(Provisional Translation)
February 1, 2002
Financial Services Agency

An administrative action against Morgan Stanley Japan Ltd., Tokyo Branch

  1. The Securities and Exchange Surveillance Commission (SESC) conducted an inspection of Morgan Stanley Japan Ltd., Tokyo Branch (''the Branch'' hereafter) and found the following legal violations of the Securities and Exchange Law (''the Law'' hereafter). Therefore, the SESC sent its recommendation to the Commissioner of the Financial Services Agency(FSA) to take disciplinary action against the Branch on January 30, 2002.
(1) Act of making a series of securities transactions to create artificial market prices which does not reflect the actual state of the market
   On December 4, 2001, the Branch sold stocks of a listed company by placing a series of lower limit or no limit orders, for the purpose of lowering the stock price to a level at which a buying order existed so that the Branch could execute series of short sales *.
   The conducts above are found to violate the Article 4 (iii) of the Ordinance of the Cabinet Office Concerning the Regulations, etc. of Conducts of Securities Company and the Article 42 (1) (ix) of the Law applied based on the Article 14 (1) of the Law on Foreign Securities Firms (LFSF).
  * The article 26-4 (1) of the Cabinet Order on the Law stipulates that member firms of stock exchanges shall not make any short sale at a price lower than the price which was published just prior to the short sale. Therefore the Branch needed to drop prices published just prior to its short sales to a level at which a buying order existed.
(2) Short-selling in breach of the Law
   On December 4, 2001, the Branch executed short-selling of stocks on its own account without a legally required disclosure of the fact of short-selling to the stock exchanges. Large part of the short sales was done at prices lower than the latest published prices prior to the short sales.
   The series of conducts above are found to violate the Article 26-3 (1) and the Article 26-4 (1) of the Cabinet Order on the Law and the Article 162 (1) (i) of the Law, both of which regulate short-selling.
  1. On the basis of the above findings, the FSA issued the following orders to the Branch to:
(1) Suspend business operation
Suspend all the stock trading on its own account from Monday February 4, 2002 until Friday March 8, 2002 (5 weeks; 24 business days excluding a national holiday) except the execution of transactions contracted on or before February 1.
(2) Improve its compliance with the law
1) Strengthen its internal control system, secure strict compliance by the directors and staff, make preventive measures against recurrence of the above mentioned violations, and clarify locus of responsibility.
2) Work out concrete measures with a target date to root out short-selling in breach of the Law, and to impose stricter internal penalty to a staff and his/her supervisor in the Branch.
3) Submit a quarterly report to the FSA on the implementation of the 1) and 2) measures above.

For further information, please contact with the following:

Securities Business Division
Supervisory Bureau
FSA, JAPAN (Tel : 03-3506-6000)
Deputy Director : Atsushi SASAGAWA(ex.3370)
Section Chief : Yoshikazu HIRAI(ex.3356)

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