Press Release

January 30, 2002
based on the results of an inspection conducted
Morgan Stanley Japan Limited Tokyo Branch

1. Contents of the Recommendation

Today, the Securities and Exchange Surveillance Commission ("SESC") issued recommendation that the Prime Minister and the Commissioner of the Financial Services Agency ("FSA") take administrative disciplinary and other appropriate actions pursuant to Paragraph 1 of Article 20 of the FSA Establishment Law. This recommendation is based on the results of the inspection that the SESC completed today of Morgan Stanley Japan Limited ("Morgan Stanley") Tokyo Branch, which, as described below, ascertained the facts that Morgan Stanley and its employees acted against laws and regulations.

2. Facts Ascertained

(1) A series of transactions to create an artificial market without any reflection of the actual state of market

On December 4, 2001, intending to execute a large amount of short sale of a stock, traders of Morgan Stanley Securities realized that such execution was difficult, insomuch as buy orders were only placed at lower prices than the latest market price and short sale on a minus tick is prohibited by a Cabinet Order.

With a view to effecting the short sale of the stock, the firm acquired shares from a customer, on the spot the traders repeatedly sold those shares on a minus tick, which affected the stock price downwards, and executed the short sale successively.

Item (3) of Article 4 of the Ordinance of Cabinet Office Concerning Regulation, etc. of Conducts of Securities Company prohibits a series of transactions to create an artificial market without any reflection of the actual state of market.

(2) Short sale in violation of the Cabinet Order for Enforcement of the Securities and Exchange Law ("Cabinet Order")

Morgan Stanley, on December 4, 2001,
1) Did not give an explicit indication to stock exchanges many times that it would make a short sale of the stock for its own account.

The above act violates Item (1) of Article 26-3 of the Cabinet Order.

2) Made a short sale for its own account many times at a price lower than the price of the stock which was published immediately prior to the short sale.

The above act violates Item (1) of Article 26-4 of the Cabinet Order.

Both of the above acts fall within the purview of a prohibited act of "Making the sale of a security without owning such security in violation of the provisions of a Cabinet Order" prescribed under Item (1), Paragraph 1 of Article 162 of the Securities and Exchange Law.

Contact: K. Sakamaki
Compliance Inspections, SESC
Phone: (81) 3-3581-9864

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