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Regulations on Derivative Business

Prior to the amendment, there were no clear laws and regulations regarding crypto asset derivatives. However, due to the amendment of the law, it has been clearly stated that trading in crypto asset derivatives as a business falls under the category of financial instruments business. In relation to this, the following five points are needed to be kept in mind.

 

The contents of regulations on derivative business

In the following sections, the main points regarding these five regulations will be summarized.

A) Registration as a Type 1 financial transaction business is now mandatory.

Until now, there have been no clear laws and regulations regarding crypto asset derivatives. However, due to the amendment of the law, it has been clearly defined that conducting crypto asset derivative transactions as a business is now regarded as a financial transaction business, and registration as a Type 1 financial transaction business is mandatory. In addition, with respect to the "specific business contents" under Financial Instruments and Exchange Law, for example, when a person who is already registered as a financial instruments business operator intends to handle crypto-asset derivatives transactions, prior notification is required for the name of the new crypto-asset or financial index to be handled.

B) Business management system needs to be strengthened.

Due to the amendment of the law, a business management system is required to ensure that business operations do not fall into a situation that is contrary to the public interest or that may hinder the protection of investors.

Two specific business management systems are listed below.

1. Prevention of unfair acts by customers, such as fraud, spread of rumors, and market manipulation

2. Adequate control system for loss-cutting
 

C) Methods of displaying advertisements and providing information to customers.

Please refer to "Regulations on Exchange Service Providers, Part D"

 

D) Leverage is now capped at 2x.(Upper Limit)

According to the amendment of the law, the maximum leverage is set at 2x as a margin regulation.

 

E) The requirements for submitting securities reports and the content of disclosure have been made clear.

1.Requirements for private placement of electronic record transfer rights.

There are three types of private placements: private placements for qualified institutional investors, small private placements, and private placements for specific investors.

Out of these, qualified institutional investors’ private placements and small private placements will be required to take resale restrictions on electronic record transfer rights.


2.Requirements for submission of investment security reports

Under the right of electronic record transfer, the obligation to file an investment security report arises in the following two cases.

・When the obligation to submit a security registration statement arises due to the conduct of an "offering" or "secondary offering," etc.

・When there is more than a certain number of owners of the right to transfer electronic records (so-called "external standards")


3.Contents of disclosure in investment security reports

The content of disclosure in the reports will vary depending on whether the securities are classified as "specified securities

 

Reference

Article(How will the Blockchain Industry change with the Amended Payment Service Act enacted on May 1, 2020) from ZeLo on May. 8, 2020

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