Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Tuesday, July 3, 2012, from 11:00 a.m. to 11:25 a.m.)

[Opening Remarks by Minister Matsushita]

I have a statement to make concerning the review of the system for managing corporate information.

In light of the series of cases of leakage of insider information at major Japanese securities companies, today, July 3, the Financial Services Agency decided to ask 12 major securities companies that play an important role in the underwriting of public offering of new shares to review their systems for managing corporate information.

There are three points of review: internal organization; status of management of corporate information; and problems and corrective measures. As emphasis is placed on voluntary efforts, the FSA will encourage the companies to disclose the results of their review.

The FSA will take strict and appropriate actions against securities companies that are found to have problems in light of the review results. In any case, it is very regrettable that the situation has developed like this. I would like to ask securities companies to firmly recognize the public nature of their roles and do their utmost to ensure appropriate business operation so as to prevent unfair trading, such as insider trading, and enhance the fairness and credibility of the market.

As for further details, the FSA staff will hold a briefing after this press conference.

I reported on this matter at this morning's cabinet meeting. At an informal meeting of cabinet ministers, I stated that it is very regrettable that the situation has developed like this and that the FSA will take strict and appropriate actions against securities companies that are found to have problems in light of the review results.

At the informal meeting, I also mentioned my attendance at Japan Post Holdings' general shareholders' meeting on June 28 on behalf of the minister of finance. I requested that Japan Post's top managers continue working as one in conducting business management in light of the purpose of the revised Postal Service Privatization Act. I thanked relevant people, such as the minister of finance and the minister of internal communications, for letting me attend the general shareholders' meeting on their behalf.

I have no further comments today.

[Questions & Answers]

Q.

Regarding the cases of insider trading related to the public offering of new shares, I understand that each company has been conducting an internal investigation since the scandal broke. Could you explain why the FSA asks the companies to review their management systems on a voluntary basis, rather than ordering them to do so as an administrative action?

Before Nomura Securities' announcement last Friday of the results of its investigation, you said it is important to exercise the self-purification capability. In light of Nomura's report and its own disciplinary measures, do you think that the self-purification capability has sufficiently been exercised?

A.

You have asked several questions. First, we have decided to ask major securities companies to review their systems for managing corporate information. The request for the review was made in response to the series of problems at securities companies acting as lead managers regarding the management of corporate information related to public offering of new shares, as I mentioned earlier. We have made the request as we recognize this serious situation.

The review has two purposes, one of which is collecting information regarding securities companies' systems for managing corporate information and grasping their status of business operation and the other is encouraging securities companies to strengthen their management systems. The FSA has thus clearly expressed its intention to encourage securities companies to strengthen their management systems and take strict and appropriate actions against companies that are found to have problems in light of the results of the review. We have clearly expressed our intention to do so.

Regarding the self-purification capability, Nomura Securities stated in a press release dated on June 29 that it will strengthen its management system through continuous investigation and other measures. The company said it will try to regain credibility by thoroughly implementing corrective measures and expressed its resolve to strengthen its management system through continuous investigation and other measures. We understand that the company intends to conduct further investigation. While the investigation by outside lawyers has been halted, the CEO said that the company will continue internal investigation.

In light of the results of the lawyers' investigation, the company will conduct internal investigation regarding the series of cases of leakage of insider information. In addition, on June 29, the company announced the facts that had been grasped by then, the analysis of the cases and corrective measures, so I recognize that the self-purification capability is being exercised to a certain degree.

However, what is more important is to steadily implement corrective measures, including changing the mindset of executives and employees, including their compliance awareness and professional ethics, as I mentioned previously. My understanding is that the company is still midway through its reform. We will be able to say that Nomura Securities has exercised the self-purification capability only if the company has implemented such measures. I will keep a careful watch on the company's actions. I believe that the review is starting because we have made our intentions clear. I will continue to carefully monitor the situation.

Q.

In relation to the halt to lawyers' investigation of the Nomura cases, although the company said it will conduct internal investigation, it previously failed to find problems through past internal investigation. Therefore, Nomura Securities entrusted outside lawyers to investigate the cases after the SESC (Securities Exchange and Surveillance Commission) filed accusations, and some facts have been brought out into the open. However, the investigation has been halted. Despite that, do you think that the company is exercising the self-purification capability? In my eyes, the reality is quite different.

A.

I believe that it is desirable to take more appropriate actions, including in relation to company-wide governance problems, such as the slow initial response. In that respect, while I would like to refrain from commenting on the details of the investigation results as determined by the company, generally speaking, I think that more appropriate actions, including in relation to the initial response, should have been taken. As we have decided to ask 12 companies to review their management systems, I would like you to take account of that.

Q.

In relation to the review to be conducted by 12 companies, given that all of the three major Japanese securities companies have been found to have been involved in insider trading cases, do you think that the FSA should bear responsibility as their supervisor and financial administrator?

A.

I have not yet made judgment in that respect. As the review is starting in relation to the series of insider trading cases, it is important to first grasp the facts, and then assess the internal management systems and the status of professional ethics.

Q.

Let me make sure about one thing related to Nomura, which said it will continue internal investigation. Nomura has expressed its intention to conduct internal investigation. Is it possible that the FSA will require Nomura to report on whether or not any problem has been found as a result of the investigation? Or if no problem is found, will it be unnecessary for Nomura to report to the FSA?

A.

As this is a matter on which Nomura Securities should make judgment itself, I would like to refrain from making comments. In any case, insider trading cases occurred again and in quick succession, and there is public suspicion that the practice has become routine, so I expect that the company will take appropriate action based on its own judgment.

In any case, after examining the results of the future internal investigation and its sufficiency, we will take strict action in accordance with laws and regulations. We will make efforts to ensure that the review will be conducted appropriately.

Q.

I am from Kakiuchi from IT Media. Let me ask you about the International Financial Reporting Standards (IFRS). Yesterday, the Business Accounting Council issued an interim report summarizing the points of debate. In particular, it calls for the expansion of the voluntary application of the IFRS. Is the FSA thinking of taking any action in relation to the IFRS?

A.

I attended a recent meeting of the council and received a briefing on the interim report. As the contents of the report were discussed by experts in their areas of specialty over a long period of time, I will properly examine them. In any case, we must decide what Japan should do while keeping watch on various international developments, including the situation in the United States and Europe's future actions.

Q.

Am I correct in understanding that the FSA will take the next action after watching international developments?

A.

That is correct. That is the summary of the council's discussions, so I will make careful judgment on what Japan should do so as to prevent the country from being left behind.

Q.

I am Namikawa from Toyo Keizai.

Regarding Nomura Securities, following the announcement of its report and corrective measures, the company will voluntarily suspend business operation for the purpose of conducting investigation. From what I remember, there have been few past cases in which a licensed or registered company voluntarily suspended business operation. In short, I believe that companies must continue business operation under any circumstances. I do not know how I should interpret the decision to suspend the business operation that the company is conducting based on the license granted by the government. What is your view on that point?

A.

I would like to refrain from making comments. I suppose that there have been various internal discussions. I have been told that around 1991, a certain company voluntarily suspended business operation. Although I suppose there have been substantial internal discussions, I would like to refrain from making comments.

Q.

Regarding Nomura, outside lawyers investigated three past cases of insider trading. You said earlier that there are suspicions that insider trading has become a routine practice. Do you think that the internal investigation alone will be sufficient?

A.

As to the question of how Nomura assesses the fact that insider trading cases occurred again and in quick succession, I think that the company itself should make judgment and find a solution to this serious situation, so I will carefully watch Nomura's future actions. In that sense, the review should be conducted appropriately, so I would like you to understand that we have made our intentions clear in that respect.

Q.

This week, a ministerial meeting on growth finance will be held. The contents of a relevant report have apparently been almost finalized. I understand that the report includes measures against which there was strong opposition from the banking industry, such as the plan to utilize dormant deposits. What is your assessment of the achievement that the FSA has made in relation to growth finance?

A.

I hear that the draft of a final report by the Growth Finance Promotion Council is still under consideration, so I would like to refrain from commenting on it for the moment.

Generally speaking, I believe it is important that the large amount of financial assets held by the public and private sectors are effectively used for Japan's growth through improvement of the investment returns and that national wealth is increased as a result of the investment of those assets. That is what I can say as a matter of general principle. I would like to refrain from making specific comments.

Q.

In relation to securities companies' review of the management systems, on which the FSA staff will hold a briefing, will the names of the 12 companies concerned will be announced?

A.

That's right. As for the company names, please listen to the FSA staff's briefing.

(End)