Name
Global FinTech Guide
Country _ Name
Japan
SectionTitle
Trading platforms/social trading platforms/signal following
Body
FinTechs belonging to this category operate trading platforms or online marketplaces for investment opportunities or certain financial contracts – e.g. securities, factoring etc. and sometimes furthermore provide contact to financial experts and tools for the decision-making.

FinTech-signalling and social trading platforms provide users with the opportunity to exchange opinions on financial investments and offer signal providers and traders the possibility to make their securities portfolio publicly visible. This way the portfolios can be linked to and followed by other traders via the platform automatically, so that the trading and investment strategy of the followed traders can be copied.

The platform often cooperates with a financial services provider or a credit institution where both the trader and the follower hold their securities accounts, and which execute the orders both of the trader and the follower and to which the platform passes on the trading decisions.

Introduction

Attitude of the country towards trading, social trading or signalling platforms

Business operators of social trading businesses are usually subject to the traditional regulations for financial instruments businesses.


Legal affairs

Obligations and requirements to provide trading, social trading or signalling platforms described above

Depending on the contents of the services being offered, necessary registrations and the requirements for these registrations differ.
If the business in question is merely the operation of a SNS as a platform for the exchange of information and opinions, it does not fall under the definition of a Financial Instruments Business.
If the platformer provides the value or other characteristics of securities or investment decisions based on an analysis of financial instruments and receives consideration from users in exchange, then registration as an "Investment Advisory and Agency Business" is required (Financial Instruments and Exchange Act (“FIEA”), Art. 28, para. 3). It should be noted that the advice may be evaluated as being provided by the platform operator, even if the advice is not from the operator itself, such as investment strategies from other users.

If the platform has the function of receiving and executing orders to purchase and sell securities or for derivatives trading, and the platform conducts these transactions, it falls under a Type-I Financial Instruments Business or Type-II Financial Instruments Business and is therefore required to register as such (FIEA, Arti. 28, paras. 1 and 2). The distinction between Type-I and Type-II Financial Instruments Businesses is made by the type of securities that they handle. When dealing with securities that are generally highly liquid, such as stocks, the business falls under a Type-I Financial Instruments Business. In a system where the platform executes orders for trading of securities or related instruments through affiliated securities firms and the platform acts as an intermediary for the purchase and sale of securities based on an entrustment from a Type-I Financial Instruments Business Operator or investment management business operator, then registration as a Financial Instruments Business is not required so long as the platform operator is registered as a Financial Instruments Intermediary Service Providers (FIEA, Art. 66).

If the platform operator manages user’s security investment assets based on a discretionary investment contract with the user, then registration as an “Investment Management Business” is required (FIEA, Art. 28, para. 4).

Where the platform has a function that automatically executes transactions that are completely identical to the individual transactions of other users (i.e. trade copying), the trader who is being copied must agree to be used by others and is compensated for doing so. In that case, if the platform and the copied trader are considered as a single entity, it will be found that the platform is managing user’s assets with the discretion to make investment decisions. In this case, it falls under the definition of Investment Management Business.

However, foreign securities companies are permitted to engage in certain securities-related businesses without registration in the following cases (proviso to Article 58-2 of the FIEA):

  • When acting from abroad toward financial institutions such as banks (FIEA Cabinet Order Article 17-3, Item 1);
  • When acting from abroad without solicitation, and
    • in response to orders from residents of Japan; or
    • through intermediation or agency by a Type I Financial Instruments Business Operator (Item 2); or
  • When negotiating the terms of an underwriting agreement for securities with the issuer or owner in Japan (Item 3).
Regarding the concept of "solicitation" in case ii-(a) above, the Financial Services Agency (FSA), in its “Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.” (the “Guidelines”), provides the following interpretation (X-1-2 of the Guidelines):

  • The posting by foreign securities companies of advertisements regarding activities concerning securities-related businesses on Web sites shall in principle be deemed to constitute a solicitation.
  • However, it shall not be deemed to constitute a solicitation aimed at investors in Japan as long as reasonable measures are taken to prevent the advertisement from leading to activities concerning securities-related business with investors in Japan as their transaction counterparts.
The above financial instruments business registrations have the following requirements:

  Type-I financial instrumentsbusiness Investment management business Type-II financial instruments business investment advisory and agency business
Minimum capital JPY50mil-3 bil JPY50mil JPY10mil N/A
Net asset requirement JPY50mil-3 bil JPY50mil N/A N/A
Capital adequacy requirement Capital adequacy ratio of 120% or more N/A N/A N/A
Human composition requirement x x x x
Requirements for establishing a domestic sales office, office and representative in Japan x x x N/A
Must be a legal entity of a certain form x x N/A N/A
Various other regulations and requirements are imposed on financial instruments business operators. Specifically, regulations include advertising, the principle of suitability, the obligation to explain to customers, and a host of various other prohibited acts. The principle of suitability means that a solicitation must not be inappropriate in light of the customer's knowledge, experience, financial situation, and the purpose of concluding the contract. In other words, the operator must not fail to protect investors.

Additional comments regarding the legal situation for trading, social trading or signalling platforms or what FinTech’s must be aware of in this business area

Spread of rumors, market manipulation, and similar actions are prohibited in the transactions of securities, derivatives, and related instruments (FIEA, Art. 159, para. 2, items ii and iii).

In addition, when a person indicates to the public an opinion which conveys his or her decision regarding investment in securities and similar instruments in exchange for consideration received from the issuers, that person shall also indicate that they are receiving consideration (FIEA, Art. 169).

As these regulations apply to FinTechs belonging to this category as well, they need to pay attention not to violate these regulations in operation of the business, and also need to be careful in drafting the terms of service so that users do not commit any violations.


Economic conditions

Market size for trading, social trading or signalling platforms and biggest companies in this business area
In Japan, "copy trade type" social trading services exist for FX and binary options provided by TRADERS SECURITIES CO., LTD. and other similar services; however, this type of business is uncommon in Japan.

Additional comments regarding the economic situation for trading, social trading or signalling platforms or what FinTech’s must be aware of in this business area

N/A



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