Amended Commodity Exchange Act will change the face of commodity derivatives business in Japan | Practical Law

Amended Commodity Exchange Act will change the face of commodity derivatives business in Japan | Practical Law

This article is part of the PLC Global Finance September e-mail update for Japan.

Amended Commodity Exchange Act will change the face of commodity derivatives business in Japan

by Atsumi & Partners
Japan
This article is part of the PLC Global Finance September e-mail update for Japan.
Speedread

Speedread

A bill to amend the Commodity Exchange Act was enacted on 3 July 2009. The amendments provide the outline of a new regulatory framework for commodity derivatives business in Japan and the most notable changes are summarised here.

Amended Commodity Exchange Act will change the face of commodity derivatives business in Japan

A bill to amend the Commodity Exchange Act (Act No. 239 of 1950) was enacted on 3 July 2009. The purpose of the amendments, which provide the outline of a new regulatory framework for commodity derivatives business in Japan, is to secure the integrity and proper operation of such business.
Some of the notable amendments are set out below.

Title change

The title of Commodity Exchange Act will change to "Commodity Futures and Exchange Act".

Licensing for commodity exchange business regarding

The current Commodity Exchange Act regulates domestic commodity exchange transactions. It does not regulate OTC commodity derivatives transactions not referring to market prices on domestic commodity exchanges.
Although OTC transactions are regulated by other laws, no licence is required for any companies engaging in such transactions in Japan. However, the amendments will expand regulations on business in Japan regarding offshore commodity exchange transactions and OTC commodity derivative transactions that do not refer to market prices on domestic commodity exchanges.
As a result, foreign companies that intend to conduct the following types of business in Japan will be required to get the approval of the Minister responsible for the Ministry of Economy, Trade and Industry:
  • Acting as an intermediary, a broker or an agent for offshore commodity exchange transactions.
  • Entering into or performing OTC commodity derivative transactions, or acting as an intermediary, a broker or an agent for such OTC commodity derivative transaction, whether or not it refers to market prices in domestic commodity exchanges.

Commodity futures traders

Commodity futures traders will be subject to client protection regulations, such as:
  • Segregation of the clients' assets.
  • Restrictions on advertising.
  • Obligations of disclosure to clients.
  • Restrictions on compensation for losses.
  • Restrictions on net assets ratio.

Commodity Futures Intermediary

Commodity futures intermediaries will be subject to regulations such as prohibitions on holding the clients' assets, restrictions on advertising, obligations of disclosure to clients, and restrictions on compensation for losses.
The Amended Commodity Exchange Act will come into effect within a year and a half of 10 July 2009 and the details will be provided in a cabinet order before the effective date of the Amended Commodity Exchange Act.