Administrative Action on RBS Securities Japan Limited

1. The Securities and Exchange Surveillance Commission (“SESC”) conducted an inspection on RBS Securities Japan Limited (hereinafter referred to as “RBS Securities”), and found the following violation of the Financial Instruments and Exchange Act (hereinafter referred to as “the FIEA”). On January 19, 2010, the SESC recommended to take administrative action on RBS Securities.

• ○ Loss Compensation

• Around September 2008, the employees of RBS Securities offered a promise to the customer at the sales of exchangeable bonds (hereinafter referred to as “the Bonds”) as part of the business that, if the customer could not resell all of the Bonds to the third party, the RBS Securities would buy back the unsold Bonds at the same price as the selling price to the customer (hereinafter referred to as “the Promise”). Based on the promise, in October 2008, although the actual value of the Bonds was falling, the RBS Securities bought back the unsold Bonds from the customer at the same price as the selling price, which resulted in providing financial benefit - about 68 million yen - to compensate the customer's loss (hereinafter referred to as “the Provision of Financial Benefit”).

  Among the aforementioned actions, the Promise by RBS Securities and the employees is acknowledged to fall under Article 39, paragraph 1 (i) of the Financial Instruments and Exchange Act, which prohibits “act of making an offer or promise or having a third party make an offer or promise to a customer or any person designated by a customer, with regard to sale and purchase or other transactions of Securities (excluding sale and purchase on condition of repurchase for which the repurchase price is set in advance and other transactions specified by a Cabinet Order) or Derivative Transactions (hereinafter referred to as “Sale and Purchase or Other Transaction of Securities, etc.” in this Article), to the effect that if the customer (in cases where a Trust Company, etc. (meaning a trust company or a financial institution that has obtained authorization under Article 1(1) of the Act on Investment Trust and Investment Corporations; the same shall apply hereinafter) conducts sale and purchase of Securities or Derivative Transactions for the account of the person who sets a trust under a trust contract, including such person who sets the trust; hereinafter the same shall apply in this Article) incurs any loss or shortfall in the predetermined amount of profit from the relevant Securities or Derivative Transactions (hereinafter referred to as “Securities, etc.” in this Article), property benefit will be provided to the customer or such third party in order to compensate or make up for the whole or part of such loss or shortfall.”

  Among the aforementioned actions, the Provision of Financial Benefit by RBS Securities and the employees is acknowledged to fall under Article 39, paragraph 1 (iii) of the FIEA, which prohibits “act of providing property benefit to a customer or a third party or making a third party provide it to a customer, with regard to Sale and Purchase or Other Transaction of Securities, etc., in order to compensate for the whole or part of a loss incurred by the customer from the relevant Securities, etc. or make an addition to the profit accrued to the customer from such Securities, etc.”

2. Administrative Action on the Branch

On the basis of the violation above, the FSA today issued the following administrative action to the Branch based on the Article 51 of the FIEA.

• ○ Business Improvement Order

  • 1) Clarify the responsibility of the management and staff regarding the violation.

  • 2) Verify the past transactions in order to inspect whether the same violations has been conducted in addition to this violation, and execute necessary measures.

  • 3) Enhance the governance and internal control system and establish a structure to exercise the function of internal checks and surveillance against the sales section.

  • 4) Execute necessary measures, such as review of related rules and manuals, etc. in order to ensure appropriate business operations of the sales section.

  • 5) Enhance compliance by all the management and staff through training, etc.

  • 6) Submit reports to the FSA on the implementation of the above-mentioned measures by February 26, 2010.