Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Friday, July 6, 2012, from 10:22 a.m. to 10:44 a.m.)

[Opening Remarks by Minister Matsushita]

At the cabinet meeting, the appointment of Tetsuo Inami as new State Secretary for Internal Affairs and Communications was formalized.

In addition, the Minister of Land, Infrastructure, Transport and Tourism explained the outline of the White Paper on Land, Infrastructure, Transport and Tourism in Japan.

Those are the major matters taken up at the meeting.

[Questions & Answers]

Q.

First, let me ask you about insider trading related to public offering of new shares. At last week's meeting of the Financial System Council, you asked the council to consider measures to prevent a recurrence of insider trading. Among the main points of debate are how to treat the act of communicating insider information and the method of calculating the monetary penalty amount. I suppose there will be more serious issues of discussion, such as double punishments. What is your recognition of problems and issues?

A.

I asked the Financial System Council - I suppose some of you attended the meeting - to conduct deliberations on how to treat the act of communicating insider information, the method of calculating the monetary penalty amount, and the revisions of the insider trading regulation that will be required in light of the trend of insider trading cases in recent years and the actual circumstances of financial and business practices.

Regarding the treatment of the act of communicating insider information, restricting information leaks would be different in nature from the current insider trading regulation. In other words, the current insider trading regulation restricts the sale and purchase of listed stocks and other securities based on the knowledge of material information. As the act of leaking information, rather than the act of selling or purchasing, would be restricted, this would be different in nature from the current regulation.

In any case, it will be necessary to consider what actions can be taken against whom and against which kind of acts, so I asked the council to conduct deliberation.

As for the method of calculating the monetary penalty amount, under the Financial Instruments and Exchange Act, monetary penalty is imposed in an amount equivalent to the economic benefits gained in relation to the illegal act, as I explained repeatedly. However, it will be necessary to consider whether there is room for improvement in the method of calculating the monetary penalty amount while taking account of the details of the recent cases of insider trading.

It is prerequisite that before technical matters like this, the current monetary penalty system and what it should be like in the future should be discussed in depth and from a broad perspective as basic matters. I expect that technical matters will come up in connection with the basic matters. In any case, I hope that the working group on insider trading regulation will conduct intensive and appropriate examination and deliberation on measures to prevent illegal acts.

That is all I have to say.

Q.

In connection with the insider trading cases related to public offering of new shares, let me make sure about the contents of a media report. It was reported that today, the Financial Services Agency (FSA) will ask 12 major securities companies to report on the details of transactions with Japan Advisory, against which the imposition of monetary penalty was recommended. Is this report true to the facts?

A.

I would like to refrain from commenting on specific administrative actions.

Regarding Japan Advisory, the Securities and Exchange Surveillance Commission recommended last Friday, June 29, that the FSA should take administrative action against the company. In light of the recommendation, the FSA rescinded the company's registration on the same day and ordered it to improve its business operations. This case is very regrettable.

If a problem is recognized regarding a financial institution's business operations, the FSA will take strict action in accordance with laws and regulations.

Although I refrain from commenting on specific cases, generally speaking, the FSA requests various reports from relevant industries in relation to the problems of the time. In addition, the FSA may exchange opinions with relevant industries. We are taking such actions as needed.

Q.

While you said you would like to refrain from commenting on specific administrative actions, you recently announced that you asked the 12 companies to conduct a review and submit reports. I am wondering whether it is appropriate that you are refusing to make an announcement this time. This is an important issue. There is strong public interest in the issue.

A.

Last time, I asked the 12 companies to conduct a review. I did so because insider trading cases have occurred again and in succession at the three major securities companies which act as lead managers. In light of the seriousness of this situation, the FSA asked 12 relevant companies, of which more than 90% are involved in fund raising, to conduct a review, as I said the other day.

As the facts will be clarified through the review, we have asked for the submission of reports on the review, so we will make a judgment after examining their contents.

Q.

My next question concerns the review of the amended Money Lending Act.

In discussions being held by a working team of the Democratic Party of Japan (DPJ), a consensus is emerging that a new law should be considered to set an exceptional ceiling, higher than the current ceiling of 15-20%, on interest rates on loans to small and medium-size enterprises. What do you think of that?

A.

I would like to refrain from commenting on behalf of the government on political parties' policy proposals.

The current Money Lending Act was enacted with the unanimous support of all parties and parliamentary groups in the Diet session in December 2006 from the perspective of taking fundamental and comprehensive measures to resolve the multiple debt problem. Since this law was put into force, the number of people with five or more outstanding debts has declined compared with fiscal 2006.

As I mentioned previously, the number of such people was 1.71 million in March 2007, but it was down to 440,000 in March 2012, so I recognize that this law has been effective to a certain degree in easing the multiple debt problem. For the moment, the government believes that there is nothing about the current legal framework that should be reviewed immediately.

In any case, the FSA will continue efforts to grasp the actual circumstances. We will also keep watch on the situations of consumer loan lenders and borrowers and make increased efforts to enhance a consulting system regarding multiple debts in cooperation with relevant ministries and agencies.

Q.

In relation to the succession of insider trading cases, foreign hedge funds are said to have requested securities companies to provide insider information. Am I correct in understanding that you will ask for reports particularly on that point?

A.

That is correct.

Q.

I have one more question. In discussions held by the DPJ's working team, it was pointed out that insider trading has changed in nature in recent years. In short, while issuing companies and ordinary investors were involved in insider trading cases previously, professionals have been involved in recent cases. There is an argument that in response to this trend, the SESC's surveillance capability should be enhanced or its staff should be increased. What is your view on the change in the nature of insider trading? Also, what do you think of the necessity of increasing the staff and enhancing the surveillance capability of the SESC and the FSA?

A.

I am aware that the change in the nature of insider trading was discussed at yesterday's meeting of the DPJ's working team on fiscal and financial sectors, capital markets and corporate government reform. I read some materials describing the contents of the discussion.

When we look at past cases of insider trading in which the SESC recommended the imposition of monetary penalty, we recognize that almost all of them involved ordinary investors who did not engage in stock transactions as professionals, and I understand that most of the investors involved were individuals.

In contrast, I understand that in insider trading cases related to public offering of new shares that have been handled by the SESC since the summer of 2010, investigation has focused on institutional investors who engage in stock transactions as professionals, as you mentioned. As a result, since March this year, the imposition of monetary penalty against professional investors who committed illegal acts has been recommended in five cases.

As insider trading is becoming increasingly sophisticated, the FSA's ability, including in terms of human resources, to handle insider trading cases has been questioned. I recognize that the FSA and the SESC have a very important role to play in ensuring the fairness and transparency of the market and protecting investors.

Despite the severe fiscal constraints on administrative activities, we have already been enhancing our staff and capabilities regarding the detection of insider trading, and inspection and supervision of institutional investors. We will continue efforts to achieve maximum results, including improvement of the quality of administration, within the limits of the power granted to us and the size of our staff.

Q.

In relation to the question concerning the request for the 12 companies to report on transactions with Japan Advisory, may I take it that this will be included in the matters to be covered by the voluntary review?

A.

We will indicate a broad range of matters to be covered by the report that we are requesting from them, so we expect that this will be included in the report.

Q.

Let me make sure about that once again. May I take it that you instructed the 12 companies to conduct a voluntary review, including with regard to whether or not information was provided to Japan Advisory?

A.

That is my understanding.

That is included among the matters to be covered by the voluntary review and to be reported on.

Q.

I am Abe from Facta Publishing. I have a few questions.

The Tokyo Stock Exchange and the Osaka Securities Exchange have obtained the Fair Trade Commission's approval for their merger, paving the way for the creation of Japan Exchange Group. In relation to that, I have two questions.

In June, the OSE decided to delist a Chinese company called Celartem Technology, which went public through “backdoor listing.” According to our reports and investigation, this company is closely related to another Chinese company, China Boqi, which is listed on the TSE. If Celartem Technology is to be delisted, I would presume that some measure or other will be taken against China Boqi as well. However, there have been no media reports that the TSE is considering delisting this company. According to our investigation, this company issued a press release about the construction of a thermal power plant in China, which turned out to be a fictitious story.

I think that measures taken by the TSE and the OSE against problematic companies like this are very lax. On the occasion of the merger, do you intend to ask TSE President Saito and OSE President Yoneda to take appropriate action against so-called shell companies, which frequently change their names and which inflict considerable damage on investors?

A.

Regarding the integration of the TSE and the OSE, I have been involved since I was Senior Vice Minister of Economy, Trade and Industry, so I believe that the integration itself is very important in that it will open up future prospects.

I am aware of the specific matters that you mentioned, but I have not yet grasped the details. In any case, it is quite natural that they act in ways that ensure fairness and transparency. I hope that they will continue to do so.

Q.

There is also a similar problem regarding the TSE. On May 7, the U.K. FSA (Financial Services Authority) imposed a fine against Mitsui Sumitomo Insurance. A fine of more 400 million yen was imposed on the company's European business base due to flawed corporate governance. Available on the U.K. FSA's website is a paper running more than 20 pages that offers very harsh words.

However, Sumitomo Mitsui Insurance has not issued any press release in response to that. I would say that this is a violation of the TSE's rules requiring timely disclosure. I think that it is inappropriate not to announce to shareholders or other parties in Japan the reason why it received such a severe punishment. Does the TSE or the FSA have no intention to instruct Sumitomo Mitsui Insurance to provide adequate explanations regarding this case?

A.

I have not grasped the facts regarding what you mentioned now, so first of all, I will strive to do so. After doing so, I will consider the matter and make a statement if necessary.

(End)