(Provisional Translation)
February 26, 2002
Financial Services Agency

An administrative action against Bear Stearns Japan Ltd., Tokyo Branch

  1. On February 13, 2002 the Financial Services Agency(FSA) ordered Bear Stearns Japan Ltd., Tokyo Branch (''the Branch'' hereafter) to report about Short-selling in breach of the Securities and Exchange Law (''the Law'' hereafter) based on the information obtained through the comprehensive review of compliance on short-selling regulation*, and the following legal violations of the Law were found.
    * The comprehensive review of compliance on short-selling regulation was conducted by the member firms of the Japan Securities Dealers Association (JSDA) at the request of the FSA through the JSDA as a part of ''the comprehensive measures for short-selling of stocks'' announced on December 21,2001.
(1) Short-selling in breach of the Law
In November 2001 the Branch ordered a member firm of a stock exchange* short-selling of stocks by a client's orders without legally required indication to the member firm many times. This was because the Branch did not confirm whether or not the orders from its client were short-sales.
 
* As the Branch was not a member of a stock exchange, a member firm of stock exchanges acted as a broker.
  In addition, by the investigation on sampling trading days, the branch was found to have conducted short sales at a price lower than the latest published price immediately prior to the short sale.

The conduct above was found to have violated the Article 26-3 (4), the Article 26-4 (2) of the Cabinet Order (the Securities and Exchange Law) and the Article 162 (1) (i) of the Law, both of which regulate short-selling.
(2) Conclusion of a contract to manage a discretionary account
In December 1999, a contract to manage a discretionary account in breach of the Law* was found by an inspection of the Securities and Exchange Surveillance Commission (SESC). The Branch reported to the FSA in March 2000 that the measures to improve compliance with the Law had been implemented.
 
* The article 42 (1) (v) of the Law stipulates that securities firms shall not conclude a contract to manage a discretionary account.
  However, shortly after submitting the report to the FSA, the Branch concluded a contract with a client to manage a discretionary account, which enabled the Branch to decide whether to purchase or sell, issues of stock, volume and price without obtaining individual consent of the client. And the Branch executed many transactions based on the contract.

The conduct above was found to have violated the Article 42 (1) (v) of the Law applied based on 14 (1) of the Law on Foreign Securities Firms(LFSF).
  1. On the basis of the above findings, the FSA issued the following orders to the Branch to:
(1) Suspend business operation
 
1) Suspend to act as an agent of affiliated companies for trading stocks from February 28, 2002 until March 6, 2002 (1 week).
2) Suspend securities business with affiliated companies from February 28, 2002 until March 27, 2002 (4 weeks).
(2) Improve its compliance with the law
 
1) Strengthen its internal control system, secure strict compliance by the directors and staff, take preventive measures against recurrence of the above mentioned violations, and clarify locus of responsibility.
2) Work out concrete measures with a target date to root out short-selling in breach of the Law, and to impose stricter internal penalty to a staff and his/her supervisor in the Branch.
3) Submit a quarterly report to the FSA on the implementation of the 1) and 2) measures above.

For further information, please contact with the following:

Securities Business Division
Supervisory Bureau
FSA, JAPAN (Tel : 03-3506-6000)
Deputy Director : Iichiro YOSHINO(ex.3352)
Section Chief : Yoshikazu HIRAI(ex.3356)

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