Japan, in contrast to the u s , is a country where the public regulator over securities markets is not independent from the government. Japan has gone through consecutive refonns o f the public regulation system overseeing securities markets. Initially an independent agency modeled after the SEC o f the us, the .ỉapan Securities and Exchange Commission vvas established in May 1948. In 1952, the Com m ission vvas C o n so lid a te d into Ihe Financial M anagem ent Bureau, vvhich beloneied to the Ministry o f Pinance. Since the role o f the securities market in Japan had bccn increasingly important in the national economy, a separate bureau had become much in demand. As a result, in June 1964, the Securities Bureau vvas set up.
The Securities Bureau is one o f the seven internal units o f the M inistry o f Pinance - the actual regulator o f Japan’s securities markets. Since its birth, the Bureau assists the Ministry o f Pinance by carrying out supervisory and adm inistrative activities over the securities industry. Its functions are similar to
531 Ibid, 2 8 8 - 2 8 9 .
532 S e e T h o m a s Lee Hazen, a b o v e n. 3 0 1 , 10.
S e e Jonathan R. M a c ey , “ Administrative A g e n c y O b s o le s c e n c e and Interest Group Pormation: A C ase Study o f the SE C at S ix ty ”, ( 1 9 9 4 ) 15 C a rcỉo io Lcrw R eview 9 0 9 , 921 - 925, 93 3 - 9 3 6 . In th is article, the author d o e s not speciH cally criticize the in d e pendence o f the SEC.
Rather he cr itic iz es the SEC's o b s o l e s c e n c e when the u s securities industry has undergone various c h a n g e s . He mainlains Ihat tiic existe n ce o f the SEC is no longer required in sucli cir c u m sta n c e s.
534 S e e Japan S e c u r itie s Research Instilute, abovc n. 3 9 8 , 27 8 - 279.
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those o f the us Securities and Exchange Commission, although it is not an independent regulatory agency. Such functions include (1) licensing for stock exchanges, for securities fírms and for securities investment trusts; (2) supervising these exchanges and entities, as vvell as their business associations;
(3) exam ining the securities registration; (4) establishing corporate accounting standards; (5) supervising public accountants and auditing corporations.535
The Securities and Exchange Council is another important assistant o f the M inistry o f Finance. T he Council, established in August 1952, acts as an advisory body. It studies problem s concerning the issuance, trading and other securities transactions that arise in the securities markets and then recom m ends necessary m easures to the M inistry o f F inance.536
Such a public regulatory system overseeing Japanese securilies markets did not generate expected outcomes. A number o f problems concerning market manipulation, íraud and unfair trading frequently occuưed. It w as claimed that most o f the problem s stem m ed from the íầilures o f the Ministry o f Finance in eníbrcing securities law .537 For this reason, a number o f proposals were made to reform the public regulatory system in Japan.538 The reform, at last, resulted in the birth o f the Securities and E xchange Surveillance Commission (SESC) in .ĩuly 20, 1992, a vvatchdog agency independent from the securities m arket regulators.539 It is necessary to emphasize that the Ministry o f Finance is allowed to carry out the same tasks as Ihose o f the SESC. Consequently, the SESC has to observe what the Ministry has done in order to avoid overlaps. v|() Because o ftliis íầct, it is hard to say thai Ihe SESC is entirely independent from the Ministry o f Pinance.
T he SESC is an external bureau o l'th e Ministry o f Pinance, headed by a chairman vvho is, in turn, assisted by tvvo commissioners. AU are appointed by the Pinancc M inister vvith the approval o f both Houses o f the D ie t.541 T heir tenn o f Service is three years and they can only he removed from oíTice for extraordinary rcasons. T he operational 2,oals o f the Commission arc to ensure the fairness and inteôrity o f the securities market and to protect investors. With such aims, the SESC is delegated povvers by the Minislry ol' Pinance such as (1) criminal
S e e N i c o l e J. R a m sa y, a b o v e 11. 5 0 4 , 268.
S e e Japan S ec u ritie s R esearch Institute, above n. 398, 281 - 282.
5 7 S e e N i c o l e J. R a m s a y , a b o v e n. 5 0 4 , 271.
538 Ibid, 281.
5 } S e e Japan S e c u r itie s Research Institute, above 11. 3 9 8 , 284; see also Curtis J. M ilhaupt, above n 31 K 4 6 8 - 471.
U) S e e G reuory D. Ruback, a b o v c 11. 5 0 5 , 212.
v| S e e M in is ir v ()f'Financ'C E sla h lisln ìicn i La\v (Japan) Art. ỉ 0.1 & I 1.1.
169
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investigations o f irregularities; (2) inspection and m onitoring o f securities trading including securities transactions engaged in by .ĩapanese b an k s.542 The SESC, however, does not have pow er to take eníbrcem ent action on its own initiative.
W here evidence o f violation o f either the securities law or regulations is found, the SESC cannot prosecute criminal offences, nor can it im pose administrative sanctions. The SESC, in such a case, will have to make a formal accusation to the Public Prosecutors Office 01' recom m end administrative sanctions to the Minister o f Finance. The M inister o f Finance, pursuant to the law, must respect the recom m endations o f the SESC, although the Minister does not have to act on thêm
Curtis Milhaupt, in exam ining the roles o f the S E S C ,'p o in ts out some weaknesses o f the SESC that result from its legal structure. First, the SESC does not only laclc enforcem ent capability vvhere violations are found, but also lacks administrative powers. Secondly, the SESC does not have authority to act as a rule-maker and administrative adjudicator. Milhaupt then concludes that the SESC does not have enough independence in acting as a m arket oversight agency.
He further contends that the success o f securities regulatory reform in Japan greatly depends ơn w hether or not the SESC's independence is suffícient. Such independence is o f im portance since it can enable the agency to accom plish its tasks as a vvatchdog over securities markets.544
The recently revised version oỉ the Securities a n d E xchange Law o f Japan seems lo lay dovvn an even more complcx system o f public regulators over securities markets. Public issuing can only be made after the issuer has íìled a registration vvitli the Prime M inister.545 Persons who seek to engage in securities business also iĩle registratíon vvith the Prime Minister.546 T h e Prime M inister is also responsible for granting the authorization on w hich a securities đealers association can be ío u n d e d ;547 and for granting a license on vvhich a securities exchange can be sct up.548 This provision gives Ihe im pression that the Japanese Prime Minister is tunctionine. as a sinele market w atchdog over lapanese
vi: Sec Jap a n Securilies Reseanch Instilute, a b o v e n. 398, 2 8 5 - 2 8 7 ; s e e also Curtis Milhaupt, above n. 3 1 1, 470.
Japanese banks have increasi ngl y been involved in securities busi ne ss recently. For íurther iníbrmation, s e e Section II, S ub- s e c t i on 2, Chapter IV o f this paper.
Ibid (Curlis Milhaupt), 471.
544 Ibid, 4 7 4 - 475.
545 See Art. 4.
54> See Arts. 2 8 - 2 , 28-3 & 28-4.
547 Se e A r t s . 6 8 & 70.
54S Se e Arts. 80, K2 & 83.
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securities markets. However, if one scrutinizes relevant articles embodied in the Lavv, one will note that the Prime Minister is not acting on his/her own but in m any cases can delegate povvers to another person such as the Director General o f the Pinancial Services Agency who, in turn, can delegate the delegated powers to the S E S C .549 The SESC has become a component o f the Financial Service A gency since June 1998.550 The involvement o f the Ministry o f Pinance beside the Prime M iuister can also be seen in the interrogation process conducted pursuant to the Securỉíies a n d Exchange L aw .55ỉ