Japan to Ease Rules on Unlisted Stock Investment, Steering Household Funds Worth 1 Quadrillion Yen Toward Startups

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[The Financial News Tokyo=Seo Hyejin, correspondent] The Financial Services Agency of Japan will ease eligibility requirements for individual investors who can trade unlisted shares starting this summer. It plans to lower the threshold for participation in both the secondary and primary markets, expanding access to small and midsize business executives as well. From next spring, it will also allow securities firms to make broader investment recommendations. The move is aimed at channeling the vast amount of household savings in Japan into the startup sector.
According to Nihon Keizai Shimbun on the 18th, the Financial Services Agency of Japan plans to revise a Cabinet Office ordinance this summer to relax the requirements for participation in the Specified Investor-Targeted Securities System (J-Ships), which allows trading in unlisted shares and other securities.
Until now, participation by individuals with limited assets or little trading experience has been restricted to protect investors, as unlisted shares are illiquid, difficult to trade, and carry high investment risk.
At present, economists and securities analysts can trade unlisted shares if they earn at least 10 million yen a year, or if their net assets, defined as assets minus liabilities, total at least 100 million yen.
\r\nThe agency also plans to include executives of small and midsize businesses, although it will require them to have investment experience in startups and similar companies.
The Nikkei said this is expected to make it easier for influential local business leaders to provide funding to regional companies and startups.
Requirements for investors holding net assets of at least 300 million yen will also be significantly eased. Previously, investors had to trade at least four times a month and have more than one year of trading experience to qualify as a designated investor. Going forward, they will only need to have traded at least once a year on average.
In addition, the Financial Services Agency of Japan plans to revise the Financial Instruments and Exchange Act next spring to allow securities firms and others to recommend unlisted stock investments to potential designated investors.
The number of designated investors is currently estimated at only about 2,000 to 3,000. Funds raised through J-Ships last year also amounted to just about 180 billion yen.
Dani Kyo, a researcher at the Daiwa Institute of Research, estimated that about 200,000 small and midsize business executives with annual incomes of 10 million yen or more could fall under the eased rules. He said this suggests there is considerable room to expand investment capital.
The agency also plans to pursue further deregulation after next spring. Under the proposal, some of the securities registration statement requirements that have been necessary when designated investors sell unlisted shares to retail investors would be waived. The measure would apply to cases such as company employees buying their own company’s shares or retail investors acquiring shares through mergers and acquisitions.
This is expected to broaden designated investors’ options for selling shares and further stimulate market participation.
However, unlisted companies are subject to fewer disclosure obligations than listed firms, and there have been many cases in which they have been used for investment fraud. The Nikkei noted that preventing such side effects will be a key challenge, especially if participation is expanded to retail investors.
The reason the Financial Services Agency of Japan wants to draw individual investors into the unlisted stock market is to nurture startups.
As the Tokyo Stock Exchange Growth Market announced last year that it would tighten listing maintenance standards, similar to Korea’s special technology listing system, startups are being pushed to adopt more robust growth strategies. As a result, fundraising at the pre-listing stage is becoming even more important.
At present, startup funding is dominated by venture capital firms, while participation by individual investors remains limited. According to the Japan Securities Dealers Association, startup fundraising in Japan in 2024 amounted to just 0.16% of Gross Domestic Product (GDP). By contrast, the figure in the United States was 0.59%, or about four times higher.
The scale of fundraising by unlisted companies in the United States is also tens of times larger than in Japan, and the country has a market for trading more than 10,000 unlisted stocks, exceeding the number of listed companies.
According to the Bank of Japan (BOJ), Japanese households held about 1,140 trillion yen in cash and deposits at the end of last year. Since the introduction of the new Nippon Individual Savings Account (NISA) in 2024, funds have also continued to move into risk assets.
The Nikkei reported that the Financial Services Agency of Japan aims to create an environment where individual investors can directly invest in unlisted shares, linking that flow of capital to the sustained growth of startups.
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sjmary@fnnews.com Seo Hyejin Reporter