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In response to the recent global financial crisis, there have been various discussions held in Japan and overseas on such topics as over-the-counter (OTC) derivative transactions, hedge funds and short selling.

In view of these discussions and the actual condition of Japan’s markets, the Financial Services Agency (FSA) decided to commence a detailed examination on the issues that Japan should address early next year. Based on a fact-finding survey, the FSA has compiled the “Draft Blueprint for the Development of Institutional Frameworks Pertaining to Financial and Capital Markets” as shown below:

Hedge fund regulation

1. Expansion of the scope of registration Under the Financial Instruments and Exchange Act (FIEA), regulation is imposed on hedge fund managers as registered discretionary investment managers and as registered investment trust managers. Given that no collective investment schemes for professionals, which are subject to a notification system, has not been confirmed at present as falling under the category of hedge funds which could entail systemic risk, there seems to be no need to change the regulation to make them subject to registration.

The style of investment management where foreign investment trusts marketed to Japanese investors are set up and given instructions directly from within Japan are not covered by the current FIEA. However, since such investment management can be found in Japan, albeit infrequently, it should also be s......................

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