(Provisional Translation)
December 8, 2015
Securities and Exchange Surveillance Commission
Recommendation for Administrative Action based on Findings of the Inspection of Deutsche Securities Inc.
1. Contents of the recommendation
Pursuant to Article 20, paragraph (1) of the Act for the Establishment of the Financial Services Agency (FSA), the Securities and Exchange Surveillance Commission (SESC) issued today a recommendation that the Prime Minister and the Commissioner of the FSA take administrative action against Deutsche Securities Inc.* (hereinafter referred to as "the Company"). This recommendation is based on the findings of the inspection of the Company, whereby the following violations by the Company of the law and the ordinance described in 2 below were identified.
*Basic information regarding Deutsche Securities Inc.
Location: Chiyoda-ku, Tokyo
President and CEO: Makoto Kuwahara
Capital: 72.7 billion JPY
Number of officers and employees: 537
Registration type: Type I Financial Instruments Business, Type II Financial Instruments Business, and Investment Advisory and Agency Business
2. Summary of the findings
(1)Inadequacy of the Company’s system for managing corporate information
Within the Company, internal analysts belonging to the Company (hereinafter referred to as the “internal analysts”) have provided customers with information related to listed companies as follows;
A.They provide customers with reports in any form prescribed by the company (an “analyst report”).
B.They email and call customers for themselves or through sales representatives.
The SESC’s inspection into the status of the management of the information that the internal analysts obtained from listed companies through measures including interview has identified the following problems.
(a)Within the Company, it was not always necessary for staffs, including compliance officers, to consider whether the information fell under corporate information if the internal analyst concerned decided not to report providing the information described in A above for himself /herself.
(b)Within the Company, before providing the information described in B above, it was not necessary to consider whether the information fell under corporate information.
Consequently, in many cases in which the internal analysts obtained undisclosed information related to listed companies, including the cases described in (2) below, the contents of the information were provided to customers without consideration of whether the information fell under corporate information.
The situation wherein the Company has managed corporate information, as described by (1) above, is acknowledged to have not taken the necessary and appropriate measures to ensure the prevention of unfair transactions in connection with corporate information. Therefore the situation is acknowledged to fall under Article 123, paragraph (1), item (v) of the Cabinet Office Ordinance on the Financial Instruments Business, based on Article 40, item (ii) of the Financial Instruments and Exchange Act.
(2)The practice of soliciting customers by providing corporate information
Around December, 2014, on the day that Analyst A, belonging to the equity research department of the Company, obtained corporate information on undisclosed quarterly results through interview with listed Company B (hereinafter referred to as “the corporate information of the case”), he informed 21 staffs in charge of sales and a customer of the corporate information of the case via email and other measures.
On the same day, 2 sales representatives of staffs who received the corporate information of the case solicited at least 3 customers, including the customer above, to trade shares in Company B by providing the corporate information of the case before the information had been disclosed by Company B.
The conduct of soliciting customers to trade as described in (2) above is acknowledged to be the practice of soliciting customers to trade in securities by providing corporate information, and to fall under Article 117, paragraph (1), item (xiv) of the Cabinet Office Ordinance on the Financial Instruments Business, based on Article 38, item (vii) of the Financial Instruments and Exchange Act prior to revision by Act No.44 of 2014.
3. Others
The weakness of the Company’s governance and compliance system is identified as the root cause of the problems above and should be tackled as a global issue of the Company.