(Provisional translation)
September 28, 2000

The 1999 Annual Report of
the Securities and Exchange Surveillance Commission

  Today, the Securities and Exchange Surveillance Commission ("SESC") released the 1999 Annual Report describing its activities in the SESC year 1999 ("the year 1999") that started on July 1, 1999 and ended on June 30, 2000. The SESC are requested to make public its activities once a year by Article 34 of the Financial Reconstruction Commission Establishment Law.
  While financial reform in Japan is making a steady progress, cross-border transactions are increasing further, competition among markets are getting intensified both domestically and internationally, and securities transactions via the Internet are expanding due to development of information technology.
Under these changes in securities markets, the SESC's role as a market watchdog is getting more important than ever and the SESC has to deal with unprecedented illegal activities. The SESC, for example, detected unlawful activities such as solicitation of 'Tobashi'-like financial instrument that utilized derivatives to defer losses and employment of deceptive devices in the sale of securities.
  Following is a summary of the SESC's activities in the year 1999.

1. Investigations and accusations of criminal offences

Based on the results of investigations, the SESC lodged seven accusations with public prosecutor's offices concerning possible Securities and Exchange Law ("SEL") violations: three cases of submitting securities reports containing falsified information, two cases of employing deceptive devices in the sale of securities, one case of insider trading, and one case of market manipulation. Summaries of the main cases are as follows:

-Submission of securities reports containing falsified information
The president of the Nippon Credit Bank, Ltd., et al. in collusion submitted securities reports containing falsified information with respect to material matters by reporting losses less than the actual losses in the term ended March 31, 1999, through such means as not properly making allowances for or writing off non-performing loans.

-Market manipulation
Two individuals in collusion engaged in manipulating the share price of Hunet Inc.. They raised the price by conducting repeated wash trades with the aim of creating a misleading appearance of active trading as well as by conducting successive transactions to cause fluctuations in the share price.

-Employment of deceptive devices in the sale of securities
The president of Cresvale International Ltd. employed deceptive devices in the sale of Princeton Note. He gave phony explanation to the customers when selling the note while recognizing that the monthly reports of the note were falsified and that the redemption before due date were unlikely.

2. Inspections

During the year 1999, the SESC commenced inspections of 72 domestic securities companies along with 14 branches of foreign securities companies and completed inspections of 79 domestic securities companies along with 15 branches of foreign securities companies, among which problems were pointed out at 80 securities companies.

3. Recommendations

The SESC sent 37 recommendations to the Financial Reconstruction Commission and the Commissioner of the Financial Services Agency (FSA) to call for disciplinary administrative actions against securities companies and directors or employees of securities companies for their breaches of rules. Violations of the SEL referred to in the recommendations are as follows:

-Counter-bucketing and bucketing
-Submission of falsified transaction reports to customers or no submission
-Discretionary trading account transaction
-False reports on securities transactions
-Solicitation with the promise of special profit
-Continued securities transactions to realize market prices that do not reflect real factors
-Continued acceptance of securities transaction orders, Knowing that on the market such actions will have a manipulative effect
-Securities transactions for speculative profit by directors or Employees of securities companies
-Provision of property gains to compensate for losses
-Transaction with a parent company on a different condition From an ordinary one
-Employment of deceptive devices in the sale of securities

4. Proposals

Since inspections and criminal investigations revealed problems related to the current rules and regulations, the SESC made proposals to the Minister of Finance and the Commissioner of the FSA to call for necessary and appropriate measures as follows:

-Enhancing disclosure about bank activities

-Improving sales practice in securities companies

5. Market Surveillance

During the year 1999, market surveillance was carried out focusing on the following misconducts:

-Market manipulation focused on unnatural stock price movements such as sudden rise in stock prices

-Insider trading focused on cases in which stock prices fluctuated significantly upon the announcement of information thought to have a considerable impact on?
investors' decisions

-Others, including disseminating of false information

6. Other activities

Development of the Internet is causing a big change in securities markets and this change requires securities regulators to cooperate with each other in order to properly watch a global market place. On March 28, 2000, the SESC participated in the joint efforts arranged by International Organization of Securities Commissions ("IOSCO") to simultaneously identify illegal activities over the Internet.

In response to the fact that the Internet enables anyone to circulate suspicious information for the purpose of market manipulation, the SESC developed 'The Internet Patrol System' to efficiently watch illegal activities over the Internet.

* Complete Report

The 1999/2000 Annual Report of the Securities and Exchange Surveillance Commission is currently available in PDF (Adobe Acrobat) format.

View the 1999/2000 Annual Report