2003 JAPAN LAW: STOCK EXCHANGES-Securities manipulators?
Keywords: Stock Exchanges, Securities Exchange Law
Copyright 2004. All rights reserved Attorney Roderick H. Seeman
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The leading issue for stock exchanges in 2003 was the arrest of the former vice-president of the Osaka Stock Exchange for violation of the securities laws. What is most relevant is from the sociological viewpoint in Japan. Specifically, how former powerful government bureaucrats, who, after all, are the managers who not only exercise the application of laws in Japan, but essentially write the laws and in most cases interpret them, operate. If they feel all powerful and that it is permissible for them in their omnipotence to skirt the law and distort markets, keep that in mind the next time the yen exchange rate is affected by market interventions annually exceeding US treasury issues by a so-called fiscally irresponsible US administration, by a government claiming to operate under the principals of market capitalism. Foreign exchange interventions at such unprecedented levels not only distort, they control exchange rates as effectively as legal foreign exchange controls, and in this case has the side effect of crippling self-correcting influences of the market forces in other nations, in this case providing low interest rates for such securities as ravenous foreign central banks buy such securities without limit. No need, for the time being, to fear higher interest rates usually accompanying massive deficits. But the loss of control over your financial market to foreign central banks? Is it worth it? Particularly when it is caused by mercantilism contrary to market forces?

Again, in the specific case of the Osaka Stock Exchange, Japanese police arrested the former vice-president of the Osaka Stock Exchange on charges of violating the securities laws. The former vice-president was one of those former officials of the all powerful Ministry of Finance, who “fell from heaven” to reward their lower other worldly beings with their divine presence. In this case, the man appears to have exercised more power than even the president of the exchange, not particularly unusual in view of the theory that the value they offer to their post-retirement posh positions is their connections to the all powerful ministry. This man appears to have overdone it (but he was not the only former bureaucrat demigod  hit in 2003---look at what happened to the former President of the Japan Public Highway Corporation who ran the firm with dictatorial manner and even defied the government for months until finally thrown out---reflecting their general outlook of their proper role in the society). In fact, it was widely believed that this vice-president, former bureaucrat wielded more power at the exchange than the president of the exchange himself.

In early 2003 the Securities and Exchange Surveillance Commission, Japan’s securities watch dog, launched an inspection of the Osaka Stock Exchange on suspicions that it had been manipulating trading in the options of stocks in order to make it appear that volume on the exchange was matching that at rival Tokyo Stock Exchange. From July 1997 affiliates of the Osaka Stock Exchange had been making trades on the same day matching buy and sell orders with the primary objective, it appears, of merely building trading volume on the exchange. In June, 2003 prosecutors raided the exchange and the home of the vice president of the exchange. The stock trades, manipulative in violation of the Securities Exchange Law, appear to have been carried out under the instructions of the former Ministry of Finance who had become vice-president of the Exchange. Affiliates handling the trades appear to have been established upon the instructions of the vice-president and without the approval of the exchange’s board of directors. In fact the Exchange itself had filed a complaint with the prosecutors office seeking criminal prosecution of the vice-president for losses caused to the exchange as a result of these transactions. Following the raids, the exchange “reprimanded” 12 of its employees for their part in the transactions. The exchange also banned its employees from trading in shares. As for the exchange itself, the government punished the exchange by ordering it to delay by three months its plan to list itself as a publicly traded company on its own exchange.