US Stock Capital Market Reform through the Jobs Acts and Lazy Japan

Author Name TADOKORO Hajime (Research Institute of Economy, Trade and Industry)
Creation Date/NO. September 2020 20-P-022
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In this paper, we outline the series of capital market reforms instituted through the establishment of the JOBS Act in 2012 in the United States and its subsequent expansion, hereinafter called JOBS Acts, and compare and contrast the legal systems related to the structure of the US and Japanese equity capital markets.

The question is whether the Japanese equity capital market is functioning adequately as a medium for small and medium-sized enterprises and startups to raise capital. In the background, it is quite difficult for Japanese private unlisted companies to collect capital through private placements, to boldly invest in risky business ventures, or to grow based on equity finance, creating a sense of crisis.

Looking at the actual state of the stock / capital markets, in contrast to the multi-layered and decentralized structure of the United States, the structure of that of Japan has a highly concentrated on the Tokyo Stock Exchange, with the private market accounting for only a minimal size, including the over-the-counter market of unlisted stocks. Except for small scale institutions, the Japanese private stock market is almost nonexistent.

In the United States, with 13 stock exchanges at the top, the OTC (over-the-counter) market and intra-state market have spread far. There are public (listed) or private (unlisted) markets, and primary (issue) or secondary (distribution) markets, and these four types of markets (2x2) have developed, enabling companies to raise capital in accordance with their growth stage. Access to these markets has further improved and expanded with JOBS Acts.

Comparing and contrasting securities legislation shows that the factors that make up Japan's unique market structure are 1) a narrow range of exemptions from disclosure obligations that is comparable to stock exchanges, and 2) small scale with simple disclosure obligations within that range. Taken together, these factors indicate that the systems for public offerings with sinpmle and reduced-burden disclosure (Mini-IPOs), private placements, public or private resales of unlisted stocks with exemption of exacted disclosure obligation, etc., are underdeveloped in comparison to the US. Additional significant factors are 3) the range of qualified institutional investors who can invest in unlisted stocks is narrow, and 4) securities companies are prohibited from soliciting investment in unlisted stocks.