Update : Feb. 17, 2011
[Tokyo Stock Exchange, Inc.]
The Tokyo Stock Exchange (hereinafter "TSE") has imposed disciplinary action (censure) against Rakuten Securities, Inc. (hereinafter the "Company") pursuant to Rule 34, Paragraph 1, Item 8 of the Trading Participant Regulations.
Additionally, TSE has requested the submission of a business improvement report pursuant to the provisions of Rule 19 of the Trading Participant Regulations.
The business improvement report shall include:
(1) Planning of reinforcement measures for re-establishing internal management systems and frameworks in order to prevent cases which will contradict laws, rules and regulations in cases of introducing/modifying systems and frameworks as well as internal rules and operational practices, taking into account reasons for the violation of laws, rules and regulation;
(2) Implementing training, etc. of all officers and employees in order to foster the proper understanding and compliance with the laws, rules and regulations related to margin trading and compliance with such laws, rules and regulations; and
(3) Clarification of the locus of responsibility in light of the disciplinary action.
With regard to the management of customer margin for margin trading (hereafter "Margin"), violation of withdrawal restriction on Margin and erroneous calculation method of Margin were found as follows.
(1) The person in charge in the securities administration department intentionally withdrew cash Margin based on the approval of the risk control department, in order to appropriate such cash for advance money or the expected amount of advance money (Violation of withdrawal restriction)
(2) Although the company purchased stocks by cash trading within its purchase capacity, such capacity decreased thereafter, and purchase consideration fell short at the time of settlement. Under these circumstances, regardless of the level of Margin ratio, the system was programmed to withdraw cash Margin to appropriate it for such shortage, leading to automatic withdrawal of Margin through systems. (Violation of withdrawal restriction).
(3) For the settlement of securities in lieu of cash which were sold, the Company withdrew such securities. However, the Company failed to transfer the following amounts from the deposit account to the Margin account (Violation of withdrawal restriction):
(i) The amount equal to or larger than the appraisal value which was calculated by using the closing price on the day before the day of settlement of such securities in lieu of cash; and
(ii) The amount that satisfies the Margin ratio of 30%
(4) In cases of actual receipt of stock purchased or actual delivery of stock sold (hereafter "Actual Receipt/Delivery of Stocks") there were deficiencies in the calculation of Margin ratio and maintenance ratio as follows:
(i) The Company subtracted amounts of long/short positions etc. on the day following the day of application for such Actual Receipt/Delivery of Stock; and
(ii) When offsetting purchase/sale produced settlement profit, the company offset overhead expenses related to such long/short positions with such profit.
The above (1) to (3) (violation of withdrawal restriction) are deemed to violate Article 7, Item 1 of the "Cabinet Office Ordinance Concerning Transitions and their Margin Prescribed in Article 161-2 of the Financial Instruments and Exchange Act" as well as Rule 44, Paragraph 1 of TSE's Brokerage Agreement Standards. The above (4) (Deficiencies in the calculation of Margin ratio and maintenance ratio) is deemed to violate Article 8 of said Ordinance and Rule 45 of said Standards.
DISCLAIMER: This translation may be used only for reference purposes. This English version is not an official translation of the original Japanese document. In cases where any differences occur between the English version and the original Japanese version, the Japanese version shall prevail. Tokyo Stock Exchange, Inc., Tokyo Stock Exchange Group, Inc., and/or Tokyo Stock Exchange Regulation shall individually or jointly accept no responsibility or liability for damage or loss caused by any error, inaccuracy, or misunderstanding with regard to this translation.
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