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Newsletter | April 2015, Issue 1
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SECURITIES
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Amendment to the Financial Investment Services and Capital Markets Act and its Enforcement Decree
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An amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (the “FSCMA”) was promulgated on December 9, 2014. The amendment went into effect as of January 1, 2015, with the exception of provisions for relaxing the exercise of shareholder rights by pension funds, which went into effect as of the promulgation date. The amendment aims to (i) relax the regulation of listed companies, (ii) relax the regulation of asset management business, and (iii) reform other regulatory matters. The following summarizes major aspects of the amendment.
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Relaxing the solicitation of proxy votes by, for example, allowing the electronic issuance of proxy documents (Article 160, Item 5 newly added, and Article 163, Paragraph 1, Item 7 amended)
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The amendment permits a company to use an internet website to issue proxy documents, thereby adding a new lawful method for effecting delivery of proxy documents.
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The amendment stipulates explicitly that a company can solicit proxy votes for only parts of its shareholders’ meeting agenda items, as opposed to all the agenda items.
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Facilitating the issuance of redeemable notes with treasury shares by making it possible to apply a “deemed disposal” treatment (Article 176-2, Paragraph 4 amended)
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If a note is exchangeable with its issuer’s own shares at the note holder’s option, the shares are deemed to be disposed of when the note is issued. On the other hand, for a note which is redeemable with the issuer’s own shares at its option, no similar “deemed disposal” treatment was available. The amendment provides for an explicit basis to apply the “deemed disposal” treatment to such note, which is redeemable with the issuer’s own shares at its option.
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Extending the mandatory disposal period for shares acquired by their issuer through the exercise of its appraisal right (Article 176-7, Item 4 amended)
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If a listed company acquires its own shares through the exercise of an appraisal right, the company must dispose of those shares within 5 years, rather than 3 years required before the amendment.
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Relaxing the formula for determining the merger valuation of listed companies (Article 176-5, Paragraph 1, Item 1 amended)
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When a listed company merges with another listed company, their merger valuation can be within 30% of the threshold price (which is based on the arithmetic average of closing prices), rather than the 10% permitted before the amendment.
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Lifting indirect restriction on pension funds in regards to their exercise of shareholder rights on dividends (Article 154, Paragraph 1, Item 4 amended)
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Before the amendment, if a pension fund exerted influence over payment of dividends by a company in which the pension fund held shares, the pension fund could be deemed as having an intention to participate in managing the company, and accordingly, the pension fund could not benefit from various favorable rules, such as the simplified filing of a report for large scale shareholding or the exemption from the requirement to return short swing profits. Based on the amendment, even if a pension fund exerts influence over payment of dividends by a company, the pension fund is no longer regarded as having the intention to participate in managing the company and, thus, can take advantage of the various favorable rules.
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Exempting a collective investment business operator from the requirement to undergo a regulatory evaluation of its management status (Article 35, Paragraph 2, Item 1, Sub-Item E newly added)
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If a collective investment business operator does not conduct any dealing or brokerage business over financial investment products other than collective investment securities, such collective investment business operator can be exempt from the requirement to undergo a regulatory evaluation of its management status.
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Prohibiting unfair business activities of a trust business operator in dealing with retirement funds (Article 109, Paragraph 1, Item 4 amended)
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A trust business operator can no longer use its trust assets covered by the Act for Guaranteeing Employees’ Retirement Payments to conduct transactions with its own proprietary assets the principal and interest payments of which are guaranteed by the trust business operator.
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