Financial Reform in Japan Update #3: English Language Disclosures in Securities Registration Statements
This Client Alert is the third in a series of alerts concerning the amendments (the "Amendments") to the Financial Instruments and Exchange Law ("FIEL") of Japan promulgated on May 25, 2011. (See Financial Reform in Japan Update #1 and Financial Reform in Japan Update #2.)
This third alert concerns those provisions of the Amendments permitting the greater use of English language material by offshore issuers in certain registration filings made in connection with a public offering of securities in Japan.
Currently under the FIEL, any public offering of a security in Japan requires the issuer to file a securities registration statement (yukashouken todokedesho, "SRS") with respect to such offering, with the relevant finance bureau in Japan (typically the Kanto Local Finance Bureau of Japan for offshore issuers, the "KFB"). The SRS is an extensive disclosure document that provides information on both the issuer and the security itself including, among other things, basic corporate information about the issuer, information about the distributor, fees and expenses borne by the subscriber and material risks.
Furthermore, an issuer listed on a Japanese exchange or an issuer that has filed a SRS is required to issue a periodic report to the KFB (yukashouken houkokusho, a "Securities Report"). In the Securities Report, the issuer is required to update the information previously provided in the SRS, including financial information of the issuer.
Historically, both the SRS and the Securities Report were required to be submitted in Japanese. However, in 2008, the law was amended to permit certain portions of the Securities Report to be in English. The purpose of this amendment was to reduce the burden on foreign issuers by allowing them to replicate select English language disclosures used by such foreign issuer in a securities report as required in another jurisdiction for their Securities Report in Japan.
Despite this amendment permitting certain portions of the Securities Report to be in English, it is our understanding that only one foreign issuer to date has elected to do so.
One of the reasons for this lack of popularity is the fact that the portions of the Securities Report that could be submitted in English had already been submitted by the issuer in Japanese in its original SRS. Because of this, many offshore issuers find it easier to update their original Japanese language disclosure from the SRS rather than having to prepare new English disclosures for their periodic Securities Reports.
Furthermore, in the case where an issuer elects to submit a Securities Report that has English language disclosures, we understand that the KFB typically requires that the issuer submit a draft of such Securities Report at least one month prior to the due date of such Securities Report. As issuers generally only have three months to prepare the Securities Report after the end of their fiscal year, this additional review time required by the KFB makes it more difficult for issuers who decided to submit a Securities Report with English disclosures to meet the filing deadline.
The Amendments seek to address some of these concerns by permitting foreign issuers that meet certain requirements to submit a foreign company registration statement (gaikoku kaisha todokedesho, the "Foreign Issuer SRS") instead of an SRS in connection with a public offering in Japan.
The Foreign Issuer SRS consists of: (i) information in Japanese about the securities and the offering; and (ii) information in English about the issuer that has been disclosed in a foreign country ("Offshore Offering Material").
To supplement the Offshore Offering Material, certain additional documents ("Supplemental Documents") will be required to be submitted, including: (a) any supplemental information (in English or Japanese) required to be disclosed under the FIEL but not contained in the Offshore Offering Material; (b) a Japanese language summary of the Offshore Offering Material; and (c) a Japanese language comparison of the information required to be disclosed under the FIEL and the information required to be disclosed in the applicable foreign country.
By establishing this new Foreign Issuer SRS regime for offshore issuers, the Financial Services Agency seeks to ease the administrative burdens of preparing the Japanese language Securities Report while encouraging public offerings by offshore issuers in Japan.
Although it is unclear when the relevant Amendments and final regulations will become effective, the Amendments must become effective not later than one year after the promulgated day (i.e., May 25, 2012).
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