Provisional translation

Press Conference by FSA Commissioner Takafumi Sato


April 20, 2009

[Opening Remarks by FSA Commissioner Sato]

I am sorry to have kept you waiting. I do not have any particular statements to make.

[Questions and Answers]


Regarding stock price-supporting measures, the ruling parties have decided the outline of a scheme for purchasing stocks directly from the market. The key points are that this is a three-year provisional measure and that judgment on stock purchases will be made at a meeting of the Financial System Management Council convened by the Prime Minister. Could you tell us how you assess this scheme from the viewpoint of the cost-benefit relationship and the negative side effects that you previously mentioned?


As I have been saying, stock prices are determined by the corporate value of the issuing listed companies, so the price formation should primarily be left to the market. However, we cannot rule out the risk that under the very unstable economic and financial conditions, the stock market’s price formation function will be seriously undermined.

As the ruling parties are continuing deliberations on this scheme, I think I should refrain from commenting on its specifics. However, I believe that it is based on the recognition of the risk that I mentioned just now.

I will explain how the FSA (Financial Services Agency) views the outline of the scheme that the ruling parties indicated. First, regarding the cost-benefit relationship, I expect that this scheme will help to prevent a serious impact on the national economy if the market loses its price-discovery function and the loss continues for a long time, by establishing a safety-net framework for purchasing stocks as a temporary extraordinary measure in such an exceptional case. What I would like to remind you is that this proposal, as I understand it, is intended to restore the market’s price-discovery function, rather than push up the stock price level. I believe that this policy measure is effective in fostering a sense of security due to the presence of a safety-net framework and that it is effective as a deterrent.

As for negative side effects, if this distorts the price formation in the market or undermines confidence in the Japanese market, it would be very problematic. Therefore, it is necessary to minimize such negative side effects and to firmly maintain the principle that, as I have been saying, this is a preparation for a very unusual situation. The scheme as outlined by the ruling parties requires that strict criteria and procedures regarding the invocation of this measure should be established, and it is also stipulated that its purpose is to restore the market’s price-discovery function.


I would like to ask you about the leakage of customer information from Mitsubishi UFJ Securities. Last week, the company announced that the number of entities to which the information was leaked came to 77, up from the initially announced number of 13. While complaints from customers are pouring in, I hear that there is no effective measure to prevent the leakage from spreading further. How do you view the deteriorating situation and what actions are you planning to take?


Regarding this case, Mitsubishi UFJ Securities first announced the leakage on April 8 and then revealed that the number of entities to which the name list sellers resold information acquired from a former employee of the company was increasing when it announced how it was dealing with the case on April 17.

As I said previously, customer information forms the basis of financial product transactions and the brokerage service, so it is extremely important to manage private information properly. From this viewpoint, I would like to reiterate my regret at this incident.

Securities companies are primarily required to take necessary and appropriate measures regarding information security management and employee supervision in order to prevent the leakage of private information. It is also important that if the leakage of information occurs, they should take swift and appropriate actions for customers affected by it, implement effective measures to prevent secondary damage and, in addition to taking these immediate measures, make efforts to regain trust by implementing measures to prevent a recurrence of the leakage.

So far, Mitsubishi UFJ Securities has taken such actions as asking the companies that may have acquired the leaked information to halt customer solicitation based on it and remove the names of the relevant customers from the solicitation target list, and sending a letter of warning in the name of the company’s attorney. Furthermore, I understand that the headquarters for dealing with the customer information leakage, which is headed by President Akikusa, was established to ensure appropriate customer relations activity, conduct a thorough third-party fact-finding investigation and work out measures to prevent a recurrence of the information leakage.

The FSA will keep a close watch on the company’s actions from the viewpoint I mentioned earlier and take appropriate actions based on laws and regulations.


In relation to the information leakage, according to the announcement made by Mitsubishi UFJ Securities, the company, which only referred to about 20 inquiries made by customers, apparently had no clue as to the extent of the leakage as of the end of March. In the eyes of customers, it may seem that the company was slow to act to prevent an expansion of the extent of the information leakage and the resale of the leaked information and there may also be doubt as to whether the FSA properly conducted supervision or gave appropriate guidance. What actions did the FSA take?


It is important that a thorough third-party investigation is conducted regarding what you mentioned as well as the course of events I referred to. It is also important to identify anything inappropriate or inadequate with regard to the actions so far taken and use the results of the investigation to prevent a recurrence of the information leakage.

As for the FSA’s supervisory actions, we have repeatedly provided a reminder of the importance of customer information management based on laws and regulations through the guideline for supervision, for example. We will need to consider if there is anything that should be further improved with regard to our supervision after carefully examining the actions taken by the company.


I have another question concerning Mitsubishi UFJ Securities. At your press conference last week, you said you will “keep a close watch on the actions of Mitsubishi UFJ Securities,” rather than “take appropriate actions based on laws and regulations” as you said today. Has anything changed over the past week?


I did not explicitly mention that last week. As the first important thing to do when an incident like this has occurred is to quickly make accurate fact-checking, I mentioned this point last week. Generally speaking, considering any additional action, if necessary, after making accurate fact-checking, is an approach I have usually mentioned.


Regarding the price-supporting measures discussed at the beginning of the press conference, you said in your reply that you cannot rule out the risk that the price formation function will be undermined in an exceptional case. On the other hand, the FSA has been advocating a shift from “savings to investments.” It is apparently inconsistent to admit to the possibility that there is a market in which the price formation function does not work while advocating such a shift as a broad policy. How are you seeking to maintain consistency in this regard, and, although it may be difficult for you to admit, do you think that there is some inconsistency?


I do not believe that there is a market in which the price formation function does not work. In the Japanese market, the price formation function is working now.

Nevertheless, as the global financial markets remain in a state of deep turmoil, we may temporarily face a situation in which the stock market fails to perform its function of forming prices in a way that reflects the fundamentals, namely corporate earnings. It is often mentioned that the market sometimes overshoots, and our capitalist economy is based on the assumption that such a temporary overshooting could occur. Therefore, although we do not think that an overshooting itself cannot be tolerated, we believe that if the loss of the market’s price formation function continues, a minimum level of government involvement is necessary in order to restore this function.

There is not any change in our broad goal of strengthening Japan’s financial and capital markets, and it is necessary to maintain consistency between our efforts regarding the price formation function and our broad principle concerning the market and our efforts toward strengthening Japan’s markets.


As Diet deliberations on a bill to amend the Industrial Revitalization Act, which is under the jurisdiction of the Ministry of Economy, Trade and Industry, are proceeding smoothly, it is expected to be enacted soon. Based on this act, it will become possible for the government to provide capital support to industrial corporations. Could you tell us what you expect of the capital support scheme based on the Industrial Revitalization Act, whether it is possible that companies under the jurisdiction of the FSA will use this scheme and what the status is of the FSA’s deliberations, if any exist, on this matter?


As this scheme is under the jurisdiction of the Ministry of Economy, Trade and Industry, I am not in a position to directly comment on it.

Generally speaking, in cases where a company’s earnings have declined and the market has made harsh judgment but where the company’s core business remains firm, which makes it possible to maintain the corporate value and enhance the chance of survival through the implementation of necessary structural reforms, I believe that the combination of debt funds with equity funds may increase the likelihood of a successful turnaround, although the circumstances may vary case-by-case.

As for your question concerning the business sectors under the FSA’s jurisdiction, I think I should refrain from making comments concerning any specific business sector, since the bill is still under deliberation.


Forgive me for pressing you on the same question, but when this question was posed to you previously, you said that business sectors under the FSA’s jurisdiction are not in a situation that would need a scheme like this, if I remember correctly. In light of that remark, I have the impression that the situation may be gradually changing. Or am I speculating too much?


I think you are.


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