Press Conference by Ikko Nakatsuka, Minister for Financial Services

(Excerpt)

(Tuesday, November 6, 2012, from 10:50 a.m. to 11:06 a.m.)

[Questions & Answers]

Q.

Last Friday, the Securities and Exchange Surveillance Commission (SESC) recommended the imposition of an administrative monetary penalty against Japan Advisory. I think that this is similar to the series of cases of insider trading related to public offerings. What do you think of the fact that a similar case has occurred again?

A.

First, it is quite regrettable that information related to a public offering leaked from Nomura Securities and that insider trading was conducted.

However, I hear that in this case, insider information was not explicitly communicated but that an analyst's action based on internal rules resulted in the communication of information.

Moreover, I think that the problem of rigid application of internal rules that caused this case has been addressed by the recurrence prevention measures already adopted and implemented by Nomura Securities.

In any case, insider trading could undermine investors' confidence in the fairness and transparency of the Japanese market. Upon this recommendation, the FSA will strictly deal with this case in accordance with laws and regulations.

Q.

In relation to that, Nomura Securities issued a press release. I understand Nomura Securities judged that this case may constitute insider trading as a result of its voluntary review and reported it. In that sense, it appears that routine inspection and supervisory activities by the authorities including the SESC have failed to detect this case. What do you think of that?

A.

Regarding this case, I am aware of the SESC's announcement that Nomura Securities reported the problem to the SESC after detecting it through its continuous voluntary inspection and investigation, and that the company has been cooperating with the SESC's inspection since then. However, I understand that the SESC has not commented on the specifics of the factor that triggered this inspection.

In any case, the Financial Services Agency (FSA) and the SESC will continue efforts to strengthen inspection and supervisory systems. Although the fiscal situation is very severe, we will strive to ensure appropriate and efficient inspection and supervision by making effective use of information from external sources so that we can achieve the maximum possible results within the powers and staffing granted to us.

Q.

I have one more question related to this case.

As you mentioned, it became known that the public offering was planned for the near future because Nomura Securities omitted references to Elpida Memory from an industry report. Do you think that Nomura Securities bears responsibility for that action or that there was any problem with the action? Could you tell me how the company should have acted?

A.

As I mentioned earlier, rigid application of internal rules resulted in this problem. At that time, under Nomura's internal rules, analysts were required to omit from industry reports distributed externally any reference to companies that were scheduled to publicly offer new shares within one week.

To prevent this kind of information leakage, the recurrence prevention measures announced by Nomura on June 29 included allowing analysts in principle to write a new report or make comments regarding companies planning public offering until immediately before the public offering and abolishing the requirement that references to such companies be omitted from analysis reports and industry reports. These improvement measures have already been implemented.

Therefore, as to how the company should have acted, I understand that countermeasures have already been taken in light of this case.

Q.

This morning, Minister for Postal Privatization Shimoji made comments to the effect that it is impossible for the FSA to reverse a decision made by the postal privatization committee. What is your view on this matter? How is the postal privatization committee's decision related to the FSA's examination?

A.

The important thing is that procedures based on relevant laws should be followed. That means we must listen to the postal privatization committee's opinion. Although we are responsible for making a final decision in accordance with the amended Postal Service Privatization Act, procedures based on the Banking Act and the Insurance Business Act must also be followed.

Q.

In relation to the previous question, may I take it that even if the postal privatization committee headed by Chairman Nishimuro gives the go-ahead, the FSA may oppose the decision and refuse to grant approval?

A.

The issue is not whether or not we oppose. We will follow the prescribed procedures.

Q.

I would like to ask another question concerning Japan Post. Regarding shares of Japan Post Group's two financial institutions (Japan Post Bank and Japan Post Insurance), Minister for Postal Reform Shimoji said at a press conference on November 2 that he had instructed that preparations should be made so that the two financial institutions can be listed when 50% of the government-held shares in Japan Post has been sold. At the previous press conference, you said that the sale of shares of the two financial institutions is a necessary condition but not a sufficient condition. If the two financial institutions can be listed when 50% of the shares has been sold, does that mean a necessary condition has been met?

A.

I have not directly heard about that. As I mentioned, that is a necessary condition but not a sufficient condition. The point is - this also relates to the previous question - that as we have to follow various procedures when approving new services, that is a necessary condition but not a sufficient condition.

Q.

If the two financial institutions can be listed when 50% of the shares in the parent company has been sold, does that mean a necessary condition has been met with regard to shares in the two institutions?

A.

I would like to refrain from commenting on that because I have not directly heard about it.

Q.

You are a member of the Noda cabinet. As Minister Shimoji has expressed his own opinions regarding various matters as he likes, don't you intend to talk directly with him?

A.

As we are working together as cabinet members in conducting administration, we must consult with each other when necessary. However, we also conduct administration in our respective areas of jurisdiction.

In any case, the important thing is that we should follow the legally prescribed procedures.

Q.

I am from Tsushin-Bunka Shinpo.

You said earlier that you will conduct examination in light of the Banking Act and the Insurance Business Act in addition to the Postal Service Privatization Act. If so, what will be the important points of debate as to whether to grant approval?

A.

I explained the point of debate in detail at the previous press conference. For example, we must closely examine internal control systems, including the compliance and risk management required of financial institutions.

Q.

Could you comment on the G-20's statement, mainly regarding the points to which the Japanese financial authorities give particular consideration?

A.

On November 4 and 5, the G-20 finance ministers and central bank governors held a meeting, and I understand that they discussed the global economy and the European situation. In addition, I hear that discussions were also held on the progress so far made in the financial regulatory reform and how the reform should be carried out in the future.

I also understand that an updated list of global systemically important banks was published and proposals were presented regarding the policy framework related to domestic systemically important banks and regarding the strengthening of regulation and supervision of shadow banking activities. I welcome these initiatives. The G-20 will request a further study regarding shadow banking activities. In addition, it was reconfirmed that necessary measures should be taken to steadily implement Basel III and the reforms related to over-the-counter derivatives, which had already been agreed upon.

Moreover, regarding the ongoing financial regulatory reforms, I am particularly interested in the issue of extraterritorial application of regulations by the United States. When the Minister of Finance has returned, I will ask him about the details of the discussion on that matter.

Q.

Yesterday, Aozora Bank established a subsidiary dedicated to the management of a turnaround fund that purchases loans provided by regional financial institutions to small and medium-size enterprises (SME) in light of the scheduled expiry of the SME Financing Facilitation Act. There are other similar activities. What do you think of such activities?

A.

As the SME Financing Facilitation Act is scheduled to expire at the end of next March, we announced a policy package in April. The policy package includes a measure to encourage the establishment of turnaround funds.

In that sense, we have high regard for the voluntary establishment of turnaround funds by financial institutions to support the recovery of local SMEs as an excellent proactive initiative.

Thank you very much.

(End)