Recent developments on TOB rules and shareholding transparency in Japan

Introduction / Background

On May 15, 2024, the Diet of Japan passed a bill to amend the Financial Instruments and Exchange Act (FIEA). The amendments affect the takeover bid rules and regulations (TOB Rules) and the large shareholder reporting rules (Large Shareholder Reporting Rules), which are set out in the FIEA. The changes become effective on May 1, 2026 (Legislation Amendments).

The Legislation Amendments are based on the Report by the Working Group on Tender Offer Rule and Large Shareholding Reporting Rule of the Financial System Council established by the Financial Services Agency of Japan (the FSA) issued on December 25, 2023 (commonly referred to as the Tender Offer Rule Report).

The objectives of the Legislation Amendments are to:

• provide more fairness and transparency for listed companies and their holders of equity, through amendment of the TOB Rules; and
• further engage holders of equity in Japanese listed companies and facilitate dialogue between the holders and listed companies, through amendments to the Large Shareholder Reporting Rules.

To facilitate the implementation of the Legislation Amendments, on July 4, 2025, the FSA finalized the relevant FIEA Enforcement Order and the Cabinet Office Ordinance (Regulatory Amendments) with effect from the same effective date as that of the Legislative Amendment.

To enhance transparency regarding the identities of beneficial holders of shares of a listed company, a beneficial shareholder disclosure system is expected to be introduced through amendments to the Companies Act.

This article summarizes the key amendments to the FIEA Enforcement Order, the Cabinet Office Ordinance and the Companies Act.

References to “FIEA Amendments” below are to both the Legislative Amendments and the Regulatory Amendments. 

 

AMENDMENTS TO TOB RULES

The TOB Rules state that when acquiring listed shares could result in a material change in the control of a listed company, the acquisition must be conducted through a takeover bid (TOB) in accordance with the procedures prescribed under the TOB Rules.

However, unlike the regimes in the US and European jurisdictions, the TOB Rules (including the related reporting obligations) don’t apply to acquisitions effected through on-market purchases.¹

As a result, acquirers have been able to accumulate substantial positions in listed Japanese companies through successive on-market transactions. In doing so, they can obtain effective control of a listed company without conducting a TOB. This type of acquisition leaves the listed companies and their shareholders without timely information regarding impending changes of control. It may also deprive the other shareholders of a fair opportunity to make informed investment decisions.

To address this issue, when the FIEA Amendments come into effect:

• the requirement to conduct a TOB under the TOB Rules will also apply to the acquisition of shares through on-market transactions, in the same manner that the TOB Rules apply to off-market transactions; and

• the threshold for the mandatory conduct of a TOB will be reduced to 30%, from the current one-third of the total voting rights. This amendment reflects the fact that not all shareholders attend shareholders meetings and aligns Japan's threshold with those adopted in other jurisdictions.

 

AMENDMENTS TO FIEA ENFORCEMENT ORDER AND CABINET OFFICE ORDINANCE

Set out below are the amendments to the FIEA Enforcement Order and the Cabinet Office Ordinance that supplement the amendments made to the TOB Rules.

Expanded exemptions from TOB Rules

The FIEA Amendments introduce new exemptions from the TOB Rules. One of the notable exemptions permits differentiated pricing in a single TOB in limited circumstances.

Where a listed company has a major shareholder, an acquirer seeking to obtain all of the listed company's shares might want to leverage pricing dynamics by acquiring shares from the major shareholder at a discounted price and acquiring shares from the remaining shareholders at a premium.

Before the FIEA Amendments, the TOB Rules imposed a uniform pricing requirement that prohibited offering different prices to different shareholders in a single tender offer and a ban on purchases outside of a TOB. As a result, an acquirer wishing to purchase shares at different prices would have been required to conduct two TOBs: one to purchase shares from the major shareholder at a discounted price and a second to purchase shares from the remaining shareholders at a premium.

Following the FIEA Amendments, this prohibition has been relaxed. Purchasing from the major shareholder at a discount price outside of a TOB can now be done within a single TOB in limited circumstances, provided that the terms of the outside purchase agreement are disclosed to all shareholders. This revision is intended to facilitate more flexible transaction structures while preserving fairness and transparency in tender offer procedures.

Flexibility in the TOB process

The FIEA Amendments aim to introduce greater flexibility to Japan's tender offer regime. Key amendments are outlined below.

Withdrawal of tender offer

The FIEA Amendments broaden the circumstances under which an acquirer can withdraw a tender offer.

For example, before the FIEA Amendments, an acquirer could withdraw a tender offer if the listed company had adopted takeover defense measures before the commencement of the tender offer and the listed company continues to maintain those measures throughout the tender offer period.

Following the FIEA Amendments, an acquirer can also withdraw the tender offer if the listed company adopts new takeover defense measures after the commencement of the tender offer.

Reduction of tender offer price

The FIEA Amendments also expand the circumstances in which an acquirer can reduce the tender offer price during the offer period.

For example, if the listed company distributes dividends during the tender offer period, the acquirer can adjust the tender offer price downward to reflect the amount of such dividends.

Other amendments

Under the current TOB Rules, exemptions cannot be granted on a case-by-case basis. Following the FIEA Amendments, however, relevant authorities can waive certain regulatory requirements – such as the prohibition on extending the TOB period beyond 60 business days – after a case-specific request is submitted and approved.

 

LARGE SHAREHOLDING REPORTING RULE AMENDMENTS

Reporting obligations of large shareholders

A shareholder whose shareholding ratio in a listed company, as calculated under the FIEA, exceeds 5% is deemed a “large shareholder” and must file reports with the Local Finance Bureau as follows:

• a large shareholding report (Large Shareholding Report) must be submitted within five business days after the shareholder's ownership first exceeds 5%; and
• a change report (Change Report) must be submitted within five business days after any increase or decrease of 1% or more in the shareholder's ownership, measured from the most recent Large Shareholding Report or Change Report, as applicable.²

In calculating a shareholder's total shareholding percentage, the shareholding of any other person who:

1. has agreed to jointly acquire or transfer shares with the shareholder; or
2. has agreed to jointly exercise voting rights and other shareholder rights with the shareholder; or
3. otherwise has a certain relationship with the shareholder (eg parent company and subsidiary);

will be aggregated with the shareholder's own shareholding percentage for reporting purposes.

Because the determination of whether another party falls within (a), (b) or (c) above directly affects the large shareholder's reporting obligations, the FIEA Amendments revise the scope of substantive joint holders (items (a) and (b)) and deemed joint holders (item (c)).

Special reporting system

Financial institutions and institutional investors (collectively, Institutional Investors) that hold shares in listed companies can use the special reporting system (tokurei hokoku seido), provided they satisfy the eligibility requirements and apply for it.

Without this system, Institutional Investors would otherwise incur frequent reporting obligations as large shareholders under the FIEA, due to the nature of their investment activities. The special reporting system streamlines these obligations so that an Institutional Investor would need to file only two reports per month, submitted within five business days of either of the following reporting schedules selected by the Institutional Investor:

• the second and fourth Mondays of each month (or, in months with a fifth Monday, the second, fourth, and fifth Mondays); or
• the 15th calendar day and the last calendar day of every month.

To be eligible for the special reporting system, one of the conditions is that the Institutional Investor mustn’t acquire and hold shares in a listed company for the purpose of raising a “material proposal” to that company.

Below, we summarize the key FIEA Amendments that modify or clarify the scope of “material proposal,” the scope of substantive joint holders and the scope of deemed joint holders. These amendments are intended to enhance shareholder transparency and promote constructive engagement, while avoiding any increase in the reporting burden placed on large shareholders.

Amendments to scope of “material proposal”

Before FIEA Amendments, Institutional Investors may have refrained from engaging with a listed company or its other shareholders due to concerns that engagement could disqualify them from using the special reporting system.

To encourage broader engagement between Institutional Investors and listed companies, and with the companies' other holders, the FIEA Amendments amend (or otherwise clarify) the range of matters that constitute “material proposal.”

The Q&A issued by the FSA explaining the Large Shareholding Reporting System has also been amended.

“Material Proposal”

FIEA Enforcement Order

The list of items that constitute “material proposal,” as set out in the FIEA Enforcement Order, will be amended.

The amended list now includes proposals regarding the appointment of specific individuals as officers of the listed company. Conversely, proposals relating to the opening, changing or closing of branches and major departments of the listed company will be removed from the list.

Q&As

The Q&A guidance will also be revised to clarify which types of proposals fall within “material proposal.” The revisions will also introduce illustrative scenarios, accompanied by commentary, to help holders determine whether a given proposal would be deemed to be a “material proposal.”

These clarifications are intended to reduce uncertainty and facilitate greater engagement between holders and listed companies. By providing clearer standards, holders will be able to assess more confidently whether a contemplated proposal may be regarded as a “material proposal.” Where it doesn’t, holders can engage more freely with other holders and the listed company.

Under the new Q36, a holder's proposal will constitute a “material proposal” only if all of the following criteria are satisfied:

1. the proposal is made to the listed company (or its subsidiary);
2. the content of the proposal falls within the items set out in Article 14-8-2, Paragraph 1 of the FIEA Enforcement Order; and
3. the proposal is made with the intent to effect significant changes to, or have a substantial impact on, the listed company's business activities.

Among the items listed in Article 14-8-2, Paragraph 1 of the FIEA Enforcement Order, those generally viewed as falling within condition (c) above include proposals for the appointment of specific individuals nominated by the shareholder as officers of the listed company, as well as certain mergers and business transfer proposals.

Q36 provides additional clarification from the FSA regarding the application of the criteria above to specific types of holder conduct. The FSA's position on the following holder actions is summarized below.

Q36	Explanation
1. Requesting the listed company to explain its management policies (including policies related to governance, capital strategy, appointment and dismissal or nomination of management personnel, and shareholder returns)	This doesn’t constitute a material proposal if the shareholder requests only an explanation.
2. Provision by a shareholder of an explanation on its voting policy, the anticipated exercise of voting rights based on such policy, and policies regarding the retention or disposal of held shares	This doesn’t constitute a material proposal if the shareholder provides only an explanation.
3. Requesting the unwinding of cross-shareholdings held for policy purposes	A request in general terms and without identifying specific securities generally isn’t treated as a material proposal for the disposal of important assets.3 Where a holder specifically seeks the unwinding of identified cross-shareholding securities, whether the request constitutes a material proposal for disposal of important assets,4 will depend on several factors including: the book value of the shares the proportion of the shares relative to the issuer’s total assets the purpose for which the shares are held However, due to the inherent nature of cross-shareholdings, even requests identifying specific cross-shareholding securities will generally not be regarded as a material proposal for the “disposal of important assets.”
4. Requesting changes to the succession plan or nomination policy for the representative director	Proposals requesting the implementation of a succession plan for the representative director, or seeking changes to the policy regarding the nomination, appointment, or removal of the representative director, generally won’t be regarded as a material proposal for the selection or dismissal of the representative director, the appointment of officers by the proposing party or a person designated by the proposer, or a material change in the composition of officers.5 However, if the substance of the request effectively seeks the dismissal of the representative director, it may be treated as a material proposal for the dismissal of the representative director.
5. Requesting an increase in the number of independent directors, to the extent necessary for compliance with the principles of the Corporate Governance Code	Whether a request to increase the number of independent directors constitutes a material proposal will be assessed in light of the listed company's overall board composition and surrounding circumstances. Where compliance with the Corporate Governance Code can be achieved by increasing the number of independent outside directors, and the request merely seeks such an increase without identifying specific nominees, the proposal generally won’t be regarded as a material proposal for the appointment of officers by the proposer or a person designated by the proposer or for material change in the composition of officers.6
6. Requesting a review of the listed company’s business portfolio	A proposal requesting a review of the listed company's business portfolio – where the review contemplates a transfer, acquisition, suspension, or discontinuation of a business – will generally be treated as falling within the category of “transfer, acquisition, suspension, or discontinuation of business” which is a material proposal. However, the proposal will not be treated as a material proposal unless it also satisfies criteria (iii).

 

Amendment to scope of substantive joint holders

Under the FIEA, there are two categories of joint holders: substantive joint holders and deemed joint holders.

Shareholders will be treated as substantive joint holders if they hold shares of a listed company and have an agreement to jointly acquire, dispose of, or exercise voting or other shareholder rights. As noted above, where holders are substantive joint holders, their respective shareholding in the listed company are aggregated for the purpose of determining whether the large shareholder reporting thresholds have been met.

To promote holder dialogue and constructive engagement among holders, the FIEA will be amended so that not all holders will be treated as a substantive joint holder. This is to minimize the triggering of large shareholder reporting obligations. More particularly, holders will not be regarded as substantive joint holders if all of the following three conditions are met:

• all of the holders are persons engaged in Type 1 Financial Instruments Business or Investment Management Business (each as defined in the FIEA), banks, insurance companies, trust companies (including persons engaged in any of these businesses in foreign jurisdictions) or other persons specified by the relevant Cabinet Office Ordinance;
• the purpose of the agreement between the holders is not to make material proposals; and
• the purpose of the agreement between the holders is for joint exercise of voting rights on certain matters proposed at shareholder meetings on an ad hoc

Amendment to scope of deemed joint holder　

As with substantive joint holders, for reporting purposes, the shareholdings of deemed joint holders are aggregated to determine whether the large shareholder reporting thresholds have been met.

The categories of relationships that constitute a “deemed joint holder” are set out in the Cabinet Office Ordinance. Under the FIEA Amendments, these categories will be significantly expanded pursuant to corresponding amendments to the Cabinet Office Ordinance. This expansion reflects recent discussions regarding the practical difficulty of proving the existence of a relationship between two parties – in particular, the difficulty of evidencing a joint agreement between holders. This evidentiary hurdle in practice has impaired timely enforcement of the large shareholder reporting regime and created opportunities for holders to circumvent reporting obligations.

Against this backdrop, the purpose of the amendment isn’t the same as that of the amendment relating to substantive joint holders (which aims to encourage holder engagement).

The expansion of the deemed joint category is intended to combat evasion of large shareholder reporting obligations by capturing certain categorized relationships where coordinated conduct is likely, even in the absence of a provable agreement.

Under the amended framework following the FIEA Amendments, the expanded category of deemed joint holders will include:

• the relationship between a company and its representative individuals (eg representative directors);
• the relationship between multiple companies in the case where an individual serves as a representative of such multiple companies;⁷ and
• the relationship between a person and another person to whom the first-mentioned person provided funding to acquire shares.⁸

Equity derivatives (hidden ownership)

The FIEA Amendments will expand the scope of “holder” to include a holder of equity derivatives (including cash-settled) of shares of a listed company, if they hold the equity derivatives for the purpose of:

• acquiring the underlying shares from the derivative counterparty;
• making a material proposal to the listed company by presenting the position of the equity derivative; or
• influencing the voting rights held by the derivative counterparty over the listed company.

The FSA explained that this amendment was introduced to prevent a holder of equity derivatives that fall within the expanded scope above from evading the large shareholder reporting requirements, as the holder might have the potential power to influence the management of the listed company.

The FSA further explained that whether a holder has any of the purposes identified will be determined by looking into the substance behind its holding even where a holder isn’t granted a contractual right reflecting any such purpose under the relevant derivative contract terms.

Clarification of description in report format

The FIEA Amendments revise the format of Large Shareholding Report prescribed under the Cabinet Office Ordinance. For example, the amendments enhance the level of detail required for:

• the purpose of holding; and
• material agreements relating to the shares (such as collateral agreements).

Under the new format, the information to be provided will need to be more detailed and comprehensive. For example, where a holder has decided to increase the holding ratio by more than 5%, the holder must now specify details of the increased holding, including the timing, price, number of shares acquired, and the identity of the counterparties.⁹

The FIEA Amendments also require a holder to disclose in the Large Shareholding Report or Change Report any plan to increase its shareholding percentage in the listed company by more than 5% within the three months from the date of the event that triggered the reporting obligation.

Under the FIEA Amendments, a holder has to report, in the Large Shareholding Report or Change Report, the details of any material proposal if, at the time of submission of the report, the holder is making or plans to make any material proposal.

The purpose of these revisions is to enhance transparency in large shareholder activity and to combat evasion of reporting obligations by ensuring that material proposals and coordinated actions are captured more comprehensively. 

 

BENEFICIAL OWNERSHIP REPORTING

Stewardship Code

The FSA published Japan's Stewardship Code (the Stewardship Code) on February 26, 2014. The Stewardship Code sets out principles considered to be helpful for institutional investors to behave as responsible institutional investors in fulfilling their stewardship responsibilities with due regard both to their clients and beneficiaries and to investee companies. The Stewardship Code currently has been adopted by 344 institutional investors (as of June 30, 2025).

On the issue of transparency of beneficial shareholders, the Working Group on Tender Offer Rule and Large Shareholding Reporting Rule of Financial System Council of the FSA stated in the Tender Offer Rule Report that the relevant authorities should work on initiatives to develop appropriate rules, specifically calling on institutional investors to respond when issuer companies ask them about the status of their holdings. The Working Group stated that there should be principles of conduct for institutional investors to respond to and that subsequently, making the responses mandatory obligations should be considered.

Following the suggestions of the Financial System Council, the FSA amended the Stewardship Code to introduce the principle of beneficial ownership disclosure. Under the amended Stewardship Code, one of the principles states that “in order to support constructive dialogue with investee companies, institutional investors should, in response to requests from investee companies, explain how many shares they own/hold in the company and should disclose in advance a policy on how they will respond to such requests from investee companies.”

The FSA states as follows: “Institutional investors are expected to develop a policy, based on their situation, on how they will respond to requests from investee companies. For example, it may be appropriate for institutional investors to disclose the following items:

• the reference point in time for the response;
• frequency of possible responses;
• response time required;
• how to confirm the credibility of the inquirer; and
• other considerations and matters for inquiry.”

The necessity of an ecosystem to achieve efficient shareholding communication is well recognized and the Japan Bankers Association has already started discussions for its introduction.

Potential amendments to the Company Act

To address the suggestions of the Financial System Council, the Subcommittee of the Legislative Council of the Ministry of Justice started discussions on April 23, 2025, to introduce the mandatory disclosure of beneficial shareholders by amending the Companies Act.

Currently, listed companies can find the identity of beneficial shareholders only where they hold more than 5% of the shares. As the shares of listed companies are dematerialized, holders of the accounts held at Direct or Indirect Account Management Institutions of Book-Entry Transfer System for Shares, etc. administered by Japan Securities Depository Center, Inc. are recognized as the legal owners of the shares and information in the Book-Entry Transfer System is reflected in the shareholder register of listed companies.

If shares are held and registered by custodians, listed companies don’t have the information to know who actually has voting power for the shares beyond the custodian listed in the shareholder register. In practice, listed companies engage third-party investigation service companies to find out who the beneficial shareholders are, and the Financial System Council pointed out that it’s necessary to address this issue to promote dialogue between companies and shareholders/investors.

The Subcommittee of the Legislative Council is discussing whether or not a company is obligated to investigate the identity of the beneficial shareholders, whether a company will be empowered to ask who the beneficial shareholders are, and whether or not the shareholders who refuse or provide false information will have their voting rights suspended.

 

KEY TAKEAWAYS

These TOB rule amendments will reduce the mandatory threshold to 30% and include market transaction. These amendments will enhance fair treatment of shareholders in change of control transactions. The large shareholder reporting rule amendment will bring clarity and more shareholder engagement will be expected. With potential introduction of the shareholder disclosure system, these amendments will impact both Japanese companies and investors who invest in Japanese companies. We expect that with more transparency, more M&A transactions will be conducted.