Trading participants (broker-dealers qualified to access directly the trading platforms of Tokyo Stock Exchange or Osaka Exchange) act as intermediaries for investors to place orders to the exchange and they serve a vital role in maintaining confidence in the exchange market through their securities operations.
In accordance with exchange rules, Japan Exchange Regulation (JPX-R) conducts the following operations in relation to trading participants:
- Examining eligibility for admission as trading participant
- Inspection of trading participant compliance with laws and regulations
- Issuing warnings and deciding disciplinary actions as needed
Trading Participant Admission Process
In consideration of the importance of maintaining high standards in the exchange market, trading participants are expected to contribute to fair price formation and ensure smooth trading. JPX-R examines applicants based on the following criteria:
Trading Participant Qualification Criteria (where the applicant is a financial instruments business operator)
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Financial Criteria
・Capital of at least JPY 300 million
・Net assets of at least JPY 500 million and an amount greater than capital
・Capital-to-risk ratio exceeding 200%
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Operational Criteria
・Sound management structure
・Order placement, execution, and clearing and settlement systems that contribute to fair and smooth trading
・Appropriate internal management system (compliance with laws and regulations, risk management, development of rules, etc.)
JPX-R conducts the examination based on documents, hearings, on-site inspections of internal management systems at headquarters and branch offices, and interviews with senior executives (president, CEO, etc.), in accordance with these business criteria.
Inspection of Trading Participants
JPX-R conducts inspections of trading participants to assess their compliance with laws and regulations. This is an integral part of our efforts to ensure the fairness and integrity of the market.
As described in the table below, there are several types of inspections: general inspection, follow-up inspection and special inspection. These inspections are conducted on-site or through document-based inspections.
Types of Inspections
| |
Description |
| General Inspection |
JPX-R inspects trading participants considering factors such as the results of past inspections, results of SESC (Securities and Exchange Surveillance Commission) inspections, and time since last inspection.
JPX-R conducts joint on-site inspections of trading participants' headquarters and branch offices together with the Japan Securities Dealers Association and other securities exchanges. |
| Follow-up Inspection |
After an inspection is completed, follow-up inspections are conducted as needed within one year to confirm whether the trading participant has remedied the deficiencies identified in the previous inspection. |
| Special Inspection |
Special inspections are conducted using a variety of information with a focus on specific items. |
Inspection Methods
| |
Description |
| On-site Inspection |
JPX-R conducts on-site inspections at trading participants' headquarters or other branch offices. The majority of inspections are on-site inspections. |
| Document Inspection |
When JPX-R deems that the inspection based on documents submitted by a trading participant are sufficient, then inspections are carried out based on just the documents without visiting trading participants' offices. |
Inspection Procedure
The inspection process consists of the following steps: selection of trading participants - preliminary survey - on-site inspection - review and decision - feedback - measures - aftercare.
- Off-site monitoring
JPX-R continuously monitors the financial conditions of trading participants based on their accounting reports.
Appeal System
JPX-R provides an appeal system in order to maintain and improve the transparency of the inspection process.
Under this system, if the trading participant subject to the inspection disagrees with any findings, it may submit a written appeal to JPX-R regarding the matter in question.
Disciplinary Actions
JPX-R determines exchanges' disciplinary actions against trading participants for violations of laws and regulations. These actions include fines, censure, trading suspension, and limiting or canceling trading qualifications.
JPX-R determines disciplinary actions after consultation with the disciplinary committee, an advisory body to the JPX-R board.
- Click here for Points of Consideration in Deciding Disciplinary Actions.
Disciplinary Proceedings
Trading Participants Examination & Inspection Department
The Trading Participants Examination and Inspection Department in JPX-R carries out the following functions:
- Trading participant on-boarding examination
- Trading participant inspection
- Trading Participant off-site monitoring
- Determination of contents of disciplinary actions against trading participants
The department consists of the following four groups:
| General Administration Group |
- Rule-making and planning regarding inspections
- Determining disciplinary actions if trading participants are found to have violated laws and regulations, etc.
|
| Information Analysis Group |
- Inspection data collection and analysis as well as examination of inspection results
- Publishing a collection of case studies to introduce interpretations of the laws, rules and regulations
- Responses to inquiries from trading participants and other related parties about laws and regulations, etc.
- Support for compliance with laws and regulations including dispatching lecturers for compliance training courses held by trading participants
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| Examination and Monitoring Group |
- Examination of applications for acquiring trading qualifications, etc.
- Examinations of reorganizations such as mergers
- Off-site monitoring of business operations and financial situation
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| Inspection Group |
- Inspection of trading participants' compliance with laws and regulations, as well as internal risk management conditions
|
Compliance Support
The Trading Participants Examination and Inspection Department performs various activities to support trading participant compliance with laws and regulations.
| Seminars for Inspection Staff at Trading Participants |
JPX-R holds information sessions to explain the cases of violations identified during inspections. These sessions are targeted to inspection staff at trading participants. |
| Compliance Seminars |
In response to trading participant requests, JPX-R sends staff to hold information sessions on compliance. These sessions are designed to help achieve compliance with laws and regulations. The contents of the seminars are determined based on the individual request of the trading participant. The sessions are targeted at trading participant executives and employees and provide specific examples of violations and how to prevent them. |
| Publication of the Case Study Handbook |
The Trading Participants Examination and Inspection Department gathers information on compliance through inspections and questions from trading participants. These examples are summarized and compiled in a question-and-answer format into a case study handbook. |
Cooperation with Other Regulators
In order for effective inspections, the Trading Participants Examination and Inspection Department cooperates with several regulators to exchange information related to inspections.
| Reports to the SESC |
- Reporting the results of each inspection, in addition to regular reports
- Sharing inspection plans
- Information sharing on important points and items to be investigated
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| Regular meetings for information exchange |
- Quarterly meetings are held to exchange of inspection related information, etc.
- Representative supervisors from the inspection departments of the Financial Services Agency, the Securities and Exchange Surveillance Commission, Local Finance Bureau and Japan Securities Dealers Association attend the meetings
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| Joint inspections with other self-regulatory organizations |
- In order to enhance the effectiveness of inspections, JPX-R conducts joint inspections with the Japan Securities Dealers Association and other securities exchanges.
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