The New Dematerialised Book-Entry Transfer System in Japan

Abstract

With the commencement of the new fully dematerialised book-entry transfer system for shares as of 5 January 2009, Japan completed the ten-year plan for modernisation of the Japanese intermediated system. The kernel of the modernisation lies in the full dematerialisation of physical securities certificates.
Since the new legal framework is based on full dematerialisation, securities certificates like share certificates or bond certificates no longer exist when a corporation decides to join the book-entry transfer system (voluntary dematerialisation) or when the corporation’s shares are listed on a stock exchange in Japan (compulsory dematerialisation). Accordingly, the objects of book-entries to a securities account are rights themselves – such as corporate bonds or shares – which could previously be embodied in securities certificates. Through intermediaries, investors conceptually hold these rights themselves, and these are now evidenced on securities account books maintained by the intermediaries instead of being represented in securities certificates. This is a historical turn from the long-standing legal doctrine – i.e. the materialisation theory (Verkörperungstheorie) – that rights can be treated as tangible movables when they are embodied in a paper (a securities certificate), whereby the rules of movables are applicable in the case of transfer of the rights. 
In this regard, the article introduces the new legal framework of the Japanese intermediated system, focusing on the dematerialised share-book-entry transfer system. First, this article briefly explains the historical development of the Japanese intermediated system and the background of the reform. Second, it discusses the main legal features of the new Book-Entry Transfer Act and then analyses the details of its provisions. Finally, the evaluations and conclusions are presented. In its evaluation, this article unveils and concludes that as one of the countries in the Germanic legal tradition, Japan chose to keep the basic legal doctrines of the Germanic legal tradition while departing from the materialisation theory. The new fully dematerialised intermediated system in Japan has its own characteristics but is a kind of path-dependent, well-organised legislation.