The FSA updated its survey on hedge funds. Survey contents cover the amounts of hedge funds held by the surveyed companies as of March 31, 2006, and the amounts of hedge funds which the surveyed companies had established or distributed during the one-year survey period from April 1, 2005 to March 31, 2006.
There is no regulation and supervision tailored to hedge funds in Japan. However, the FSA, under its general regulatory framework, closely monitor the activities of hedge funds in light of investor protection, market integrity and systemic risk.
Investor Protection
In case of hedge funds in form of investment trust and discretionary investment, securities companies and registered financial institutions who solicit and distribute hedge funds and investment trust managers and authorized investment advisors who conduct investment management of hedge funds shall comply with the numerous codes of conducts under the laws and related regulations. The FSA shall take appropriate measures if it finds any problems by way of the inspection and supervision of the companies and personnel.
Under the Financial Instrument and Exchange Law which will be implemented around the summer of 2007, several new treatments for investor protections will be introduced by including wide range of the interest of funds into the definition of the ‘deemed securities’. Specifically, companies or persons who distribute or solicit the interest of funds and companies or persons who manage hedge funds assets shall register with the FSA.
Market Integrity
In light of market transparency and fairness, the oversight and investigation are conducted over the market participants, including hedge funds, so as to detect and prevent market abuses such as insider trading and stock price manipulation. Since most of the hedge funds are established overseas, it might entail practical difficulty to apply domestic laws to their activities. In this regard, the FSA has further strengthened bilateral and multilateral cooperative ties among regulators, including IOSCO.
As regards cooperation with overseas regulators, the UK Financial Services Authority (UKFSA) imposed a financial penalty against GLG Partners L.P. (a UK hedge fund) and its former managing director for market abuses involving securities traded in the Japanese market based on the cooperation of investigation between Japan and the UK, such as information provisions.
Systemic Risk
The FSA conducts inspections to check whether financial institutions are implementing adequate risk management and asset evaluations of investment products, including hedge funds. The FSA shall take appropriate measures if it finds any problems through the inspection and supervision of the financial institutions. Under the new capital adequacy requirements (Basel II), which was implemented at the end of March 2007, risks will be weighted according to the funds contents and if the financial institutions cannot ascertain the contents of the fund, the financial institutions are required to hold more net assets than the previous requirements.
Survey update March 2007
Survey December 2005
© FSA Japan
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article