Tokyo Stock Exchange Imposed A Penalty On Morgan Stanley (Japan) Ltd.

TSE imposed a penalty on Morgan Stanley (Japan) Ltd. of JPY 15 million fine for short-selling and JPY 20 million fine for creation of an artificial market.

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.

Both of the above acts fall within the purview of a prohibited act of "Making the sale of a security without owning such security in violation of the provisions of a Cabinet Order" prescribed under Item (1), Paragraph 1 of Article 162 of the Securities and Exchange Law.

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.