Japan has rules (below the ‘5% Rule’) requiring the public disclosure of the acquisition of large shareholdings (broadly, those crossing a 5% shareholding of controlling interests) in companies listed on Japanese exchanges. The shareholder concerned must file a Large Shareholding Reports (below a ‘5% Rule Report’; 大量保有報告書 – Tairyō Hoyū Hōkokusho)
1 Basic rule
Any person or entity (including parties acting in concert, considered “joint holders”) whose Shareholding Ratio (株券等保有割合 – kabukentō hoyū wariai) in a listed company exceeds 5% must file a Large Shareholding Report (大量保有報告書 – Tairyō Hoyū Hōkokusho)
The Shareholding Ratio calculation includes not just shares owned directly, but also shares held indirectly (e.g., through subsidiaries), shares subject to options or convertible bonds (calculated as if converted/exercised), and shares held under specific agreements (e.g., lending, discretionary investment mandates) and can include other instruments that conver or might confer control rights (see below for more details).
2 Obligation
The obligation to file the 5% Rule Report lies with the shareholder who acquired the shares in the listed company; monetary and administrative penalties can apply for either late or incorrect filings. Such penalties include up to one one hundred-thousandth of the market capitalisation of the shares concerned and imprisonment for up to five years.
3 Filing Deadline
The report must be filed with the relevant Local Finance Bureau via EDINET (Japan’s electronic disclosure system) within 5 business days from the day following the date the 5% threshold was crossed (the “base date”). Copies are also sent to the issuer company and the stock exchange(s) where it’s listed.
Paper filing of the 5% Rule Report is not possible. EDINET publishes a guide to the filing process in Japanese.
4 Content
The report details the identity of the holder(s), the number of shares held, the percentage, the purpose of holding (e.g., pure investment, influencing management), and details of recent transactions.
5 Follow up
Certain subsequent changes must also be notified via EDINET. In particular a ’Change Report (変更報告書 – Henkō Hōkokusho) must be filed within 5 business days if the Shareholding Ratio increases or decreases by 1% or more or there are material changes in the information previously reported (e.g., change in holding purpose, change in the identity of joint holders).
6 Scope
Attention should be paid to a number of relevant scopes. In particular these are the scope of companies the transaction in the shares of which the 5% Rule applies, the scope of securities which are included in calculating the Shareholding Ratio to see if 5% is exceeded and the geographic scope of the rules.
6.1 Companies within the scope of the 5% Rule
The reporting obligation applies to holdings in issuers of listed shares (shares listed on a Japanese stock exchange) and certain other publicly offered securities (e.g., issuers who have previously filed annual securities reports even if currently unlisted).
Generally, the 5% Rule does not apply to holdings in purely privately held companies (companies whose shares are not listed and who are not otherwise subject to FIEA’s continuous disclosure requirements).
6.2 Scope of securities included in the 5% Rule Shareholding Ratio
The calculation includes a broad range of instruments linked to the issuer: – Voting shares (held directly or indirectly) – Share acquisition rights (warrants) – Bonds with share acquisition rights (convertible bonds) – Other securities specified by Cabinet Order that can potentially convert into or represent voting shares. – Shares held under certain agreements (lending, discretionary investment mandates, acting in concert).
6.3 Geographic Scope
The rules apply to holdings in qualifying Japanese issuers (companies incorporated in Japan whose shares are listed etc.) and also potentially to holdings in foreign companies if their shares are listed on a Japanese exchange.
7 Sources
These rules originate in the Japanese securities law rather than exchange regulations, with the basic rules appearing in Articles 27-23 through to 27-30 of the Financial Instruments and Exchange Act (below the ‘FIEA’ – 金融商品取引法, Kin’yū Shōhin Torihiki Hō) and more detailed definitions in the Cabinet Order Concerning Disclosure of Status of Large Volume Holdings in Share Certificates, etc. (below the ’5% Order – 株券等の大量保有の状況の開示に関する内閣府令, Kabukentō no Tairyō Hoyū no Jōkyō no Kaiji ni Kansuru Naikaku-fu Rei).
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