*This is an unofficial translation of the original Japanese press release and is provided just for your reference.
January 19, 2010
Securities and Exchange Surveillance Commission
Pursuant to Article 20, paragraph 1 of the Act for Establishment of the Financial Service Agency (“FSA”), today, on January 19, 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 RBS Securities Japan Limited*(hereinafter referred to as “RBS Securities”) and its three employees. This recommendation is based on the findings of the inspection, whereby the following breaches of laws by the RBS Securities and its three employees were identified.
|Representative in Japan||Mr. Lee Knight|
|Capital||64,900 million JPY|
|Number of officers and employees||236|
• Loss Compensation
Around September 2008, the employees of RBS Securities offered a promise to the customer at the sales of exchangeable bonds (hereinafter referred to as “the Bonds”) as part of the business that, if the customer could not resell all of the Bonds to the third party, the RBS Securities would buy back the unsold Bonds at the same price as the selling price to the customer (hereinafter referred to as “the Promise”). Based on the promise, in October 2008, although the actual value of the Bonds was falling, the RBS Securities bought back the unsold Bonds from the customer at the same price as the selling price, which resulted in providing financial benefit - about 68 million yen - to compensate the customer's loss (hereinafter referred to as “the Provision of Financial Benefit”).
Among the aforementioned actions, the Promise by RBS Securities and the employees is acknowledged to fall under Article 39, paragraph 1 (i) of the Financial Instruments and Exchange Act (hereinafter referred as “FIEA”), which prohibits “act of making an offer or promise or having a third party make an offer or promise to a customer or any person designated by a customer, with regard to sale and purchase or other transactions of Securities (excluding sale and purchase on condition of repurchase for which the repurchase price is set in advance and other transactions specified by a Cabinet Order) or Derivative Transactions (hereinafter referred to as “Sale and Purchase or Other Transaction of Securities, etc.” in this Article), to the effect that if the customer (in cases where a Trust Company, etc. (meaning a trust company or a financial institution that has obtained authorization under Article 1(1) of the Act on Investment Trust and Investment Corporations; the same shall apply hereinafter) conducts sale and purchase of Securities or Derivative Transactions for the account of the person who sets a trust under a trust contract, including such person who sets the trust; hereinafter the same shall apply in this Article) incurs any loss or shortfall in the predetermined amount of profit from the relevant Securities or Derivative Transactions (hereinafter referred to as “Securities, etc.” in this Article), property benefit will be provided to the customer or such third party in order to compensate or make up for the whole or part of such loss or shortfall.”
Among the aforementioned actions, the Provision of Financial Benefit by RBS Securities and the employees is acknowledged to fall under Article 39, paragraph 1 (iii) of the FIEA, which prohibits “act of providing property benefit to a customer or a third party or making a third party provide it to a customer, with regard to Sale and Purchase or Other Transaction of Securities, etc., in order to compensate for the whole or part of a loss incurred by the customer from the relevant Securities, etc. or make an addition to the profit accrued to the customer from such Securities, etc.”