issuing entity may use both Japanese and English in the same disclosure material for the sake of convenience of both the issuer and the investor.
The TSE’s Special Regulations of Securities Listing Regulations Concerning Specified Listed Securities, Rule 202 states the following:
When an entity carrying out program listing (where the scheduled issuance period contained in the Program Information announced by such entity has passed, excluding such entity; the same shall apply hereinafter), an initial listing applicant (limited to an entity which applies for initial listing of a bond; the same shall apply hereinafter in this part), or an issuer of a listed bond prepares material for disclosure, it must use either the English language or the Japanese language, or both languages.
Domestic and foreign investors will benefit from the increased variety of securities in the Japanese market because more domestic and overseas issuers will be able to issue in Japan through the TPBM. Overseas investors will find it easier to invest in the Japanese market thanks to increased disclosure in English.
Registered CRAs in Japan as of 31 March 2016 include the following:
•
Ʒ Fitch Ratings Japan Limited
•
Ʒ Japan Credit Rating Agency, Ltd. (JCR)
•
Ʒ Moody’s Japan K.K. Moody’s SF Japan K.K
•
Ʒ Rating and Investment Information (R&I)
•
Ʒ Standard & Poor’s Ratings Japan K.K. / Nippon Standard & Poor’s K.K.
Bond issuers shall note ratings in the Securities Registration Statement (SRS) and its attachments and prospectus or offering circulars, and indicate ratings from registered CRAs as such. Financial instruments business operators, such as securities firms, have the obligation to explain whether the ratings are from a registered CRA or not and other required matters.
In soliciting customers, financial instruments operators, such as securities companies, shall not use the credit ratings provided by unregistered CRAs without informing customers of (i) the fact that those CRAs are not registered and (ii) the significance and limitations of credit ratings.
CRAs shall provide or make available to the public the credit ratings it determined without delay after the determination or withdrawal of such credit ratings by posting them on its free website with statutory disclosure items under Japanese laws and ordinances.
A foreign CRA is an unregistered CRA, even if it belongs to the same group of a registered CRA. In the Cabinet Ordinance related to the CRA regulations, however, there is the easing explanation rule that admits to feature the name and registered number, etc., of the registered group company, if the group and the unregistered company fulfill the required conditions about the quality and simultaneity of publicized information and rating methodology, etc.
Figure 14: Introduction of Regulation for Credit Rating Agencies
1. Quality and Integrity of the Rating Process 䞉Quality of the Rating Process
䞉Monitoring and Updating 䞉Integrity of the Rating Process
2. Independence and Avoidance of Conflicts of Interest
䞉Procedures and Policies 䞉Analyst and Employee Independence 3. Responsibilities to the Investing Public and
Issuers
䞉 Transparency and Timeliness of Ratings Disclosure
䞉 Treatment of Confidential Information 4. Disclosure of the Code of Conduct and
Communication with Market Participants
*Inspection/Supervision, etc.
Submission of periodic business reports, supervisory order for production of reports and on-site inspection, order to improve business operations, etc.
IOSCO Code of Conduct
[Overview of Regulation]
Regulation/Supervision for CRAs [Purposes of Regulation]
To ensure the following:
1. Independenceof CRAs from issuers, etc. of the financial instruments that they rate, and prevention of conflicts of interest
2. Quality and fairness in the rating process
3. Transparencyfor the market participants such as investors
Duty of good faith Information
disclosure Establishment of control systems
Prohibited Acts
Conduct operations with fairness and integrity as independent entities
Timely disclosure: publish rating policies, etc.
Quality control and fairness of the rating process, and prevention of conflicts of interest, etc.
Prohibit the ratings in the case where CRAs have a close relationship with the issuers of the financial instruments to be rated, etc.
Periodic disclosure: public disclosure of explanation documents
Ensure consistency
Register CRAs with established control systems: credit rating service providers
Financial and capital markets Financial Instruments Financial Instruments
Investors
Ratings by Obligation to unregistered CRAs explain
CRA (unregistered)
Ratings by registered CRAs
Financial Instruments Business Operators, etc.’ s obligation to explain
In soliciting customers, Financial Instruments Business Operators, etc. shall not use the credit ratings provided by unregistered CRAs without informing customers of (i) the fact that those CRAs are not registered and (ii) the significance and limitations of credit ratings.
CRA = credit rating agency, IOSCO = International Organization of Securities Commissions.
Source: Financial Services Agency.
Legal and Regulatory Framework
49
of how credit is assessed”
Main supervisory evaluation points and various administrative procedures
(%#/%+*/+
develop systems
Whether policies and processes have been established in the internal rules for each of the development obligations clarified in/$!%*!/""%!- %**!
and whether appropriate action is being taken in line with those policies and processes.
Whether the credit rating agency examines the validity and effectiveness of these policies and processes, and makes revisions as necessary.
%*!/""%!- %**!,!-)%/.&+%*/ !1!(+,)!*/
of systems with registered business operators within the group.
“Non-Japan-related ratings” determined at an overseas location by a foreign corporation are not +1!-! 4/$!.
Prohibited acts
Various administrative procedures
Whether the credit rating agency has developed systems whereby it can confirm, when necessary, that it does not contravene any prohibited acts prescribed in /$!+-%*!/""%!- %**!
In cases where a foreign corporation is to be registered:
→It is obligated to establish a base in Japan
When giving a registered business operator that is a foreign corporation “approval for exclusion from application,” be mindful of the following, for instance:
.es of exclusion from the application of the “rotation rule”]
6 hether the applicant has built the rating processes properly
6 hether the applicant has taken measures for preventing the entrenchment of persons in charge of rating
* !-/$!%*!/""%!- %**!-!#%./!-!
business operator that is a foreign corporation may, with the approval of the authorities, be excluded from the application of some of the obligations to develop systems
Keep in mind that systems development cannot be assigned to “unregistered business operators” within a group.
(For example: groups where a base in Japan is registered, but the US head office is not registered Whether a registered business operator that is a foreign corporation has established procedures for specifying “Japan-related ratings.”
Whether it specifies and clarifies “Japan-related ratings” in accordance with these procedures.
* N+*,*-!(/! -/%*# -! %/-/%*#2$%$%.*+/-/%*#+""%**%(%*./-0)!*/,-!)%.! +*.+(%%//%+*4.!0rities company or so forth in Japan, and regarding which the issuer of the said financial instrument is not located in Japan.
.!.2$!-!-! %/-/%*# !/!-)%*! 4*
“unregistered business operator” within the group is made to appear as though it was determined by one’s own company
→+0( "((0* !-/$!/!#+-4+"5*)!
lending.”
For a credit rating in which an “unregistered business operator” within the group is involved, in such cases as where a registered business operator approves the credit rating after having examined the appropriateness of business operations and confirming that there are no problems:
→Keep in mind that it could be found that “the registered business operator determined the credit rating.”
(For example: a credit rating in which there is involvement by a foreign unregistered base belonging /+#-+0,+*/%*%*#-!#%./!-!
0.%*!..+,!-/+-During an examination for registration, check whether the operational control systems of the registration applicant is appropriate and suited to the characteristics, etc.
of its business.
With registered business operators that are a foreign corporation, keep in mind that the officers and employees stationed in Japan need to be able to grasp the business situation and explain it properly.
Source: Financial Services Agency.