December 15, 2015
Financial Services Agency
Administrative action against Deutsche Securities Inc.
The Securities and Exchange Surveillance Commission (SESC) conducted an inspection on Deutsche Securities Inc. (hereinafter referred to as “the Company”), and found violations of the Financial Instruments and Exchange Act (hereinafter referred to as ''FIEA''). On December 8, 2015, the SESC recommended that the Financial Services Agency (FSA) should take an administrative action against the Company.
After considering the recommendation, the FSA today (December 15, 2015) issued the following administrative action against the Company based on Article 51 of the FIEA.
1. Summary of the SESC findings
(1)Inadequacy of the Company’s system for managing Corporate Information*
*“Corporate Information” is defined in the FIEA as: (i) non-public material information, which is considered to affect investors’ decision-making concerning operation, business and assets of listed companies as well as (ii) non-public information regarding implementation or cancellation of TOB.
Within the Company, internal analysts belonging to the Company (hereinafter referred to as “internal analysts”) provide customers with information related to listed companies in the following manners:
A.By providing reports in a form prescribed by the Company (an “analyst report”); and/or
B.By sending emails/making phone calls to customers by themselves or through sales representatives.
The SESC’s inspection regarding the management of the information that the internal analysts obtained from listed companies through measures including interviews has identified the following problems:
(a)For A above, staff members, including compliance officers, did not necessarily review whether the information fell under the definition of Corporate Information when internal analysts themselves did not consider the information as such and thus did not report it to relevant offices; and
(b)For B above, the information was not necessarily reviewed whether it fell under the definition of Corporate Information before the internal analysts or sales representatives provided it to customers.
Consequently, in many cases in which the internal analysts obtained non-public information related to listed companies, including the cases described in (2) below, the contents of the information were provided to customers without any consideration of whether the information fell under the definition of Corporate Information.
The situation wherein the Company has managed Corporate Information as described above, is considered as not having taken necessary and appropriate measures to ensure the prevention of unfair transactions in connection with Corporate Information. Therefore, the situation is considered to fall under Article 123, paragraph (1), item (v) of the Cabinet Office Ordinance on the Financial Instruments Business, based on Article 40, item (ii) of the FIEA, which lists conditions that must be avoided.
(2)The practice of soliciting customers by providing Corporate Information
Around December 2014, Analyst A, belonging to the equity research department of the Company, obtained Corporate Information on undisclosed forecast on quarterly results through an interview with a listed Company B (hereinafter referred to as “the Corporate Information of the case”). On that same day, he informed 21 staff members in charge of sales and a customer of the Corporate Information of the case through email and other measures.
Further on the same day, two sales representatives of those staff members who received the Corporate Information of the case solicited at least three customers, including the customer above, to trade stocks in Company B by providing the Corporate Information of the case before the information had been disclosed by Company B.
The conduct of soliciting customers to trade as described above is considered as the practice of soliciting customers to trade in securities by providing Corporate Information, and to fall under Article 117, paragraph (1), item (xiv) of the Cabinet Office Ordinance on the Financial Instruments Business, based on Article 38, item (vii) of the FIEA prior to revision by Act No.44 of 2014, which lists prohibited acts.
2. Description of the FSA administrative action
A Business Improvement Order based on Article 51 of the FIEA requires the Company to:
(1)Develop preventive measures, and ensure that they are implemented and become institutionalized within the organization;
(2)Examine periodically the effectiveness of the preventive measures developed;
(Note) In case inadequacy is found as the result of the above examination, report the causes and the improvement measures to address them;
(3)Heighten awareness for compliance across the Company, and enhance and strengthen business management and internal control environment, including by clarifying tone at the top to value compliance; and
(4)Regarding (1) to (3) above, submit reports on the implementation status in writing: first of which by January 22, 2016; every three months thereafter; and at any time as necessary.
Financial Services Agency
Securities Business Division, Supervisory Bureau
Tel: +81-(0)3-3506-6000 (main)
(ext. 3370, 3356)
- Laws & RegulationsPage list Open
- Name of Laws and Regulations(PDF)
- Financial Instruments and Exchange Act
- Recent Changes
- Public Comment
- Capital adequacy requirements (Basel framework)
- No-Action Letter System
- Procedures concerning Foreign Account Management Institutions
- PrinciplesPage list Open
- Strategic Directions and Priorities
- Progress and Assessment of the Strategic Directions and Priorities
- Policy Approaches to Strengthen Cyber Security in the Financial Sector
- Financial Monitoring Policy
- AnnouncementsPage list Open
- Press Conferences
- Press Releases
- Official Statements
- Disaster-related Information (Support for Disaster Victims)
InstitutionsPage list Open
- List of Institutions
- For those engaging in High Speed Trading
- To Operators of Specially Permitted Businesses for Qualified Institutional Investors, etc.