required for investors that are legal entities, such as a firm, partnership and corporate body:

• A form of incorporation document which both evidences legal incorporation and is accepted as legal proof in the issuing country. The identification document should contain (1) entity name, (2) address of headquarter or main office. The document must be within its term of validity, or be less than six months old.
• There is also a requirement to fully identify individuals, partners or directors who have been appointed to represent such legal entities.
• Identification documentation for such individuals, partners or directors should be: 
  - a Japanese driver's license (as this contains the full name and address of the holder)
  - an original Certificate of Alien Registration card for foreign residents, and/or
  - an original passport. (Use of a passport can require supplementary evidence such as an original Ward Office Registration document, as passports do not necessarily show a current address.

Where an individual is a foreign non-resident of Japan, his/her original passport must be supported by an original ID document that contains the holder's current home address. Where such an ID card does not contain an address, then documentation from national taxes, local taxes or social insurance payments, or public utilities (such as electricity) bearing the individual's name is required. The document must include a receipt date stamp or a printed date of issue. The document should be within its prescribed term of validity, or be less than six months old.

In addition to above, amended provisions of the Act effective April 01, 2013 include but are not limited to those below:

• To add matters to be confirmed in the identification process by a business operator; namely, i) purpose of the transaction, ii) business nature, and iii) major shareholder information
• To require in depth confirmation on the assets and income, in case where fraud is expected from the business operator's view
• To request a business operator to keep identification information updated; such as company name and registered address
• To strengthen penalties on falsifying identification information, from a fine of no more than JPY 500,000 to imprisonment with labor for no more than one year or fine of no more than JPY 1 million or both 
  
  Before starting a new business relationship, a financial institution must be able to demonstrate that the following information has been verified for KYC purposes:

1. full customer identification evidence;
2. the reason for the relationship, in sufficient detail to provide a clear understanding of the intention for opening the account and the nature of the customer's business or employment;
3. an indication of the anticipated volume and type of activity to be conducted in the account; and
4. a clear understanding of the source of funds passing through the account (for certain types of customers, it will also be deemed appropriate to record the underlying source of wealth).

Tax exempt bond investment is available for foreign corporations and a certain type of funds. Please contact your RBC Investor & Treasury Services' Client Manager.

Tax exempted accounts require prior application process. Qualified CSD participants are responsible to accept such applications, which will be forwarded to its local tax office.

The below fifteen companies impose aggregate Foreign Ownership Limits (FOL):

Broadcasting Companies
Fuji Media Holdings Inc, WOWOW Inc.; Tokyo Broadcasting System Holdings Inc.; Chubu-Nippon Broadcasting Co., Ltd.; Nippon Television Network Corp; Asahi Broadcasting Corporation; RKB Mainichi Broadcasting Corporation; Broadcasting System of Niigata Inc; TV Asahi Corporation; TV Tokyo Holdings Corporation; Nippon BS Broadcasting Corporation. 

Airline Companies 
Japan Airlines Co. Ltd.; Nippon Airways Co. Ltd; Skymark Airlines Ltd. Star Flyer Inc; and 

An ex-government owned telecommunication company Nippon Telegraph & Telephone Corp.

Aggregate foreign ownership is limited to 20% for broadcasting companies and 33.3% for others.

On record date, JASDEC compiles stock ownership data from its participants to pass onto stock issuers via their respective registrars in order to permit securing of foreign shareholder rights and the eligibility for any corporate entitlements. Issuing companies monitor the level of foreign ownership and will reject registration if the percentage reaches the foreign ownership limit. 

Current foreign ownership levels and other details are provided by the central depository and can be viewed in English at the below link.

http://www.jasdec.com/en/reading_e/for_pubinfo.php

No currency restrictions.

There are no foreign exchange/repatriation restrictions to obstruct cross-border transfer of funds (to include repatriation of profit), in and out of Japan for foreign investors.

Japan's banking industry has three same-day value electronic payment systems for Japanese Yen clearing:

• Bank of Japan Financial Network System (BOJ-Net)
• Foreign Exchange Yen Clearing System (FXYCS;also called as "Gaitame Yen Kessai")
• Zengin System (purely servicing domestic retail payments)

BOJ-Net and FXYCS, described below, are the principal clearing systems for all inter-bank, third-party and treasury settlements among inter-bank money market. 

Bank of Japan Financial Network System (BOJ-NET) - Funds Transfer System in the BOJ-NET, is the inter-bank JPY Clearing System managed by Japan's Central Bank, the BOJ. The full launch of the new BOJ-NET took place October 13, 2015,

Foreign Exchange Yen Clearing System (FXYCS) – FXYCS is the most important same-day settlement service for JPY transactions associated with foreign exchange and other cross-border financial transactions. It is a same-day value electronic JPY clearing system used whenever one or more parties to the transaction are non-resident. As a point of comparison, FXYCS is like CHIPS.

There is no restriction on cash account overdrafts in the market.

In Japan, dividend details are usually announced five to ten weeks after the record date. The proceeds are credited to clients' cash accounts on the date of receipt from the issuing company or paying agent, which is almost always on payment date.

Payment frequency is semi-annual or annual, but maybe quarterly subject to the respective issuer's governance structure or financial condition in the recent operational period. Peak payment periods are in June and December. Payments are received net of withholding tax via Zengin (interbank payment system), basically.

Issued bonds generally pay semi-annual coupon interest, but some issuances pay annually or monthly. Most poplar payment periods cycles for JGBs are March / September or June / December. BOJ acts as the central paying agent for distribution of interest income by crediting accounts held at BOJ on payment date. Corporate and municipal issuances have paying agent banks appointed in BOJ's stead.

Bond interest in Japan generally accrues on an actual/365 day count basis.

RBC Investor Services’ (RBCIS) does not accept Japanese corporate gifts offered by Japanese companies into our accounts. In line with market practice, our agent donates the proceeds of the sale of these gifts directly to Japanese charities.

Japan is a "record date" market. As such, the actual eligibility for rights is calculated based on holding as of record date. If a cum-trade fails to settle on record date, the investor is entitled to make a claim. However, there is no legal obligation for a previously registered owner to forfeit received entitlements to a current holder(s) of shares who has missed registration.

Unrestricted Voting Rights, except for exceeding part holders of Foreign Ownership Limit (FOL) stocks in limit exceeding occasion. Voting can be exercised by those shareholders registered on the Shareholders List as of the record date. Voting rights are not available to holders of odd-lot shares and shares issued without voting rights. Shares are usually registered in the name of the global custodian: or beneficial owner name when it is held at an approved indirect participant of JASDEC. Foreign investors may exercise voting rights through a proxy, and split voting is available.

No.

No obligation for issuers to prepare English version by regulation, currently, thus basically available only in Japanese. Coded agenda, not translation of details, are available by voting service vendors. Annual general meetings and extraordinary general meetings must be announced at least two weeks in advance.

On request, subject to availability.

On request, subject to availability.

Not required.

Most company meetings are convened on the same day in June, as 75% of all listed companies close their financial year at the end of March.

The standard withholding tax rate levied on dividends on listed Japanese companies is currently 15% for non-resident investors. 

Furthermore, 2.1 percent amount of the withholding tax amount (15%) is additionally levied as Special Reconstruction Income Tax from January 2013, which makes 15.315% in total.

Note: : i) unlisted shareholders and ii) individual investors holding 3% or more in any listed company will not benefit from rate reductions and will either continue to pay the tax rate of 20% or any applicable tax treaty rate.

Interest is subject to a 15.315% withholding tax at source (standard rate 15% income tax and 5% inhabitant tax), except where a double taxation treaty is in place. 

Foreign institutional investors are eligible for exemption from withholding tax on interest from bond coupon under the Japan Bond Interest Exemption Scheme (J-BIEM), provided the bonds arerecorded in the BOJ or JASDEC's book-entry systems through a Qualified Foreign Intermediary (QFI) that is an approved Foreign Indirect Participants (FIPs) of the BOJ or Foreign Indirect Account Management Institution (FIAMI) of JASDEC.

Not applicable to non-resident investors.

The List of Japan's Tax Conventions : Ministry of Finance

Not applicable to non-resident investors.

Consumption tax of 10%. This tax increases to 10% from October 1, 2019.

JAPAN Holiday Calendar

• Financial Services Agency (FSA) fsa.go.jp/en/index.html
• Securities and Exchange Surveillance Commission (SESC)fsa.go.jp/sesc/english/index.htm
• Ministry of Finance (MOF) mof.go.jp/english/index.htm
• Bank of Japan (BOJ) mof.go.jp/english/index.htm
• Japan Securities Depository Center, Inc (JASDEC) www.jasdec.com/en/