Update on discussions in the Financial Services Agency’s Working Group (WG) for Large Shareholding Reporting Rule(Nov.).

The WG is discussing amendment for Enforcement of Large Shareholding Reporting Rule.

Summary
Most members of the WG believe that enforcement for the large shareholding reports should be strengthened. One of the possible sanction is suspending voting rights.

Discussion
There have been many cases of violation of large shareholding reports. The number of cases of non-submission or late submission is more than 10% of the cases where submission is required as below.

Submitted major shareholding reports 14,000 case/ year
Cases of non-submission/late submission 1,500 cases/ year
Cases of surcharge payment order 8 cases/ year

Opinions of WG members
- The surcharge payment order doesn't work well. The method of suspending voting rights should be adopted. The suspending voting rights is generally adopted in other jurisdictions, and Japan should learn from it.
- The number of surcharge payment orders issued is too low compared to the number of violations.
- Severe sanctions should be imposed in cases of intentional violations and in cases where the same mistakes are repeated.
- Delayed changes in the “Purpose of Holding” should be punished in the same way.
- In cases where a investor violates the large shareholding reporting rule and then moves to acquire control through a tender offer, the tender offer should be enjoined.
- If a investor who benefits from special report exemption violates the large shareholding reporting rule, the benefit should be prohibited for a certain period of time.