(1) A series of transactions to create an artificial market without any reflection of the actual state of market
On December 4, 2001, intending to execute a large amount of short sale of a stock, traders of Morgan Stanley Securities realized that such execution was difficult, insomuch as buy orders were only placed at lower prices than the latest market price and short sale on a minus tick is prohibited by a Cabinet Order.
With a view to effecting the short sale of the stock, the firm acquired shares from a customer, on the spot the traders repeatedly sold those shares on a minus tick, which affected the stock price downwards, and executed the short sale successively.
Item (3) of Article 4 of the Ordinance of Cabinet Office Concerning Regulation, etc. of Conducts of Securities Company prohibits a series of transactions to create an artificial market without any reflection of the actual state of market.
(2) Short sale in violation of the Cabinet Order for Enforcement of the Securities and Exchange Law ("Cabinet Order")
Morgan Stanley, on December 4, 2001,
- Did not give an explicit indication to stock exchanges many times that it would make a short sale of the stock for its own account.
The above act violates Item (1) of Article 26-3 of the Cabinet Order.
- Made a short sale for its own account many times at a price lower than the price of the stock which was published immediately prior to the short sale.
The above act violates Item (1) of Article 26-4 of the Cabinet Order.
Financial Services Agency suspended Morgan Stanley (Japan)'s stock-dealing operation from 4th February 2001 to 8th March 2002.
