TSE imposes JPY 80 million fine on Morgan Stanley MUFG Securities over spoofing

Maria Nikolova

The penalties imposed by the Tokyo Stock Exchange will be accompanied by disciplinary action by Osaka Exchange too.

Morgan Stanley MUFG Securities Co., Ltd. is facing disciplinary action in Japan over spoofing. According to today’s announcement by Japan Exchange Group, the company will face penalties due to market manipulation it committed in 2015.

Tokyo Stock Exchange, Inc. (TSE) has requested the company to submit a business improvement report. In addition, Morgan Stanley MUFG Securities will have to pay a fine of JPY 80 million (US$714,203). Trading of securities in the TSE market for the company’s own proprietary account by its Trading, Institutional Equity Division will be suspended from July 31, 2017 to August 2, 2017.

Osaka Exchange is censuring the company and is requesting the submission of a business improvement report too.

The penalties imposed by the Exchanges come as a result of regulatory findings that since May 2015, the company had been holding stock of SEIBU HOLDINGS INC. in expectation of short-term demand from customers and managed the positions. However, in early September 2015 customer demand was seen to be lower than expected. That same month, the company reduced the positions and eventually decided to close the positions in question completely. All positions held by the company were closed by October 19, 2015.

Meanwhile, as the company was seeking to attract trading in the stock, it had placed multiple small-quantity buy orders around the Best Bid price (spoofing) for a total of 9.258 million shares of the stock. In fact, the company had no intention of buying all said shares and only actually purchased 416,500 shares. The spoofing took place over 14 trading days in total from September 24, 2015 to October 6, 2015 and from October 13, 2015 to October 19, 2015. On its proprietary account, the company placed a number of orders or conducted a number of trades that would likely mislead a person into believing that trading in the stock was thriving and, hence, cause fluctuations in market prices of the stock on the TSE market. The company would have then sold the stock in question at favorable prices.

In February 2016, Japan Exchange Regulation (JPX-R) provided information on the matter to the Morgan Stanley MUFG Securities and reported the situation to the Securities and Exchange Surveillance Commission (SESC) based on the results of market surveillance which indicated that the company might have conducted market manipulation (spoofing) by proprietary trading.

SESC investigated the situation and concluded that the company had indeed conducted market manipulation (spoofing) by proprietary trading. On December 6, 2016, SESC recommended that the Financial Services Agency imposes an administrative monetary penalty payment order to the company. On December 16, 2016, the FSA issued a fine of JPY 219.88 million to the company.

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