The Tokyo Stock Exchange (hereinafter the "TSE") has requested RBS Securities Japan Limited (hereinafter the "Company") to submit a business improvement report pursuant to the provisions of Rule 19 of the Trading Participant Regulations.
The business improvement report shall include:
- Clarification of the locus of responsibility regarding the violation of laws and regulations.
- Examination of past trading records to check previous occurrences of similar incidents, and implementation of necessary measures.
- Reinforcement of management supervision and internal supervision systems and frameworks at the Company, and construction of systems to achieve proper functioning of check-and-balance and supervision systems on the sales unit, etc.
- Implementation of necessary measures such as including review, etc. of related rules, regulations, business procedures, etc., in order to secure appropriate business operations by the sales department.
- Implementation of necessary measures such as training to fully reinforce officers' and employees' awareness of compliance with laws and regulations, etc.
Outline of Violation
Compensation of Loss
In September 2008, the financial products sales director and the equity derivatives sales director of the Company, in the course of their business of selling exchangeable bonds (hereinafter the "EBs") to a customer, they made a promise (hereinafter the "promise"), where there are remaining units which the customer was unable to sell on to third parties, to buy back such remainder at the same price as that at which they were sold to the customer. In October of the same year, the structured products sales director of the equities department and the equity derivatives sales director received notification from the customer that there were remaining EBs. Despite the fact that the market price of the EBs was falling, a portion of the remaining EBs was bought back at the price at which they were sold to the customer, thereby providing property benefit of approximately 68 million yen to the customer for losses pertaining to the EBs (hereinafter the "provision in question").
Out of the acts mentioned above conducted by the Company and its employees, the promise is deemed to fall under "an act of making an offer or promise or having a third party make an offer or promise to a customer or any person designated by a customer, with regard to sales and purchase or other transactions of Securities (excluding sales and purchase on condition of repurchase for which the repurchase price is set in advance and other transactions specified by a Cabinet Order) or Derivative Transactions (hereinafter referred to as "Sales and Purchase or Other Transaction of Securities, etc." in this Article), to the effect that if the customer (in cases where a Trust Company, etc. (meaning a trust company or a financial institution that has obtained authorization under Article 1(1) of the Act on Concurrent Operation of Trust Business by Financial Institutions; the same shall apply hereinafter) conducts sales and purchase of Securities or Derivative Transactions for the account of the person who sets a trust under a trust contract, including such person who sets the trust; hereinafter the same shall apply in this Article) incurs any loss or shortfall in the predetermined amount of profit from the relevant Securities or Derivative Transactions (hereinafter referred to as "Securities, etc." in this Article), property benefit will be provided to the customer or such third party in order to compensate or make up for the whole or part of such loss or shortfall" as prescribed in Article 39, Paragraph 1, Item 1 of the Financial Instruments and Exchange Act (hereinafter the "Act").
In addition, out of the acts mentioned above, the provision in question is deemed to fall under "an act of providing property benefit to a customer or a third party or making a third party provide it to a customer, with regard to the Sales and Purchase or Other Transaction of Securities, etc., in order to compensate for the whole or part of a loss incurred by the customer from the relevant Securities, etc. or make an addition to the profit accrued to the customer from such Securities, etc." as prescribed in Article 39, Paragraph 1, Item 3 of the Act.