(Provisional Translation)
February 2, 2016
Securities and Exchange Surveillance Commission
Recommendation for Administrative Monetary Penalty Payment Order for Market Manipulation by Evo Investment Advisors Ltd.
1. Contents of the Recommendation
The Securities and Exchange Surveillance Commission (the “SESC”), on January 29, 2016, made a recommendation to the Prime Minister and the Commissioner of the Financial Services Agency that an administrative monetary penalty payment order be issued in regard to market manipulation by Evo Investment Advisors Ltd. (“Evo Investment”) pursuant to Article 20(1) of the Act for Establishment of the Financial Services Agency. This recommendation is based on the findings of the investigation into the market manipulation, whereby the following violation of laws and ordinances was identified.
2. Summary of the Findings Regarding Violations of the Laws and Ordinances
Evo Investment is a company incorporated and registered under the laws of the Cayman Islands, a British overseas territory. Pursuant to an investment management agreement executed between Evo Investment, a subsidiary of Evo Investment, which was incorporated under the laws of the Cayman Islands (the “Feeder Fund”), and a subsidiary of the Feeder Fund, which was incorporated under the laws of the Cayman Islands (the “Master Fund”), Evo Investment has the authority to manage the assets invested in the Master Fund. Evo Investment, through a trader who engages in securities trading, in relation to its business, as described in the Appendix, regarding shares of DDS, Inc., which shares are listed on the Tokyo Stock Exchange Mothers Market, approximately from 8:20 a.m. to 8:55 a.m. on May 15, 2014, during the time prior to the opening of the morning session of the financial instruments exchange, with the purpose of inducing sales and purchases of other market participants who use the proprietary trading system (the “PTS”), conducted transactions including the following: boosting quotations before the opening of the morning session by placing on the Tokyo Stock Exchange a large amount of market purchase orders without intention to execute the orders; placing sell orders on the PTS; and matching the sell orders at favorable price on the PTS. Thus, Evo Investment, on its own account, with respect to the shares of DDS, Inc., sold 27,500 shares while placing purchase orders for 286,700 shares. These constituted a series of entrustments of purchase, and sales, of securities that would mislead others into believing that sale and purchase of the shares were thriving and would cause fluctuations in markets of the shares.
Summaries of the findings regarding the violation of the laws and ordinances are described in the attached Charts.
The actions mentioned above conducted by Evo Investment were recognized as “a series of Sale and Purchase of Securities, etc.” and “Entrustment, etc.” conducted “in violation of Article 159(2)(i)” as stipulated under Article 174-2(1) of the Financial Instruments and Exchange Act (“FIEA”).
3. Calculation of the Amount of the Administrative Monetary Penalty
Pursuant to the FIEA, the amount of the administrative monetary penalty applicable to the above violation is 9,200,000 yen.
Details of the calculation are presented in the Attachment.
4. Others
We appreciate assistance of the U.S. Securities and Exchange Commission and the Japan Exchange Regulation (JPX-R) in this matter.
Attachment
● Method of Calculation of the Amount of the Administrative Monetary Penalty
Pursuant to Article 174-2(1) of the FIEA, the amount of the administrative monetary penalty shall be calculated as the sum of (1) and (2) below:
(1)Amount pertaining to a Matching Volume of Sale and Purchase(Note 1) pertaining to acts of violation: (Value pertaining to sale, etc. of securities on its own account) – (Value pertaining to purchase, etc. of securities on its own account)
(Note 1): Matching Volume of Sale and Purchase: The smaller of the number of securities sold, etc. and the number of securities purchased, etc. pertaining to acts of violation.
(2)Where the number of securities purchased, etc. on its own account(Note 2) pertaining to acts of violation exceeds the number of securities sold, etc. on its own account pertaining to acts of violation: (Highest price among the highest prices as designated under Article 67-19 or Article 130 of the FIEA of the securities on each day during a one-month period following the termination of acts of violation × the excess transaction volume) – (Value pertaining to purchase, etc. of securities with respect to the excess transaction volume)
(Note 2): Pursuant to the provisions of Article 174-2(8) of the FIEA and Article 33-13(i) of the Order for Enforcement of the FIEA, when a violator owns the securities pertaining to the act of violation at the time of the start of the act of violation, for the purposes of calculating the amount of the administrative monetary penalty listed in (1) and (2) above, the violator shall be deemed to have conducted, on his/her own account, purchase, etc. of securities pertaining to the act of violation at the time of the start of the act of violation and at the price as of the point of time.
and
(3)Pursuant to the provisions of Article 176(2) of the FIEA, the fraction less than ten thousand yen of a sum of the amounts calculated as in (1) and (2) above shall be rounded down.
In this case, the amount of the administrative monetary penalty is 9,200,000 yen. This amount is based on 9,206,040 yen, a sum of the amounts calculated as in (1) and (2) below, which sum has been rounded down for the amount less than ten thousand yen pursuant to (3) above.
(1)The amount of the administrative monetary penalty regarding the amount pertaining to a Matching Volume of Sale and Purchase(Note 3) is 8,990,940 yen(Note 4).
(Note 3): Amount pertaining to a Matching Volume of Sale and Purchase is 27,500 shares as described below:
(i)Amount pertaining to the sale of the securities on its own account is 27,500 shares.
(ii)Amount pertaining to the purchase of the securities on its own account is 27,800 shares, which shares were in Evo Investment’s possession at the time of the commencement of the act of violation, and are deemed to have been purchased at the price of 1,182 yen at the time of the commencement of the act of violation pursuant to Article 174-2(8) of the FIEA and Article 33-13(i) of the Order for Enforcement of the FIEA.
(Note 4): Value pertaining to sale is calculated as below:
(1,399 yen x 100 shares + 1,400 yen x 1,900 shares + 1,420 yen x 100 shares + 1,440 yen x 2,500 shares + 1,450 yen x 5,400 shares + 1,460 yen x 1,000 shares + 1,480 yen x 3,600 shares + 1,480.1 yen x 100 shares + 1,480.2 yen x 100 shares + 1,480.3 yen x 100 shares + 1,490 yen x 100 shares + 1,500 yen x 1,400 shares + 1,530 yen x 900 shares + 1,540 yen x 100 shares + 1,542 yen x 100 shares + 1,549.8 yen x 100 shares + 1,549.9 yen x 200 shares + 1,560 yen x 1,300 shares + 1,563 yen x 200 shares + 1,565 yen x 100 shares + 1,566 yen x 100 shares + 1,567 yen x 100 shares + 1,589.9 yen x 800 shares + 1,595 yen x 100 shares + 1,600 yen x 5,500 shares + 1,610 yen x 600 shares + 1,650 yen x 900 shares)
= 8,990,940 yen
(2)The amount of the administrative monetary penalty regarding the excess transaction volume (300 shares) where the amount pertaining to the purchase of the securities exceeds the amount pertaining to the sale of the securities as described in (1) above is 215,100 yen(Note5).
(Note 5): The amount is calculated as below:
(As prescribed in Article 130 of the FIEA, the highest price among the highest prices on each day during a one-month period following the termination of acts of violation (1,899 yen)) x Excess trading volume (300 shares: 27,800 shares – 27,500 shares) – Value pertaining to the excess trading volume (354,600 yen: 1,182 yen x 300 shares) = 215,100 yen
[Reference: Examples of how to calculate the administrative monetary penalty]
