Solicitation of Proxies Regulation (FIEA Article 194-7) — Drawing Boundaries in the SNS Era

The boundary between exemption for fewer than 10 persons and indefinite scope: how far are X calls for proxy voting legally permissible?

Article 194-7 of Japan's Financial Instruments and Exchange Act defines the regulation of proxy solicitation, yet this regulation continues to expand interpretive gray zones in the SNS era. The exemption for "fewer than 10 solicited persons" was designed with oral solicitation in mind, and it remains unclear whether calls directed to an indefinite group on X (formerly Twitter) regarding the direction of proxy voting fall within this exemption. This article examines the statutory structure, interpretive theory, and practical guidance, observing the point where free expression of opinion intersects with regulatory scope.

Introduction — How Platforms Have Redrawn the Landscape of Solicitation

In 2025, in the proxy contest surrounding Fuji Media Holdings, major shareholder Dalton Investments submitted its own slate of director candidates ahead of the regular shareholders meeting and signaled intent to begin soliciting proxies. Meanwhile, on X, accounts identifying as "individual investors" continued posting calls for positions on particular agenda items, sparking debate among practitioners about the legal nature of such activity.

The era when proxy contests were the exclusive domain of professional institutional investors and IR departments has ended. With infrastructure now in place that allows anyone to open an account and broadcast "please cast your vote in favor of this proposal" to millions of followers, the proxy solicitation rules designed in the 1980s by the Financial Instruments and Exchange Act are stepping into unforeseen terrain.

This article examines the statutory structure and interpretive theory at the center of Article 194-7 of the Financial Instruments and Exchange Act, observing where boundaries may be drawn in the SNS era. This article offers no legal judgment on any specific facts; parties must obtain case-specific legal advice from their counsel on individual matters.

01Statutory Structure — FIEA Article 194-7 and Related Ordinances

The Fundamental Proposition of the Regulation

Article 194-7 of the Financial Instruments and Exchange Act stands at the center of the statutory framework regulating the solicitation of proxies regarding proxy voting on listed equity securities. The basic proposition of the statute is clear: "No person shall solicit the exercise of proxy voting on behalf of oneself or a third party except as provided by Cabinet Order."

As this single sentence demonstrates, the regulated persons are "any person"—whether the management of a listed company, activist shareholders, or individual investors, the statute makes no distinction. The regulated conduct is the act of soliciting proxy voting on behalf of another.

Three-Tier Structure: Ordinance and Cabinet Order

The specific regulatory content is established through a three-tier structure of cabinet ordinance and orders that implement the statute's delegation.

The first tier is Article 36-2 of the Financial Instruments and Exchange Act Ordinance (Solicitation of Proxy Voting). This article establishes the skeleton of procedural obligations that those soliciting proxies must observe, centering on the duty to deliver proxy forms and reference materials.

The second tier is the Cabinet Order on Solicitation of Proxy Voting for Listed Equity Securities (hereinafter "Solicitation Order"). This order provides detailed specifications for proxy form formats, items to be disclosed in reference materials, and reporting obligations to the Financial Services Agency.

The third tier becomes the practical focal point: when a solicitor delivers proxy forms and reference materials to solicited persons, they must immediately file copies with "the Financial Bureau chief under whose jurisdiction the solicitor's address falls." This reporting obligation functions as a mechanism to ensure the regulation's effectiveness.

The Full Spectrum of Obligations

To summarize, the obligations imposed by proxy solicitation regulation on solicitors reduce to three core points:

• First: Duty to use proxy forms in prescribed format. For each agenda item, the form must provide space for each solicited person to indicate his or her position for or against.
• Second: Duty to deliver reference materials. Depending on whether the solicitor is the company or a shareholder, the detail of required disclosures varies, but disclosure of information relevant to informed proxy voting is mandatory.
• Third: Duty to report to the Financial Services Agency. By filing copies, a regulatory framework is established allowing the competent authority to monitor proxy solicitation activity.

02The "Fewer Than 10" Exemption — Design Logic and Interpretive Theory

The Exemption Provision Exists

Proxy solicitation regulation contains explicit exemptions from application. One exemption established in the Financial Instruments and Exchange Act Ordinance is the case where "the number of solicited persons is fewer than 10" (the basis for exemption appears in Ordinance Article 36-2, Section 1).

However, this exemption is not open to all. The issuing company or its officers are not exempted regardless of the number of solicited persons. Company-side and management are always within regulatory scope. The exemption applies only to "persons who are neither the issuing company nor its officers"—that is, ordinary shareholders—when conducting solicitations of fewer than 10 persons.

Why "10 Persons"?

The logic behind this threshold can be understood in light of the regulation's purpose. Proxy solicitation regulation aims to correct information asymmetry affecting shareholders and prevent information disparity when an indefinite group of shareholders becomes the target of solicitation. The legislative judgment underlying the exemption for fewer than 10 persons is that within this limited scope, communication between parties approaches direct discussion, and the necessity for regulatory intervention is relatively low.

In other words, the fewer-than-10 exemption is designed with closed-form oral persuasion in mind. When shareholder A calls or meets in person with shareholders B and C to say "please vote in favor of this proposal," the legislative judgment reads that the regulatory cost of subjecting such conduct to the triumvirate of proxy forms, reference materials, and agency reporting would be excessive.

The Scope of Oral and Informal Solicitation

Critical to interpretation is the question of how to count "solicited persons fewer than 10."

Where one-to-one direct oral solicitation occurs, so long as the number does not reach 10, it is likely outside regulatory scope. Yet in practice, the interpretation widely accepted among practitioners is that where the cumulative tally of "repeated identical oral solicitations directed to multiple shareholders" reaches beyond 10 persons, regulation becomes activated.

A second key interpretive issue concerns the definition of "solicited persons." Whether the solicited party is the individual recipient of the message or the total population of potential message recipients dramatically changes regulatory scope. This distinction carries decisive significance in the context of SNS posting.

03Social Media Posting — Where Does the Scope of "Indefinite Persons" Begin?

"Solicitation" as Defined: No Requirement of Direct Address

The definition of "solicitation" under proxy solicitation regulation is not limited to direct appeals. The widely accepted interpretation among scholars and practitioners is that any conduct aimed at obtaining or withdrawing commitments of proxy voting may constitute "solicitation," even absent a direct appeal to a specific addressee.

Indeed, the view that proxy voting appeals made through press releases or television advertising may, in certain circumstances, be interpreted as "solicitation" is documented in practical research materials. This indicates that appeals through media directed to indefinite parties, even without directing attention to any specific solicited person, may fall within regulatory scope.

At What Point Does an X Post Become "Solicitation"?

If one posts on X, "To shareholders of Company XX: please cast your vote in favor of Agenda Item A at the June shareholders meeting," does this constitute proxy solicitation?

Current guidance and case law offer no explicit answer to this question. This silence is the core of this article's observation.

When the exemption "solicited persons fewer than 10" is applied to SNS posting, at least two interpretations become viable:

From the perspective of both statutory language and legislative purpose, Interpretation A stands as viable formally, while Interpretation B stands as viable through purposive reading. The Financial Services Agency has not explicitly taken a position either way.

Among practitioners, the cautious view is generally that X posts calling for specific positions on specific agenda items carry latent regulatory risk. This may be inference, but since press releases too are said to "potentially constitute solicitation," the same risk awareness regarding SNS posting is reasonably justified.

Does a Quantitative Threshold Exist for "Indefinite Persons"?

A related question concerns the problem of quantitative thresholds: "How many followers constitutes indefiniteness?" or "How many impressions trigger regulation?"

Here too, current guidance and case law contain no explicit numerical standards. The legislature did not design regulation premised on SNS as infrastructure.

The U.S. SEC has issued detailed guidance on internet postings regarding the proxy rules (Regulation 14A), clarifying certain forms of posting to be outside regulatory scope. Japan, by contrast, has at this point no comparable comprehensive guidance.

04"Opinion Expression" and "Calls for Position on Specific Agenda Items"—Where the Boundary Lies

The Intersection of Free Expression and Regulatory Scope

Proxy solicitation regulation targets precisely "soliciting the exercise of proxy voting on behalf of another." The language indicates the center of regulation is the act of asking a specific person to exercise proxy voting on the solicitor's behalf.

By contrast, statements such as "the management of Company A presents corporate governance concerns," or "Company B's shareholder proposal warrants serious consideration," do not seek specific proxy voting on behalf of anyone. These belong to the realm of commentary and critique.

In theory this distinction is clear, yet in actual expression the boundary often blurs.

Elements Likely Covered by "Commentary"

Generally, expression bearing the following features is likely outside the scope of proxy solicitation regulation:

• First: Expression of opinion on management judgment or governance practice, rather than position-taking on a specific agenda. "You should vote against this director's election" differs legally from "this director's background and compensation structure raise governance concerns."
• Second: Absence of a request for proxy delegation. Expression that does not seek delivery of a proxy form, nor that asks "please entrust me (or X person) with the exercise of your voting authority," does not constitute solicitation of proxy delegation.
• Third: Grounding in public information and primary sources. Commentary based on publicly available information—securities reports, shareholders meeting materials, corporate governance disclosures—has a certain foundation for legitimacy from an information-integrity perspective.

Gray Zone: Expression Forms Where Boundaries Blur

Problems arise in the middle zone between these poles.

A post stating "I strongly recommend voting in favor of Company XX's Agenda Item B." A message saying "institutional investors, please consider voting for Agenda Item C." A call that reads "I will vote against Agenda Item D. Shareholders who share this view—shall we act together?"

These formally capture elements of "solicitation," yet absent delivery of proxy forms and absent explicit request for proxy delegation, whether they actually constitute conduct subject to regulation remains an interpretive question.

05Consequences of Violation — Administrative and Criminal Framework

Severity of Criminal Penalties

Penalties for violation of proxy solicitation regulation are defined in Article 205-2-3, Section 2 of the Financial Instruments and Exchange Act, establishing a maximum fine of 3 million yen. This penalty level is minor within the spectrum of securities regulation.

Critically, proxy solicitation regulation differs fundamentally in penalty structure from more serious securities violations (such as insider trading or misstatement in securities reports, which carry sentences of several years imprisonment or fines in the tens of millions of yen).

Possibility of Administrative Action

Even where criminal penalties are light, administrative action by the Financial Services Agency—orders to improve operations or orders suspending business—may compound the impact. For institutional investors and financial instruments traders, such action could affect licensing or registration.

That said, no publicized cases of administrative action by the Financial Services Agency against individual investors for proxy solicitation regulation violations are currently known. The regulation's center remains on organized proxy solicitation by institutional investors, activist funds, and issuing companies.

Impact on Shareholders Meeting Resolutions

A related but distinct question concerns whether proxy voting conducted in violation of solicitation rules affects the validity of shareholders meeting resolutions.

Materials from the Legislative Council's Company Law Committee (2012) identified this as a question for consideration. The prevailing view is that even where proxy solicitation regulation is violated, such violation does not automatically constitute grounds for resolution rescission under the Companies Act (Article 831, Section 1); rather, rescission depends on the nature, severity, and causal relationship of the violation to the resolution outcome.

06Counterargument — Risks of Excessive Regulatory Scope

Chilling Effect on Discourse

Strict interpretation of proxy solicitation regulation risks suppressing SNS discussion of corporate governance generally. This may produce results contrary to the regulation's purpose.

The legislative purpose of proxy solicitation regulation is the correction of information asymmetry and proper reflection of shareholder intent. This aim does not intend to suppress information flow itself. Opinion expression, analysis, and commentary serve the function of narrowing information asymmetry.

As Takanori Kato (University of Tokyo) noted in 2009 research, balancing proxy solicitation regulation with free communication among shareholders was recognized as a design issue in current regulation. More than 15 years later in the SNS era, this issue has grown yet more complex.

Comparison to the U.S. Approach: Affirmative Safe Harbor Design

The U.S. SEC has actively issued guidance on proxy regulation in the internet era, establishing certain forms of posting as Safe Harbors (explicit exemptions from regulation).

Japan's proxy solicitation regulation includes no comparable comprehensive Safe Harbor design. This structural gap amplifies interpretive uncertainty for practitioners.

Excessive regulatory scope risks suppressing lawful commentary, analysis, and information sharing before it deters misconduct.

07Practical Guidance for Operation

For Listed Company IR Departments

Where a company conducts its own proxy solicitation, conduct by the issuing company or its officers falls outside the fewer-than-10 exemption. Preparation of proxy forms, reference materials, and filing with the agency are essential and admit no exception.

Where the company's IR content spreads across SNS, whether such spreading constitutes proxy solicitation depends on the content, distribution channel, and connection to proxy acquisition, assessed on a case-by-case basis.

For Institutional Investors and Activist Shareholders

Where a shareholder conducts proxy solicitation with fewer than 10 solicited persons, regulation may not apply. However, X posting calling for specific positions carries high risk of being interpreted as failing to satisfy the fewer-than-10 requirement.

Where SNS posting directs explicit position-taking to an indefinite group on a specific agenda, the safer practical approach is to treat it as proxy solicitation and prepare proxy forms, reference materials, and agency filing.

Prior consultation with counsel is essential for confirming the legal character of proposed posting.

For Individual Investors and Corporate Governance Scholars

Opinion expression, analysis, and commentary on specific companies and agenda items is generally understood to fall outside proxy solicitation regulation's scope. However, the following warrant attention:

• First: Direct calls for votes on specific positions carry regulatory risk. Consciousness of the distinction between "please vote in favor of this item" and "this item warrants consideration" is material.
• Second: Grounding analysis in public information serves to establish the legitimacy of commentary. Posting based on unconfirmed or internal information generates other legal risks (defamation, insider trading rules).
• Third: Where entering gray zones lacking clear regulatory boundaries, prior legal advice is a rational choice.

Conclusion — Law Carries Questions

Article 194-7 of the Financial Instruments and Exchange Act, at the center of proxy solicitation regulation, leaves vast interpretive gray zones when applied to the SNS era as currently written.

The fewer-than-10 exemption was designed with closed-form oral solicitation in mind and was not structured to apply straightforwardly to SNS posts directed to indefinite groups. Under strict construction, X posts calling for specific proxy positions fall potentially within regulatory scope. Under restrictive construction, SNS commentary that does not explicitly request proxy delegation falls outside regulation. Current guidance and case law have taken no explicit position either way.

The fact that penalties remain capped at fines of up to 3 million yen indicates the regulation was not designed to function effectively in SNS-era information environments. The original legislative purpose—"correcting information asymmetry"—may in fact be better served in the SNS era through open information sharing. Suppressing discourse undermines the regulation's purpose.

One observation emerges: proxy solicitation regulation's adaptation to the SNS era is at a stage requiring explicit interpretive confirmation among regulators, legislators, and practitioners. This interpretive gap currently leaves speakers operating in gray zones in state of uncertainty.