Necessity of Self-Regulatory Operations
Japan Exchange Regulation (JPX-R) conducts self-regulatory operations based on entrustment from Tokyo Stock Exchange and Osaka Exchange. This arrangement ensures independent and effective self-regulation that is vital for financial instruments exchanges.
Self-regulation by Financial Instruments Exchanges
Self-regulation generally refers to persons or organizations in the same industry forming a private sector body to establish a set of rules for the purpose of facilitating business and maintaining discipline.
While the nature of self-regulation means that it can exist both within and outside the provisions of laws, in Japan, the Financial Instruments and Exchange Act defines self-regulation as an obligation to be fulfilled by financial instruments exchanges due to their role and mission in ensuring fair trading in the markets and protecting investors.
Merits of Self-regulation by Financial Instruments Exchanges
The key merits of self-regulation by financial instruments exchanges are described below.
- Rapid and Effective Regulation on the Ground
The exchange market is in constant flux, open to both the investment decisions of the general public trading listed securities and the various circumstances surrounding the market. As such, self-regulation in close proximity to the market and leveraging industrial expertise is the most efficient and effective approach for exchange markets.
- Complementary Functions of Statutory Regulation
Self-regulation can achieve more focused and adaptable regulation in response to actual market developments, compared with statutory regulation. Self-regulation can also set market-wide standards at a level higher than statutory regulation. This will further enhance the fairness and reliability of the market.
- Prevention of Unfair Activities
Identifying unfair activities early to prevent legal violations and taking appropriate corrective and punitive action is vital for a fair and reliable market. Exchanges can take swift and appropriate preventive action through close communications with market participants.
Japan Exchange Group (JPX) established JPX-R as a separate self-regulatory organization dedicated to ensuring neutral and effective self-regulation of JPX markets and entrusts self-regulatory operations of the market to JPX-R.