April 15, 2016
Securities and Exchange Surveillance Commission
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 Credit Suisse Securities (Japan) Limited (hereinafter referred to as "the Company"). This recommendation is based on the findings of an 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 Credit Suisse Securities (Japan) Limited
Location: Minato-ku, Tokyo
Corporate Number: 2010401059260
President and CEO: Martin Keeble
Capital: 78.1 billion JPY
Number of officers and employees: 462
Registration type: Type I Financial Instruments Business, Type II Financial Instruments Business, and Investment Advisory and Agency Business
(1)Inadequacy of the Company’s system for managing Corporate Information
*“Corporate Information” is defined in the FIEA as: (i) non-public material information, which is considered to affect investors’ decision-making concerning the operations, business and assets of listed companies as well as (ii) non-public information regarding the implementation or cancellation of TOB.
Within the Company, the equity research division is responsible for research on listed companies through measures including interviews by analysts belonging to the division (hereinafter referred to as “internal analysts”) and provides customers with reports in a form prescribed by the Company (“analyst reports”). In addition, the division supports the business of the equity cash sales division for customers such as hedge funds and asset management companies.
The head of the equity research division directed internal analysts to provide customers directly with meaningful information, since January 2015, with a numerical target of one hundred times per month. In fact, internal analysts provided analyst reports as well as information obtained from listed companies through measures including interviews with customers and sales representatives by phone and email, and obtained and shared information with customers by accompanying them on visits to listed companies for interviews.
Additionally, within the Company, internal analysts provided the same information to staff members in charge of proprietary trading, since June 2015.
Non-public information obtained from listed companies through measures including interviews by internal analysts may contain Corporate Information. However, the equity research division and compliance officers almost never reviewed whether the information provided to customers fell under the definition of Corporate Information, entrusting the matter to internal analysts’ self- judgement.
Under these circumstances, in September and October 2015, Corporate Information was provided to a number of customers with little review of whether the information fell under the definition of Corporate Information, in at least five cases, including three cases in which the Corporate Information was published in analyst reports.
It is considered that the Company has managed Corporate Information, as described above, without having taken necessary and appropriate measures to ensure the prevention of unfair transactions in connection with Corporate Information. Therefore, the situation is considered to fall under Article 123, paragraph (1), item (v) of the Cabinet Office Ordinance on Financial Instruments Business, based on Article 40, item (ii) of the Financial Instruments and Exchange Act (hereinafter referred to as “FIEA”), which lists conditions that must be avoided.
(2)The practice of soliciting customers by providing Corporate Information
In September 2015, Analyst A, belonging to the Company, obtained Corporate Information on an undisclosed forecast on half-yearly consolidated results (operating income) through an interview with listed Company B (hereinafter referred to as “the Corporate Information of the case”). On the next day, Analyst A informed a staff member in charge of sales and at least one customer of the Corporate Information of the case by phone.
Further, on the same day, the sales representative who received the Corporate Information of the case solicited at least 33 customers to buy stocks of 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 buy as described above is considered 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 Financial Instruments Business, based on Article 38, item (viii) of the FIEA, which lists prohibited acts.
The insufficiency of measures ensuring internal control in the process of downsizing the divisions, such as the internal control division, is identified as the root cause of the problems above.