1. Recommendation
The SESC recommended that the Prime Minister and the Commissioner of the FSA take administrative disciplinary action against MUFG Bank, Ltd. (Registered Financial Institutions, hereinafter "MUBK"), Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (Type I and Type II Financial Instruments Business Operator, Investment Advisor/Agency, and Investment Management Business, hereinafter "MUMSS"), and Morgan Stanley MUFG Securities Co., Ltd. (Type I and Type II Financial Instruments Business Operator, hereinafter "MSMS"). This recommendation is based on the findings of an inspection of MUBK, MUMSS and MSMS, whereby the SESC identified the issues in relation to their Financial Instruments Business. The summary is set forth below.
2. Facts
The Financial Instruments and Exchange Act (hereinafter “FIEA”) prohibits a Financial Instruments Business Operator from providing and/or receiving non-public client information among financial firms within the same group, without the consent of the client. Nevertheless, the above three firms repeatedly exchanged non-public client information knowing that the clients had refused to share their information with other group firms, and some of the information contained material information that would impact investment decisions. These findings led to the conclusion that the three firms had deficiencies in control environment for the management of information. (There was a case where one employee of MUBK had engaged in unfair trading in violation of the FIEA due to these deficiencies.)
Furthermore, the FIEA prohibits a Financial Instruments Business Operator from soliciting the financial instruments transaction contract by using non-public information without the consent of the client. The SESC found, however, that a board member of MUMSS had received confidential information of a client from the executive officer of MUBK; and MUMSS, together with MSMS, used the information for solicitation of offer to sell financial instruments to the client.
Lastly, the FIEA prohibits a bank from conducting Securities-Related Business (underwriting business). Nevertheless, MUBK repeatedly negotiated the underwriting shares on behalf of MUMSS. Among such cases, it was found that MUBK had engaged in a tie-in negotiation asking for more underwriting share of MUMSS as a condition of MUBK’s loan agreement.
Furthermore, the FIEA prohibits a Financial Instruments Business Operator from soliciting the financial instruments transaction contract by using non-public information without the consent of the client. The SESC found, however, that a board member of MUMSS had received confidential information of a client from the executive officer of MUBK; and MUMSS, together with MSMS, used the information for solicitation of offer to sell financial instruments to the client.
Lastly, the FIEA prohibits a bank from conducting Securities-Related Business (underwriting business). Nevertheless, MUBK repeatedly negotiated the underwriting shares on behalf of MUMSS. Among such cases, it was found that MUBK had engaged in a tie-in negotiation asking for more underwriting share of MUMSS as a condition of MUBK’s loan agreement.
