In its 2003 management plan, Izumi Securities outlined its plans to expand its trading of options on Nikkei Stock Average (gNikkei 225 optionsh) at a ll its branches. In accordance with this effort driven by the President and other management staff, sales staff proactively solicited Nikkei 225 options trades from customers after April 2003.
Meanwhile, the company's internal control was not strengthened to prevent inappropriate solicitation. Criteria to open stock index option accounts were substantially eased, and sales staff members were not adequately educated about Nikkei 225 options, and hence many staff members recommended these products to customers in spite of their insufficient knowledge about the product.
Under these circumstances, sales staff members of Izumi Securities:
- solicited Nikkei 225 options trades from customers living mainly on pensions who had limited investment experience (such as only in mutual funds or bonds) and did not understand the basics of option trades, and failed to sufficiently explain the fundamentals and risks of options trades to these customers.
- recommended the trades in such a way that customers unconditionally accepted them, with frequent buy and sell transactions of options in large quantities in relation to customers' assets.
The foregoing is acknowledged to violate Item 1 of Article 43 of the Securities and Exchange Law.
