Cabinet Office Ordinance No. 40 "Cabinet Office Ordinance for Partial Amendment of the Cabinet Office Ordinance on the Disclosure of Corporate Affairs, etc. and the Cabinet Office Ordinance on Restrictions on Securities Transactions, etc." was promulgated and came into force on July 14, 2017 ("Amendment").
As a result of the Amendment, if a company allocates restricted stock, performance shares, or stock compensation (meaning a fixed number of shares that will be allocated as remuneration during a specified period.) to the company's or its affiliate's officers, among others, as remuneration after the effective date of the Amendment, then: (i) it is unnecessary to describe in the securities registration statement for such allocation the "matters to be specially mentioned in the case of a third-party allocation" (for instance, a description of the third party that will receive the allocation, the relationship between the company and the third party, the reason for selecting the third party, and the number of shares to be allocated); and (ii) Sale and Purchase Report Submissions and Claims for the Restitution of Profits from Short-term Sales and Purchases do not apply to such allocation.
As for (i) above, the 2016 amendment to the Cabinet Office Ordinance on the Disclosure of Corporate Affairs, etc. already made it unnecessary to describe "matters to be specially mentioned in the case of a third-party allocation" in the case of restricted stock being allocated to officers, among others, as remuneration. Now, however, the Amendment has expanded the scope of the exemption to cover the general case of directly allocating shares to such individuals as remuneration or salary.
As for (ii) above, the exemption of Submissions and Claims for Restitution reduces the burdens associated with the receipt by officers of a listed company, among others, of an allocation of the shares of the listed company as remuneration and eliminates the risk of an interpretation stating that short-term profits arising from the transfer of allocated shares must be returned to the listed company or other entities.
The Amendment will more easily enable companies to allocate shares to their officers and others as incentive compensation and will improve the flexibility of remuneration payments. The Amendment will therefore motivate foreign and Japanese companies to review their systems of remuneration to their officers, among other individuals, residing in Japan and to consider introducing new forms of remuneration such as restricted stock.