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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:
| |
companies
|
individuals
|
| -Counter-bucketing and bucketing |
2
|
1
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| -Submission of falsified transaction reports to customers
or no submission |
3
|
3
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| -Discretionary trading account transaction |
2
|
34
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| -False reports on securities transactions |
1
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4
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| -Solicitation with the promise of special profit |
4
|
4
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| -Continued securities transactions to realize market prices
that do not reflect real factors |
2
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5
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| -Continued acceptance of securities transaction orders,
Knowing that on the market such actions will have a manipulative
effect |
3
|
4
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| -Securities transactions for speculative profit by directors
or Employees of securities companies |
0
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5
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| -Provision of property gains to compensate for losses |
4
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11
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| -Transaction with a parent company on a different condition
From an ordinary one |
2
|
0
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| -Employment of deceptive devices in the sale of securities |
1
|
1
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| -Others |
6
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7
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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
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