On 14 February 2017, amendments to the securities disclosure regulations on continuous disclosure requirements for listed companies in Japan were published and came into immediate effect. Under the Japanese disclosure framework, companies listed on a securities exchange in Japan are required to comply with disclosure obligations under two separate rules. The first is under the Financial Instruments and Exchange Act of Japan (FIEA) and the second is under the listing regulation of the Tokyo Stock Exchange (TSE). Each set of rules requires listed companies in Japan to prepare and disclose similar information but in different formats, and this incurs significant time and cost. The amendments seek to streamline and rationalize these rules.
Disclosure under the FIEA
Under the FIEA, a company listed on the TSE is required to prepare and disclose the following:
- Annual securities report (Yuukashouken Houkokusyo)
- Quarterly reports (Shihanki Houkokusyo)
- Extraordinary report (Rinji Houkokusyo)
The annual securities report and quarterly reports include both the business results for the year and quarter, respectively, and the company’s financial statements. An extraordinary report is required in respect of any disclosure decision or upon the occurrence of any important matter that would affect an investment decision.
Disclosure under the Listing Regulation
Under the listing regulation of the TSE, a company listed on the TSE is required to prepare and disclose the following:
- Annual earnings report (Kessan Tanshin)
- Quarterly earnings reports (Shihanki Kessan Tanshin)
- Timely disclosure report (Tekiji-Kaiji)
The annual and quarterly earnings reports include a summary of the company’s business results and financial statements and, although similar to the content requirements of the FIEA’s annual and quarterly reports, they must be prepared under the TSE’s prescribed format. The TSE’s timely disclosure report is also very similar to the FIEA’s extraordinary report and is required in respect of any disclosure decision or upon the occurrence of any important matter that would affect an investment decision.
Although similar information will be disclosed under the FIEA and the listing regulation of the TSE, the format of each of the disclosure documents under the respective regime is completely different. It takes a significant amount of time and incurs additional costs to convert a disclosure document under the TSE regulations to the FIEA’s requirements.
In order to address this issue, the council of the Financial Services Agency of Japan has been discussing how to streamline disclosure and integrate certain disclosure items in the FIEA and the TSE reports. On 14 February 2017, the council published with immediate effect the first set of amendments to Japanese securities regulations relating to this. The following changes were made:
- “business policies/strategies” are now only required to be disclosed in the annual securities report and quarterly reports under the FIEA regime;
- if a company sets targets for its management in order to benchmark performance levels, for example, a specified increase in sales revenue, such targets and the management’s success in attaining these are now only required to be disclosed in the annual securities report and quarterly reports prepared under the FIEA regime; and
- any important changes to the business policies/strategies and the management’s performance targets are now only required to be disclosed in the quarterly reports prepared under the FIEA regime.
It is expected that further streamlining and rationalization will be discussed by the council and further amendments will be announced in the future.