SECURITIES AND EXCHANGE SURVEILLANCE COMMISSION

The Securities & Exchange Surveillance Commission (SESC) conducted a compliance inspection of Shinko Securities Co., Ltd. (Shinko), and found law violations described below.

On 29th June, the SESC sent a recommendation to the Prime Minister and the Commissioner of the Financial Services Agency (FSA) to take a disciplinary action against Shinko, pursuant to Article 20(1) of the FSA Establishment Law.

Misleading Presentations Concerning Securities Transaction

1.Shinko sold an Exchangeable Bond (EB), a reverse convertible bond, of which value was linked to a specific listed stock, from May to July 2000.

During its selling period, the stock price linked to the EB was already substantially below the strike price, and economic reasonability to purchase the EB concerned rather than to invest directly on the stock linked to the EB was all but lost.

Nevertheless, Shinko failed to explain these disadvantageous circumstances the EB contained to customers, and thus made a misleading presentation.

2.Shinko had sold other EBs linked to specific listed stocks, but some of EBs left unsold both in July 2000 and in June 2001. At that time, due to falls of the stock prices linked to the EBs, appropriate current prices of the EBs left dropped as well.

Continuing to sell those unsold EBs on the day following the initially scheduled sales periods, Shinko offered customers the same prices as the fixed initial sales prices, which were much over appropriate current prices estimated from the stock prices.

Hence Shinko made misleading presentations in regard to appropriate prices of the EBs.

The above-mentioned actions are identified as violations of the Ministerial Ordinance (Conduct of Securities Companies) based upon Article 42(1)(ix) of the Securities & Exchange Law.

Contact Person: S. Araki, International Section, SESC
Tel: (81) 3-3581-7868