*This is an unofficial translation of the original Japanese press release and is provided just for your reference.
October 16, 2009
Securities and Exchange Surveillance Commission
Pursuant to Article 20, paragraph 1 of the Act for Establishment of the Financial Service Agency (“FSA”), today, on October 16, the Securities and Exchange Surveillance Commission (“SESC”) issued a recommendation that the Prime Minister and the Commissioner of the FSA take administrative action and any other appropriate measures against BNP Paribas Securities (Japan) Limited* and one of its employees. This recommendation is based on the findings of the inspection, whereby the following breaches of laws by the company and one of its employees were identified.
*Location: Chiyoda-Ku, Tokyo; Representative in Japan: Yusuke Yasuda; Capital: 79,500 million JPY; Number of officers and employees: 605
(1) Inadequate response to the administrative orders
BNP Paribas Securities (Japan) Limited (hereinafter referred to as “the Branch”) became subject to the administrative action (hereinafter referred to as “the Administrative Action”) on November 28, 2008 by the FSA*, because the problematic practices at the Branch were acknowledged to fall under “the case that both the Branch's business management control system and internal control system had serious defects, which includes cases of overlooking inappropriate business operations.” The Administrative Action refers to the Branch's transactions whereby it sold stocks issued by a client with the statements, “the Branch sold the client's stocks mechanically as part of the implementation of the swap transaction contract with the headquarters of BNP Paribas in France,” and the transactions were acknowledged to fall under Article 38 (vi) of the Financial Instruments and Exchange Act (hereinafter referred as “FIEA”) and Article 117, paragraph 1 (xvi) of the Cabinet Office Ordinances Concerning Financial Instruments Business, etc., which prohibits “trade based upon undisclosed corporate information.”
*Press release of the Administrative Action on November 28, 2008. by the FSA.
Preceding the Administrative Action, the Branch submitted reports (hereinafter referred to as “the Reports”) in response to the administrative orders by the FSA Commissioner issued based on Article 56-2 of the FIEA. The contents of the Reports formed the critical basis for the Administrative Action.
However, SESC, through its inspection, revealed the followings:
(i) The Reports were incomplete in terms of content and contained untruthful descriptions;
(ii) The Branch produced the Reports without sufficient research and verification;
(iii) A part of the transactions recognized by the Administrative Action, as ''trade based upon undisclosed corporate information'' could not be qualified as the transaction referred to with the statement, ''the Branch sold the client's stocks mechanically as part of the implementation of the swap transaction contract with the headquarters of BNP Paribas in France.''
The Branch's actions listed above are acknowledged to violate administrative orders by the FSA Commissioner based on Article 56-2 of the FIEA and to fall under Article 52, paragraph 1 (vi) of the FIEA, which stipulates “violation of the disposition given by government agencies under laws and regulations pertaining to Financial Instruments Business.”
(2) Purchase of Securities for the purpose of fixing prices of the specific Listed Financial Instruments
A trader, who was in the equity and option department of the Branch, as part of the business, at the closing auction in the afternoon session, on November 5, 2008, sent a massive purchase order for a specific listed stock, by way of placing “limited orders” just before the closing of the market with a price 1 yen below and with a price at the daily maximum price limits, for the purpose of fixing the stock prices in the daily maximum price limits bidding quotation. Due to these orders, the stock price was fixed in special bid quotes at the daily maximum price limits.
The aforementioned action by the Branch and the trader is acknowledged to fall under Article 38 (vi) of the FIEA and Article 117, paragraph 1 (xix) of the Cabinet Office Ordinances Concerning Financial Instruments Business, etc. which prohibits “purchases or sales of, trading the derivatives of, or making offering or entrustment of these transactions etc. of Listed Financial Instruments, etc. in a Financial Instruments Exchange Market or Over-the-Counter Traded Securities in an Over-the-Counter Securities Market, for the purpose of fluctuating, pegging, fixing or stabilizing prices or figures calculated based on a price or a transaction volume of Listed Financial Instruments, etc. or the Over-the-Counter Traded Securities, or for the purpose of increasing the transaction volume of those Listed Financial Instruments etc. or Over-the-Counter Traded Securities.”