Japan's FSA Takes Action Against JP Morgan

by Mary Swire, for LawAndTax-News.com, Hong Kong

10 March 2006

Japan's Financial Services Agency announced on Thursday that it is ordering JP Morgan Securities Asia to suspend its operations in the country for a two week period, after the firm violated Japan's Securities and Exchange Law.

In a statement, the Agency explained the reasoning behind the suspension, announcing that:

"From 13:57 to 15:10 on November 4, 2004, conducting the TOPIX futures transactions on its overseas affiliated company's account, a trader of the Branch placed in the TSE market a series of selling orders and purchasing orders at the same index point both by himself and matched them each other."

"As a result, the Branch conducted cross trades in the TOPIX futures transactions with no intention to transfer the rights represented by the TOPIX futures."

"The acts above are found to be 'acts of conducting a series of stock index futures transactions intended to create an artificial market which does not reflect actual state of the market' stipulated in Article 4(iii) of the Ordinance of the Cabinet Office Concerning the Regulations, etc. of Conducts of Securities Companies (before amended in 2005), and thus to have violated Article 42(1)(ix) of the Securities and Exchange Law (before amended in 2004) as applied by Article 14(1) of the Law on Foreign Securities Firms (before amended in 2004)."

The FSA therefore ordered JP Morgan Securities Asia to suspend all stock index futures trades on its own account from March 10, 2006 to March 31, 2006 (15 business days) except for the execution of transactions contracted on or before March 9, 2006, and to suspend all business of the Real Estate Finance Division of the Branch from March 10, 2006 to March 16, 2006 (5 business days) except for the execution of duties contracted on or before March 9, 2006.

The institution was also ordered to:

• Strengthen its internal control system, including launching a fundamental review of the systems for appraisal, explanation/solicitation and internal checks and balances concerning the real estate securitization business;
• Secure strict compliance by all the directors and staff and take preventive measures against recurrence of the above-mentioned violations;
• Clarify the locus of responsibility; and
• Submit a report to the FSA on the implementation of the above measures by March 31, 2006.

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