1. Recommendation Issued
Pursuant to Paragraph 1 of Article 20 of the FSA Establishment Act,
the Securities and Exchange Surveillance Commission (the ''SESC'') today
issued a recommendation that the Prime Minister and the Commissioner of the
Financial Services Agency take administrative disciplinary action and any
other appropriate measures on Banque AIG (Tokyo Branch located in Otemachi,
Chiyoda-ku, Tokyo; Nigel Pentland as a Japanese Representative; with 38
directors/employees; hereinafter referred to as the ''Company''). The SESC
issued this recommendation based upon the results of inspection of the
Company, whereby the SESC detected the following violation of the Securities
and Exchange Laws and its related ordinances by the Company.
2. Violation Found - Trade based upon undisclosed corporate
(1) On January 9, 2007, the Company, on behalf of its overseas affiliated
company (hereinafter referred to as the ''Holder''), which held convertible
bonds issued by Corp. A (hereinafter referred to as the ''CBs'', as the
''Bonds'' in respect of the portion thereof corresponding only to the bonds,
or, as the ''SARs'' in respect of the portion thereof corresponding only to
the stock acquisition rights), exercised an early redemption right attached
to the CBs, with the intention of not exercising the SARs thereafter and
receiving the entire amount of then outstanding Bonds in cash on a specified
date, as the amount equivalent to 90% of the average of the closing prices
of Corp. A's common share on five consecutive trading days on the Tokyo
Stock Exchange, ending on 5 January 2007, fell below the bottom price of the
CB's adjustable conversion price (X yen).
(2) Notified of the above exercise of the early redemption right, Corp. A
made a public announcement titled ''Notice regarding the early redemption of
Euro Yen Unsecured, Convertible Bond Type, Corporate Bonds with Stock
Acquisition Rights'' dated 9 January, 2007'' (hereinafter referred to as the
''Notice''), which is deemed to have the effect of leading investors to
believe that on and after that date the SARs would not be exercised.
Following this announcement, in the morning of January 10, the price of
Corp. A's common share went up above the closing price (Y yen) of the
immediately preceding date and by 9:39 a.m. the price soared to X yen, equal
to the then conversion price.
(3) Recognizing the above price movement, the Company decided to exercise
the SARs and, on and after 10:26 a.m. of January 10, the Company exercised
the SARs on behalf of the Holder. The Company also decided to sell the
shares thus acquired, with the intention of making profits by selling the
shares at the price above the then conversion price, and the Company's
trader placed sell orders with another securities company and, by so doing,
sold the shares at the market at its discretion, which the Holder had
provided with the Company in accordance with the discretionary-account
trading contract previously entered into between them, although the fact
that the Holder exercised the SARs on and after the announcement of the
Notice and that Corp. A consequently issued new shares was not disclosed.
(See below table describing how the SARs were exercised and how the shares
were sold during the period from January 10 to January 16, 2007.)
(4) No later than 10:47 a.m. of January 11, the trader reported to the
Japanese representative of the Company the above exercise of the SARs and
the sale of the shares; on that occasion, however, the representative
expressed no objections to the trader's activities and the trader continued
the exercise of the SARs and the sale of the shares until January 24.
(5) On January 17, the Company filed an amended report relating to the large
shareholding report and disclosed in it ''the Holder exercised the SARs and
acquired 1,689,187 shares of Corp. A on January 10.''
In light of the facts mentioned above, the SESC hereby declares that the
sales of Corp. A's shares by the Company (limited only to the sales from
10:26 a.m. of January 10 through 3:00 p.m. of January 15, in which period
the exercise of the SARs as well as the issuance of Corp. A's shares was not
disclosed) violates Item 10 of Article 4 of Ordinance of Cabinet Office
concerning Regulation, etc. of Conducts of Securities Company, which
prohibits ''trade based upon undisclosed corporate information (including
trade done in accordance with a discretionary-account trading contract)''.