[Federal Register Volume 85, Number 197 (Friday, October 9, 2020)]
[Notices]
[Pages 64179-64181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22373]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 34043; 812-15164]


Development Bank of Japan Inc.

October 5, 2020.
AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Notice.

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    Notice of application for an order under section 6(c) of the 
Investment Company Act of 1940 (``Act'') for an exemption from all 
provisions of the Act.

Summary of Application: Applicant, a policy and development finance 
organization established by the government of Japan (the ``Japanese 
Government''), requests an order exempting it from all provisions of 
the Act in connection with the offer and sale of its debt securities in 
the United States.

Applicant: Development Bank of Japan Inc. (``Applicant'').

Filing Dates: The application was filed on September 25, 2020.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by emailing the Commission's 
Secretary at [email protected] and serving applicant with a 
copy of the request by email. Hearing requests should be received by 
the Commission by 5:30 p.m. on October 30, 2020, and should be 
accompanied by proof of service on applicant, in the form of an 
affidavit or, for lawyers, a certificate of service. Pursuant to rule 
0-5 under the Act, hearing requests should state the nature of the 
writer's interest, any facts bearing upon the desirability of a hearing 
on the matter, the reason for the request, and the issues contested. 
Persons who wish to be notified of a hearing may request notification 
by emailing the Commission's Secretary at [email protected].

ADDRESSES: The Commission: [email protected]. Applicant: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Senior Counsel, at (202) 
551-6819, or Daniele Marchesani, Assistant Chief Counsel, at (202) 551-
6821 (Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website by searching for the file number, or applicant 
using the Company name box, at http://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicant's Representations

    1. The Applicant is a policy and development finance organization 
established in October 2008 by the Japanese Government pursuant to the 
Development Bank of Japan Inc. Act (the ``DBJ Act''). The Applicant's 
primary mission is contributing to the sustainable growth of the 
Japanese economy, promoting stable and vital financial markets in Japan 
and enhancing global competitiveness of Japanese businesses. The 
Applicant furthers its mission primarily through the provision of long-
term funding to enterprises and projects generally in line with the 
policy objectives of the Japanese Government, through loan financing 
and other financing methods (including equity investments).
    2. In serving its mission, the Applicant offers a broad range of 
financial products and services to its clients similar to those offered 
by Japanese commercial banks. In recent years, the Applicant has also 
undertaken specific mandates in two key Japanese Government-sponsored 
funding initiatives: (i) ``Crisis Response Operations,'' a program 
designed to provide appropriate financing to large- and medium-sized 
enterprises that are temporarily experiencing a downturn in business 
performance and funding difficulties due to a ``crisis'' such as 
turmoil in the domestic or global financial system, large-scale natural 
disasters, acts of terrorism or medical epidemics, and (ii) ``Special 
Investment Operations,'' a temporary investment program designed to 
supplement and encourage private-sector financing to support growth 
initiatives of enterprises that contribute to self-reliant development 
of regional economies, contribute to development of markets for growth 
capital, or promote the competiveness of Japanese enterprises 
generally.
    3. As of March 31, 2020, the Applicant's most recently completed 
fiscal year end, a majority of the Applicant's assets consisted of 
loans and other securities such as equity in other entities and a 
variety of debt instruments. Because such loans and securities could be 
considered ``investment securities'' within the meaning of section 
3(a)(1)(C) of the Act, the Applicant may be considered an investment 
company, and it requests an exemption from all provisions of the Act.
    4. The Japanese Government currently owns 100% of the Applicant's 
issued share capital. However, the DBJ Act (including successive 
amendments thereto) contemplates a plan to fully privatize the 
Applicant over time. Specific timing for commencing or completing the 
Applicant's privatization has not been determined, and under partial 
amendments to the DBJ Act effective in 2015, the Japanese Government is 
obligated to hold more than one-half of the total issued share capital 
of the Applicant until the

[[Page 64180]]

completion of its Special Investment Operations, which is currently 
scheduled for March 31, 2031, and more than one-third of the 
Applicant's issued share capital for an indefinite period with a view 
to ensuring the sufficient and appropriate implementation of the Crisis 
Response Operations. The Applicant notes that the anticipated 
privatization of the Applicant, as set forth in the DBJ Act, is a part 
of broader efforts to reform and streamline policy finance and special 
public institutions in Japan, such as the Applicant, that began in the 
early 2000s.
    5. As described more fully in the application, the Applicant, as a 
development bank, is substantially engaged in banking activity that is 
customary for commercial banks in Japan. However, because the Applicant 
does not engage in deposit-taking activities, it is not considered a 
commercial bank under Japanese law. Despite the formal differences in 
applicable rules and regulations, the Applicant believes that it is 
subject to a set of regulatory requirements that, in combination with 
the Applicant's voluntary policies, are functionally equivalent to that 
applied to Japanese commercial banks in terms of the regulation of a 
bank's safety and soundness and financial risk exposures. The Applicant 
believes the DBJ Act's supervisory provisions, combined with 
supplemental oversight by multiple Japanese government agencies and 
regulatory authorities and the Applicant's voluntary compliance with 
key prudential regulatory metrics, constitute a set of regulatory 
protections that meet or exceed those applicable to Japanese commercial 
banks. In particular, the Applicant (i) is subject to extensive 
oversight, supervision and regulation by the Japanese Government, 
primarily by the Minister of Finance and the Commissioner of the 
Financial Services Agency (the ``FSA'') (Japan's umbrella financial 
regulator and primary bank regulator), including on-site inspections 
conducted by the FSA in a manner similar to those conducted for 
commercial banks in Japan (i.e., in accordance with principles and 
procedures for bank examinations established in FSA guidance 
documents), (ii) maintains internal controls and risk management 
systems intended to be consistent with expectations set by the FSA, 
such as a credit quality ``self-assessment'' system, in line with 
domestic industry best practices, and (iii) voluntarily monitors and 
controls its balance sheet and risk exposures at levels that meet or 
exceed regulatory requirements applicable to Japanese commercial banks 
as part of their prudential banking regulation, such as risk-based 
capital and leverage requirements under Basel III and credit quality 
disclosure standards under Japanese banking law.
    6. The Applicant procures funds by borrowing from the Japanese 
Government and private financial institutions, issuing debt securities 
in the Japanese and international capital markets and accumulating 
funds through its business operations, primarily loan recoveries. The 
Applicant uses such funds to extend loans to and make other investments 
in primarily Japanese but also international enterprises and projects 
in order to fulfill its primary mission. In addition, since the 
Applicant's establishment in 2008, the Japanese Government has made 
capital contributions in the aggregate amount of [yen]631.0 billion 
(approximately $5.8 billion), primarily to fund the Crisis Response 
Operations and Special Investment Operations.
    7. The Applicant proposes to issue and sell its debt securities not 
guaranteed by the Japanese Government in the United States, including 
under its Global Medium Term-Notes (GMTN) program, from time to time. 
The Applicant does not intend to offer, issue or sell any securities in 
public offerings under the Securities Act of 1933 (the ``Securities 
Act''), and any offers or sales of its debt securities in the United 
States or to U.S. persons would be made in transactions exempt from the 
registration requirements of the Securities Act, including private 
placements to institutional accredited investors and transactions in 
which the securities may be resold to ``qualified institutional 
buyers'' as contemplated by rule 144A under the Securities Act. The 
Applicant intends to use the proceeds of any such issuance and sale of 
debt securities as an additional source of funding for its general 
operations as set forth in the DBJ Act and to extend loans, make 
investments and provide advisory and consulting services in line with 
its primary mission as a policy and development financial organization.

Applicant's Legal Analysis

    1. Section 3(a)(1)(C) of the Act defines an ``investment company'' 
to include any issuer engaged in the business of investing, 
reinvesting, owning, holding or trading in securities, and that owns or 
proposes to acquire investment securities having a value exceeding 40% 
of the issuer's total assets. Section 3(a)(2) of the Act defines 
``investment securities'' to include all securities except Government 
securities, securities issued by employees' securities companies, and 
securities issued by majority-owned subsidiaries of the owner which (a) 
are not investment companies, and (b) are not relying on the exclusions 
from the definition of investment company in section 3(c)(1) or 3(c)(7) 
of the Act.
    2. The Applicant states that, as of March 31, 2020, it had total 
assets of [yen]17,419,402 million (non-consolidated basis), of which 
loans accounted for [yen]12,521,358 million (71.9%) and the Applicant's 
securities portfolio for [yen]2,400,948 million (13.8%). Such loans and 
securities could be construed as ``investment securities'' within the 
meaning of section 3(a)(1)(C) of the Act, thus potentially rendering 
the Applicant a prima facie ``investment company'' under the Act. As a 
result, the Applicant could be deemed to be an ``investment company'' 
under section 3(a)(1)(C) of the Act.
    3. Section 6(c) of the Act provides, in relevant part, that the 
Commission, by order upon application, may conditionally or 
unconditionally exempt any person, security, or transaction from any 
provision of the Act, if and to the extent necessary or appropriate in 
the public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the Act.
    4. Rule 3a-6 under the Act excludes foreign banks from the 
definition of an investment company under the Act. A ``foreign bank'' 
is defined in the rule to include a banking institution ``engaged 
substantially in commercial banking activity'' which in turn is defined 
to include ``extending commercial and other types of credit, and 
accepting demand and other types of deposits.'' The Applicant 
represents that it is functionally similar to a ``foreign bank'' as 
defined under rule 3a-6, insofar as it (i) offers financial services 
and issues financial products similar to those offered and issued by 
traditional commercial banks and (ii) is subject to extensive 
oversight, supervision and regulation by the Japanese Government. 
However, because the Applicant does not engage in deposit-taking 
activities, it is not considered a commercial bank under Japanese law. 
Therefore, the Applicant states that there is uncertainty as to whether 
the rule 3a-6 exemption would be deemed to apply.
    5. The Applicant also believes that the rationale of Congress and 
the Commission in promulgating rules under the Act in exempting foreign 
financial institutions applies to the Applicant. The Applicant 
represents

[[Page 64181]]

that it is subject to oversight by a suite of Japanese government 
agencies and regulatory authorities, and conducts its operations in a 
manner that is at least as rigorous as, if not more rigorous than, 
Japanese commercial banks subject to prudential bank regulatory 
financial standards. The Applicant is subject to a comprehensive 
supervisory and regulatory regime established by the Japanese 
Government as described in the application. The Applicant is subject to 
the general safety and soundness prudential supervision and regulation 
similar to that applicable to commercial banks in Japan pursuant to the 
DBJ Act, including on-site inspections conducted by the Commissioner of 
the FSA, which is also the primary supervisor of Japanese commercial 
banks via delegated authority under the Banking Act of Japan (the 
``Banking Act''). The Applicant also complies with certain of 
provisions of the Banking Act or the Act on Emergency Measures for the 
Revitalization of Financial Functions Act on a voluntary basis in a 
manner that is similar to a Japanese commercial bank as part of risk 
management processes and methods implemented and maintained by the 
Applicant in order to ensure sound and appropriate management of its 
operations. Accordingly, the Applicant represents that its operations 
do not lend themselves to the abuses against which the Act is directed, 
and states that it believes it satisfies the standards for relief under 
section 6(c) of the Act.

Applicant's Conditions

    The Applicant agrees that the order granting the requested relief 
will be subject to the following conditions:
    1. In connection with any offering by the Applicant of its debt 
securities in the United States, the Applicant will appoint an agent in 
the United States to accept service of process in any suit, action or 
proceeding brought with respect to such debt securities instituted in 
any state or federal court in the Borough of Manhattan, The City of New 
York, New York. The Applicant will expressly submit to the jurisdiction 
of New York State and United States Federal courts sitting in the 
Borough of Manhattan, The City of New York, New York with respect to 
any such suit, action or proceeding. The Applicant also will waive the 
defense of an inconvenient forum to the maintenance of any such action 
or proceeding. Such appointment of an agent to accept service of 
process and such consent to jurisdiction shall be irrevocable until all 
amounts due and to become due in respect thereof have been paid. No 
such submission to jurisdiction or appointment of agent for service of 
process will affect the right of a holder of any such security to bring 
suit in any court which shall have jurisdiction over the Applicant by 
virtue of the offer and sale of such securities or otherwise.
    2. The Applicant undertakes to provide to any person to which it 
offers its debt securities in the United States disclosure documents 
that are at least so comprehensive in their description of the 
Applicant and its business as those which may be used by comparable 
U.S. issuers in similar U.S. offerings of such securities and that 
contain the latest available audited annual financial statements (and, 
if available, reviewed interim financial statements) of the Applicant. 
The Applicant further undertakes to ensure that any underwriter or 
dealer through whom it makes such offers will provide such disclosure 
documents to each person to whom such offers are made prior to any sale 
of securities to such offeree. Such documents will be updated promptly 
to reflect any material change in the Applicant's financial status and 
shall be at least as comprehensive as offering memoranda customarily 
used in similar offerings in the United States. Any offering of the 
Applicant's securities in the United States shall comply with 
applicable U.S. securities and anti-fraud laws and regulations.
    3. The Applicant shall rely upon the order so long as (i) the 
Applicant's activities conform in all material respects to the 
activities described in the application, (ii) the Applicant continues 
to be regulated by the Minister of Finance, the FSA or other applicable 
Japanese regulatory authorities as a policy and development financial 
organization as described in the application, (iii) the Applicant 
continues to follow, in all material respects, the voluntary compliance 
measures described in the application, (iv) there is no material change 
in the Applicant's primary mission or how it is regulated as compared 
to today, and (v) the Japanese Government continues to hold at least 
10% of the Applicant's issued share capital.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22373 Filed 10-8-20; 8:45 am]
BILLING CODE 8011-01-P