Quiz: Cross-Border Themes

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6 questions to check your understanding of the chapter “Cross-Border Themes”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.

1. Question 1

   As of October 2026, how is spoofing positioned within the prohibition of market manipulation under Japan's Financial Instruments and Exchange Act (FIEA)?

   1. A.Article 159 expressly prohibits it in the text, using the term "misegyoku" (spoofing)
   2. B.It may fall under price-moving trading in Article 159, paragraph 2, item 1, and orders that are not executed are also covered
   3. C.It may fall under unlawful stabilizing transactions in Article 159, paragraph 3, and only transactions contrary to a Cabinet Order are covered
   4. D.It may fall under sham transactions in Article 159, paragraph 1, and the fact that an order was canceled is enough to make it a violation
   Answer and explanation

   Answer: B

   The FIEA has no name for spoofing. Placing orders that the person does not intend to have executed, in order to draw others into trading, may fall under price-moving trading in Article 159, paragraph 2, item 1. That item also covers the "application" for a series of transactions, so orders that were not executed are included.

   However, a violation does not arise merely because an order was canceled. The purpose of inducing others to trade is a requirement. Paragraph 1 covers making sham transactions or transactions arranged in advance, for the purpose of leading others to believe that trading is active. Paragraph 3 covers a series of transactions made, contrary to the provisions of a Cabinet Order, for the purpose of pegging the price, for example.

   Learn more: Market Manipulation and Spoofing

2. Question 2

   As of October 2026, to which transactions do the rules against market manipulation in derivatives extend in each jurisdiction?

   1. A.The EU Market Abuse Regulation (MAR) also extends to transactions outside a trading venue
   2. B.The spoofing prohibition in the US Commodity Exchange Act also extends to swap transactions conducted outside a registered entity
   3. C.The prohibition of market manipulation in the US Securities Exchange Act covers only transactions that do not include security-based swaps
   4. D.Article 159 of Japan's FIEA covers only exchange-traded derivative transactions and does not cover over-the-counter derivative transactions
   Answer and explanation

   Answer: A

   The EU MAR covers conduct relating to the subjects listed in Article 2, paragraph 1(a) to (d) and paragraph 2, whether it takes place on or outside a trading venue.

   The spoofing prohibition in the US Commodity Exchange Act applies only on a registered entity or to transactions subject to its rules. The prohibition of price manipulation also extends to swaps, but it is a separate provision from the spoofing prohibition. The prohibition of market manipulation in the US Securities Exchange Act (Section 9(a)) covers transactions that include security-based swaps. Article 159 of the FIEA is not limited to exchange-traded derivative transactions; it also covers over-the-counter derivative transactions that relate to listed financial instruments, listed indicators, and the like.

   Learn more: Market Manipulation and Spoofing

3. Question 3

   As of October 2026, in Japan, what is the basis for confirming the beneficial owner of a corporate customer at the time of transaction, and what is the basis for screening against sanctions for the beneficial owner as well?

   1. A.Confirming the beneficial owner at the time of transaction is provided for in the text of the Foreign Exchange and Foreign Trade Act, and screening against sanctions for the beneficial owner as well is provided for in the Act on Prevention of Transfer of Criminal Proceeds
   2. B.Confirming the beneficial owner at the time of transaction is provided for in the text of the Foreign Exchange and Foreign Trade Act, and screening against sanctions for the beneficial owner as well is also provided for in the text of that Act
   3. C.Confirming the beneficial owner at the time of transaction is provided for in the Act on Prevention of Transfer of Criminal Proceeds, and screening against sanctions for the beneficial owner as well is something the Ministry of Finance guidelines call for
   4. D.Confirming the beneficial owner at the time of transaction is something the Ministry of Finance guidelines call for, and screening against sanctions for the beneficial owner as well is provided for in the text of the Foreign Exchange and Foreign Trade Act
   Answer and explanation

   Answer: C

   When verifying a corporate customer at the time of transaction (KYC), the person who can effectively control the management of the business is confirmed. This is provided for in the Act on Prevention of Transfer of Criminal Proceeds, which is Japan's law for anti-money laundering and countering the financing of terrorism (AML/CFT). For economic sanctions screening, the Ministry of Finance guidelines call for it to be carried out for the beneficial owner as well as the customer.

   Learn more: AML and Sanctions

4. Question 4

   As of October 2026, what kind of trading by a company insider does Article 166 of the FIEA, which prohibits insider trading, prohibit?

   1. A.It prohibits trading only when the insider "used" a material fact, and merely knowing it is not a violation
   2. B.It prohibits only officers of a listed company from trading before disclosure while knowing a material fact
   3. C.It prohibits only communicating a material fact in order to let another person profit, and the insider's own trading is not covered
   4. D.It prohibits only trading before disclosure while knowing a material fact, and whether the trade made a profit is not a requirement
   Answer and explanation

   Answer: D

   Article 166, paragraph 1 provides that a company insider who has come to know a material fact in connection with their duties or the like must not engage in buying or selling and similar transactions until after the fact has been made public. The text makes knowing the fact the requirement; it has no wording that makes "using" the fact, or making a profit, a requirement. Derivative transactions are included in these transactions.

   Because the prohibition does not depend on the profit or loss of the trade, trading before disclosure may be a violation whether the share price rises or falls after disclosure. Company insiders include not only officers but also employees and contract counterparties, among others. The "purpose of letting another person profit" is a requirement of Article 167-2, which prohibits communicating information and recommending trades, not of Article 166, which prohibits the insider's own trading.

   Learn more: Insider Trading

5. Question 5

   As of October 2026, to which transactions does the obligation to establish and publish a best execution policy and the like under Article 40-2 of the FIEA apply?

   1. A.An over-the-counter derivative transaction in which the firm quotes a price at the customer's request and executes
   2. B.All trading in securities conducted by a financial instruments business operator
   3. C.Trading in listed share certificates and the like, over-the-counter-traded securities, and handled securities
   4. D.Trading in securities other than listed share certificates and the like, over-the-counter-traded securities, and handled securities
   Answer and explanation

   Answer: C

   The policy under Article 40-2 covers trading in listed share certificates and the like, over-the-counter-traded securities, and handled securities, which are what remain after the exclusions that a Cabinet Order (paragraph 1 of Article 16-6 of the Order for Enforcement) sets out. The Order defines the exclusions as a list, and these three are what remain covered. Derivative transactions are listed in item 2 of paragraph 1 and are not covered.

   As a result, quoting a price for and executing an over-the-counter derivative does not trigger the obligations to establish and publish a policy, to provide information beforehand, and to explain afterward. Exchange-listed derivative transactions are the same in being derivative transactions, and are also not covered. Not all trading in securities is covered; trading in securities other than those three categories is among the items excluded by item 1 of paragraph 1.

   Learn more: Best Execution

6. Question 6

   As of October 2026, how does Article 157, paragraph 2 of the Cabinet Office Order set the retention period and starting date for books and records such as order slips of a financial instruments business operator conducting Type I financial instruments business?

   1. A.7 years from the date of preparation
   2. B.10 years from the date of preparation
   3. C.5 years from the date they lost effect
   4. D.7 years from the date the business ended
   Answer and explanation

   Answer: A

   Article 157, paragraph 2 of the Cabinet Office Order divides retention periods into 5, 7, and 10 years by type of books and records, and the starting date also varies by type. Order slips and the like (items 3 to 3-4) are kept for 7 years from the date of preparation.

   The other options are values for other types of books and records, or a mix-up of the starting date. Trade journals and the like (items 4 to 15-2) are kept for 10 years from the date of preparation. The documents themselves that laws and regulations prescribe (item 2) are kept for 5 years from the date they lost effect. Counting from the date the business ended applies to some of the contract-related documents (such as item 16(a)), not to order slips.

   Learn more: Record keeping