Tokyo Stock Exchange Imposes Penalty On H.S. Securities Co., Ltd.

TSE imposed a censure penalty on H.S. Securities Co., Ltd. ("HS Securities") as the company was deemed not to have a sufficient trade management system for the prevention of a series of transactions deliberately made to form an artificial market price which does not reflect the actual situation.

TSE also requested HS Securities to submit a business improvement report regarding (i) inspection of trading monitoring trading and establishment of an appropriate trading monitoring system, (ii) verification of how managing directors are involved in the trading monitoring system and clarification of locus of responsibility, (iii) ensuring strict compliance of all directors and staff with the law through training, etc.

It was recognized that HS Securities had run its business under the following circumstances:

1. Before the market opened, a large cross market order in which the number of bids and offers was unbalanced ("irregular cross trade"), with more bids than offers was received. Despite the fact that the sales director received a report about this by a supervising salesperson, the director had absolutely no awareness of the problem of this transaction influencing share prices. As such, he is not performing any basic trade monitoring as a sales manager should, such as understanding clients' motives for trading and considering order regulations.
2. The chief internal control officer at that time was in a position that enabled him to make improvements in trade monitoring at the company for preventing unfair trades before they occur. Despite the fact that the irregular cross trade was extracted by the trading surveillance system, the officer showed absolutely no awareness of the problem of this transaction influencing share prices, and did not instruct staff to further examine the transaction. Furthermore, he did not take steps such as suspending the transaction, but continued to accept such orders without sufficient verification of the trading details in spite of investigations by TSE.

The above act is acknowledged to be 'the state that a securities company is not deemed to have a sufficient degree of control of sale or purchase and transaction of securities that ought to form an artificial market which does not reflect the real market' outlined in Item 10 of Article 10 of the Ordinance of the Cabinet Office Concerning the Regulations, etc. of Conducts of Securities Companies (before amended on April 1, 2005) based upon Item 2 of Article 43 under the Securities and Exchange Law.