The license and registration of the Financial Instruments Business, or a notification of Specially Permitted Services for Qualified Institutional Investors, etc. is required to carry out any business that falls under “Financial Instruments Business” as defined in the Financial Instruments and Exchange Act.
There are various kinds of Financial Instruments Business, which are divided into the four categories below. Here, we illustrate the types of businesses and the kind of license and registration that will be required for each.
1. Type I Financial Instruments Business
There are mainly three types of Type I Financial Instruments Business: (i) “Purchase and Sale / Solicitation of Securities” such as shares, bonds, etc. with high liquidity, (ii) “Underwriting,” and (iii) holding in trust / management of securities.
A typical example of a financial instruments business operator engaged in Type I Financial Instruments Business is a securities company. The number of registered financial instruments business operators engaged in Type I Financial Instruments Business is 288 as of May 31st, 2017.
*The number of registered financial instruments businesses operators is 1,940 in total. This is not equal to the total number of registered financial instruments business operators engaged in the businesses set forth in each of the following sections, because it may be the case that one company is registered in several categories.
2. Type II Financial Instruments Business
In this kind of business, they sell and solicit securities that have a much lower liquidity, such as “Beneficial Interest in a Trust,” and “Interests in Collective Investment Schemes.”
Solicitation of investment in hedge funds is also known as solicitation of “Interests in Collective Investment Schemes,” and a license and registration of Type II Financial Instruments Business is required.
The number of registered financial instruments business operators engaged in Type II Financial Instruments Business is 1,163 as of May 31st, 2017.
3. Investment Advisory and Agency Business
There are chiefly two types of Investment Advisory and Agency Business: (i) “Investment Advisory Business” and (ii) “Agency/Brokerage Services.” A typical example of both is an investment adviser.
An “Investment Advisory Business” is a business whereby advice is provided regarding investments in securities, for example, in return for a fee. Providing information on general economic affairs, such as economic outlooks, is not the type of investment advisory defined in the Financial Instruments and Exchange Act. Registration as an “Investment Advisory Business” will be required when it is specified what is being invested in and when it is to be bought or sold, etc. and whereby specific advice is provided regarding investments.
When Financial Instruments or financial services are handled and fall under “Discretionary Investment Business,” which is offered by settlor companies of an investment trust or investment advisers, or the “Investment Advisory Business,” the investors (the customers) who purchase those Financial Instruments or services will write a contract with the settlor companies of the investment trust or the investment advisers that offer the Financial Instruments or services regarding management, purchase, and so forth. The actions of a securities company, etc. in this instance are referred to as an intermediary “Agency/Brokerage Services.”
The number of registered financial instruments business operators engaged in the investment advisory and agency business is 984 as of May 31st, 2017.
4. Investment Management Business
There are namely two types of Investment Management Business: (i) “Discretionary Investment Business,” which is carried out by a settlor company of an investment trust, J-REIT and so forth; and (ii) a “Fund Management Business,” which is run by a hedge fund, venture capital, and so forth.
The number of registered financial instruments business operators engaged in the investment management business is 353 as of May 31st, 2017.
Specially permitted business, etc. for qualified institutional investors, etc.
Funds can be managed without the need to register as a financial instruments business by notifying the authorities concerned in advance, when more than one qualified institutional investor (professional investors defined by laws and regulations) is admitted and 49 or less general investors acquire fund interests, while at the same time meeting other requirements specified by laws and regulations.
