Press Conference by Tadahiro Matsushita, Minister for Financial Services

(Excerpt)

(Tuesday, July 17, 2012, from 11:03 a.m. to 11:26 a.m.)

[Opening Remarks by Minister Matsushita]

At the cabinet meeting, Minister of State for Disaster Management Nakagawa reported on the results of his visit of the northern Kyushu areas that he conducted during a two-day stay from July 13 following the recent torrential rain. He said that thorough measures will be taken to deal with the situation. Twenty-eight people were killed, four people remain missing and 7,000 houses were damaged, so this disaster fits the description “unprecedented downpour.” Minister Nakagawa said that appropriate measures will be taken.

That is all I have to say.

[Questions & Answers]

Q.

I have two questions concerning insider trading cases related to public offerings of new shares.

On July 15, a former executive officer of SMBC Nikko Securities Inc. and other people were re-arrested. The former executive officer is suspected of having leaked information concerning two other stocks, and this has reinforced the suspicion that he was leaking information as a routine practice. Could you comment on that? Also, regarding SMBC Nikko Securities' ongoing internal investigation, what results do you expect?

I have another question concerning insider trading related to public offerings of new shares. Last Friday, the Tokyo Stock Exchange (TSE) announced a plan to strengthen surveillance over insider trading related to public offerings of new shares. The plan apparently centers on having a dedicated division check whether or not there are illegal transactions. Could you offer your assessment of the plan?

A.

As for your first question, a former executive officer of SMBC Nikko Securities was re-arrested. Frankly speaking, that is outrageous. As I will explain later, when I visited the TSE, I held various discussions with TSE executives. On that occasion, I stressed my points to the TSE executives.

As I have repeatedly said, securities companies must strictly manage corporate information related to tender offers and other relevant corporate information from the perspective of preventing illegal trading such as insider trading.

They are required to develop effective internal control systems and conduct business with a high level of compliance awareness and professional ethics. As for administrative actions that may be taken in specific cases, I would like to refrain from making comments for the moment, as our investigation is still ongoing. However, I am keeping a close watch on these cases with very strong interest. If a problem is recognized with regard to a securities company's business operation, we will take strict actions in accordance with laws and regulations.

I visited the TSE on July 12. The visit was very timely, as it followed the recent succession of various insider trading cases involving securities companies and others.

In relation to your question, from the perspective of ensuring the fairness and transparency of the financial and capital markets, it is very important to prevent insider trading. I think it is important that the financial authorities and financial product exchanges work together in this task, so I visited the TSE on July 12.

On that occasion, I was briefed on the TSE's plan for preventing insider trading, which was announced on July 13. Before receiving the briefing, I had conveyed to the TSE my grave concern and disappointment regarding the succession of insider trading cases and asked the exchange to formulate its approach to this problem and explain it to me. When I received the briefing, I asked the TSE to tackle the problem with a sense of urgency.

The FSA will also continue efforts to prevent insider trading and ensure and enhance the fairness and transparency of the market while taking advantage of the results of the TSE's activities.

Q.

The other day, you said that as part of reports on the review being conducted by 12 securities companies, you will require reporting on the provision of information to Japan Advisory. If securities companies admit to the provision of information to Japan Advisory, I think that information disclosure should be made with regard to the number of cases in which such information leakage occurred in order to regain trust in the Japanese market. What would you say to that?

A.

On July 3, the FSA ordered 12 securities companies which have acted as lead managers in large-scale public offerings of new shares in recent years to review their systems for managing corporate information and report on the results, as you know. The deadline for the submission of the report is August 3. I would like to refrain from making detailed comments on the specifics of this order.

We have ordered the securities companies to review their systems for managing corporate information and report on the results. I understand and strongly hope that they will be able to submit a broad range of information, including with regard to the point that you mentioned.

I am not thinking of disclosing the status of transactions conducted by individual securities companies. In any case, generally speaking, if a problem is recognized, the FSA will appropriately share information with the Securities and Exchange Surveillance Commission (SESC) and take appropriate administrative actions as needed.

Let me state this to make sure you got it right. We do not necessarily recognize that the securities companies ordered to conduct the review have problems in their management systems. I understand and hope that they will appropriately conduct the review and submit a broad range of information to us.

Q.

I understand that some information can be disclosed and other cannot. May I take it that to the maximum possible extent, you will disclose information that can be made public so as to enhance transparency and fairness?

A.

Of course, we must avoid creating the impression in the eyes of other countries that Japan is covering up insider trading. However, for the moment, we are not thinking of disclosing the status of transactions conducted by individual securities companies.

We take the succession of insider information leakage cases seriously and we have ordered 12 companies to review their systems for managing corporate information and report on the results by a certain deadline, so first of all, we will examine their reports.

Generally speaking, if a problem is recognized as a result of the review, the FSA will appropriately share information with the SESC and take appropriate administrative actions as needed, as I already mentioned.

I think that it is not necessary to worry about the matter you mentioned. We will closely examine their reports.

Q.

I would like to ask you about the LIBOR (London Interbank Offered Rate) scandal. Last weekend, it was announced that the Federal Reserve Bank of New York and the U.K. authorities had been aware of the fact of the manipulation of LIBOR by Barclays in 2008. Was the FSA aware of the fact?

A.

I would like to refrain from commenting on the foreign authorities' actions.

LIBOR is widely used as a global benchmark interest rate, so generally speaking, we are keeping a close watch on this problem.

While I refrain from commenting on specific communications between financial authorities, I suppose that the Federal Reserve Bank of New York was communicating with its U.K. counterpart, the Bank of England, as the British Bankers' Association is responsible for setting LIBOR.

Q.

In relation to the previous question, does the FSA intend to investigate Japanese banks, for example, in connection with this case?

A.

We are naturally keeping a close watch on the LIBOR scandal as a very serious problem. As for TIBOR, the Japanese Bankers Association (JBA) is responsible for setting the management standard, so the FSA is not in a position to make comments. We think that it is important for the JBA to take appropriate and timely actions and we strongly hope that the JBA will do so.

We believe that the management of TIBOR and problems related to financial institutions' internal control systems, such as the manipulation of interest rates, are different matters that we must consider separately. The FSA will continue to check individual financial institutions' internal control systems through inspection and supervision, and if a problem is recognized, we will take appropriate actions as needed.

Q.

Does that mean that the Japanese authorities will not conduct investigation regarding LIBOR?

A.

As this matter concerns the foreign authorities' actions, I would like to refrain from making comments for the moment.

While the authorities of various countries are conducting investigation regarding LIBOR and TIBOR, I would like to refrain from making comments on what actions are being taken in specific cases like this.

In any case, I would like to stress that the FSA is cooperating and communicating with relevant authorities, including foreign ones, as needed.

Q.

Finally, what impact do you expect that the illegal manipulation of LIBOR, which you referred to as an important benchmark, will have on the market?

A.

As newspapers and other media have reported on this problem day after day and there have been various reactions internationally, we recognize that this is a problem that we cannot leave unattended. Therefore, we will keep a close watch on it and continue to make sure to collect necessary information.

Q.

Let me make sure about your answer to an earlier question. Am I correct in understanding that even though the U.S. and U.K. authorities detected the wrongdoing in 2008, the Japanese authorities have not been aware of it until now?

A.

I refrain from commenting on that. This is a fairly delicate matter. All the same, looking at the cooperation between the U.S. and U.K. authorities, the FSA may be aware that this problem has not occurred overnight. However, I would like to refrain from making comments.

Q.

In relation to the previous question, last December, the SESC took disciplinary actions against securities companies operating in Japan for making illicit requests related to TIBOR, and the FSA also took administrative actions. What was your conclusion as to whether or not their requests led to illegal manipulation?

A.

I am afraid I cannot comment on that. That is a very delicate matter.

Q.

Let me move on to a different subject. At a meeting of the Liberal Democratic Party's Land, Infrastructure and Transport Division, the possibility was pointed out last week, on July 13, that the provision of new capital to JAL (Japan Airlines) by several companies in March last year, just before the completion of the corporate rehabilitation procedure, may constitute insider trading. The reasoning is that those companies knew for sure that the prices of JAL shares would rise after relisting.

A media report said that eight companies, including Kyocera and Daiwa Securities, provided a total of 12.7 billion yen in capital. An FSA official explained at the meeting that the insider trading regulation does not apply to this case because JAL shares are not listed. What do you think of that?

A.

I have never heard about that until now. I cannot comment on it for the moment. First of all, I would like to check and sort out facts and information. I would like to answer your question on some other occasion after doing that.

Regarding an earlier question (as to whether requests made by the securities companies against which administrative actions were taken last December led to illegal manipulation), a question as to the FSA's effort to identify problems regarding the internal control systems of financial institutions involved in LIBOR submissions, the FSA has been checking individual financial institutions' internal control systems through inspection and supervision. As a result, it was found that traders at the Tokyo branches of Citigroup and UBS Securities were continuously making inappropriate requests related to the submitted TIBOR rates. Therefore, last December, the FSA ordered those securities companies to suspend business operation. It was not confirmed, through inspection either by the SESC or the FSA, that the traders' requests had influenced the judgment of the officials responsible for determining the submitted rates at either Citibank or at UBS AG.

The FSA will continue to check individual financial institutions' internal control systems through inspection and supervision, and if a problem is recognized, we will take appropriate actions in accordance with laws and regulations.

Q.

According to a foreign media report, a U.S. Senate committee has recently issued a report on money laundering by the HSBC group. The report refers to the possibility that HSBC may have facilitated money laundering by funneling funds via Hokuriku Financial Group. Could you offer the FSA's view on that?

A.

I have not been aware of that until now. I would like to comment on it on some other occasion after sorting out information.

(End)