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1. Recommendation Issued
The Securities and Exchange Surveillance Commission today
issued a recommendation that the Prime Minister and the Commissioner of
the Financial Services Agency (FSA) take administrative disciplinary and
other appropriate action pursuant to Paragraph 1 of Article 20 of the
FSA Establishment Act based upon the results of the inspection of Nikko
Salomon Smith Barney Limited (Tokyo Branch located in Akasaka, Minato-ku,
Tokyo; Representative in Japan Toshiharu Kojima; staffed with
approximately 1,000 employees including directors; hereinafter referred
to as "Nikko Salomon Smith Barney Securities"), which found the
following facts constituting violations of laws and regulations by Nikko
Salomon Smith Barney Securities and its employee.
2. Facts Found
- A series of transactions for the sale or purchase
of a security to create an artificial market without any reflection of
the actual state of the market
Nikko Salomon Smith Barney
Securities concluded with a certain customer a contract to purchase
large volumes of shares ("purchased shares") of numerous listed stocks
that the customer had held and establish investment trust funds linked
to stock price indexes, or exchange-traded funds ("ETFs") based on the
purchased shares, under which the amount of payment for the purchased
shares would be determined by deducting from the total market value of
the ETFs the aggregate prices of additional shares complementary to the
composition of the ETFs ("complementary shares") calculated on the basis
of the closing prices of the complementary shares at the Tokyo Stock
Exchange (TSE) on specific dates.
On July 18, 2002, Managing Director at Program Trading,
Equity Department of Nikko Salomon Smith Barney Securities, in the
course of the business, raised deliberately the closing prices of the
complementary shares at the TSE in procuring them in large volumes in
order to reduce the amount of payment for the purchased shares to the
customer, under the circumstances where the contract was set up in such
a way that the greater extent to which the closing prices of the
complementary shares on specific dates would exceed the average prices
at which Nikko Salomon Smith Barney Securities procured the
complementary shares, the more profits would be yielded to Nikko Salomon
Smith Barney Securities,
(1) by placing with the TSE, from around 14:59 to the market close,
limit or limit-at-the-close orders to purchase more than one issue of
stocks in such extremely large volumes as would make it possible to
expect that the prices of the stocks would rise almost certainly with
the execution of the orders; and
(2) by placing with the TSE, from around 14:56 to the market close, a
series of small market orders to purchase more than one issue of stocks
which were mainly traded at the Osaka Securities Exchange (OSE)
utilizing an overseas affiliated company's account, as well as a series
of limit orders to purchase such mainly OSE traded stocks at a higher
price by a certain percentage than the immediately preceding transaction
prices of the stocks effected at the OSE with the percentage increasing
gradually toward the market close.
The foregoing is acknowledged to fall under the "act of
making a series of transactions for the sale or purchase of a security
to create an artificial market without any reflection of the actual
state of the market" provided for in Item (3), Article 4 of the
Ordinance of Cabinet Office Concerning Regulation, etc. of Conducts of
Securities Company as applied by Paragraph 21 of Article 24 under the
Ordinance of Cabinet Office Concerning Foreign Securities Firms based
upon Item (9), Paragraph 1 of Article 42 under the Securities and
Exchange Law as applied by Paragraph 1 of Article 14 under the Law on
Foreign Securities Firms.
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