2020-2022 - For Trusted and Attractive Capital Markets - Securities and Exchange Surveillance Commission’s Initiatives - For Trusted and Attractive Capital Markets - Contents A Message from the Chairman p.2 Chairman and Commissioners p.3 Ⅰ Organization and Objectives p.4 Ⅱ Activities of the Securities and Exchange Surveillance Commission －1 Market Surveillance p.8 －2 Investigation of Market Misconduct p.9 (1) Investigation of Transactions (2) Investigation of Cross-Border Transactions/ Transactions by Institutional Investors －3 Inspection of Disclosure Statements p.11 －4 Monitoring of Financial Instruments Business Operators p.12 －5 Investigation of Criminal Cases p.14 Ⅲ Strategy & Policy of the SESC 2020-2022 p.15 Ⅳ Major Cases and Statistics p.17 Ⅴ SESC Website and Other Information p.30 1 A Message from the Chairman The Securities and Exchange Surveillance Commission (SESC) was established in 1992 with the aim of ensuring fairness of transactions and maintaining the trust of investors in markets. It is now in its 29th year. Since its establishment, the SESC has filed criminal charges in cases of serious and malicious market misconduct and has made recommendations for administrative monetary penalty payment orders and administrative actions for violations of securities laws. The SESC has also conducted market oversight through exercising its authority over investigations and inspections in an effort to ensure fairness and transparency of the market and protection of investors. In recent years, financial and capital markets have undergone significant changes due to the globalization of investments and corporate activities as well as the progressing digitalization of financial institutions, transactions and financial products. At present, the Japanese economy is faced with extremely challenging situations because of the coronavirus pandemic. It experienced its largest downturn in the postwar era during the initial outbreak but, since then, it has continued to move toward recovery, thanks to the positive outcomes of various policies and improvements in overseas economies. Nevertheless, the economy remains below its pre-coronavirus level, so the recovery is only partway through. The impact on financial and capital markets needs to be discerned as well. The Financial Services Agency (FSA) has been focusing on its priority policy of “Making the Japanese financial and capital market more sophisticated and attractive.” The SESC will contribute to the policy by ensuring the fairness and transparency of markets and protecting investors, through the implementation of five measures to achieve its goal of “holistic, timely and in-depth oversight.” For the sustainable growth of Japan’s economy, the SESC will work with relevant authorities and self-regulatory organizations to promote integrity and self-discipline of the market through conducting swift and effective market oversight. Ensuring the development of trusted and attractive capital markets that are fair, transparent and trustworthy, as well as the protection of investors, is the mission of the SESC. The SESC will continue to fulfill its mission and respond to the trust that you place in us. Your understanding and cooperation would be greatly appreciated. HASEGAWA Mitsuhiro Chairman Securities and Exchange Surveillance Commission February 2021 2 Chairman and Commissioners Commissioner Chairman Commissioner HAMADA Yasushi HASEGAWA Mitsuhiro KATO Sayuri HAMADA Yasushi was appointed as SESC HASEGAWA Mitsuhiro was appointed as KATO Sayuri was appointed as SESC Commissioner in December 2016 (reappointed SESC Chairman in December 2016 Commissioner in December 2019. in 2019). Previously, he served as the Senior (reappointed in 2019). Previously, he served Previously, she served as Director of the Partner and Director of KPMG AZSA LLC, and as the Chief Public Prosecutor of Nagoya Consumer Affairs Agency, Vice-Governor a professor of Graduate School of District Public Prosecutors Office and the of Nagano Prefecture, and Executive Vice Professional Accountancy, Aoyama Gakuin Superintending Public Prosecutor of President of the National Consumer University. Hiroshima High Public Prosecutors Office. Affairs Center of Japan. 3 Ⅰ Organization and Objectives The SESC was established within FSA in 1992. Prime Minister A Chairman and two Commissioners are Appointment (subject to Diet approval) appointed by the Prime Minister and function as an independent agent. (Term of office: 3 years) FSA Recommendations or SESC The SESC aims to ensure the fairness and Proposals transparency of markets and to protect Chairman investors. Administrative Filing Criminal Investigations of market misconduct including insider Actions or Charges 2 Commissioners trading and market manipulation Public Administrative Inspections of violations in disclosure requirements by prosecutors Monetary Penalty listed companies Payment Orders Monitoring of violations of law related to securities business by Financial Instruments Business Operators (FIBOs)* and unregistered business Monitoring Inspection Investigation operators. Recommendations of administrative actions or FIBOs, etc. Listed Companies, Market administrative monetary penalty payment orders, or (Violations of law related to etc. Misconduct filing criminal charges based on the results of the securities business ) (Violations of disclosure (Insider trading/Market above investigations, inspections or monitoring requirements) manipulation) * “FIBOs” stands for Financial Instruments Business Operators and includes any business operator subject to securities monitoring, such as registered financial institutions, financial instruments intermediary service providers, and qualified institutional investors 4 (Ref.) Organization and Staff Number The Executive Bureau is composed of the following six divisions: Planning and Management Division, Market Surveillance Division, Market Misconduct Investigation Division, Disclosure Inspection Division, Securities Business Monitoring Division, and Criminal Investigation Division. In addition to the Executive Bureau in Tokyo, the SESC has staff members at the Local Finance Bureaus, which perform mainly inspections of financial services providers located in respective areas. There are 737 staff members in total (401 of which work for the Executive Bureau) as of March 31, 2021, the end of fiscal year 2020. Prime Minister Staff Number FSA Appointment Local Finance 800 Bureaus SESC Hokkaido 700 (Chairman Hasegawa, Commissioner Hamada, Commissioner Kato) Started Petitions for FY2020: 737 members Court Injunction Tohoku (including Local Finance Bureaus) 600 Expanded Inspections and Executive Bureau Kanto Introduction of Administrative Monetary Penalty Planning and Management Overall coordination of the Executive Bureau 500 Division Hokuriku Enhanced Market Market oversight Surveillance functions Market Surveillance Division Tokai for Revitalizing Collection & analysis of information, etc. 400 Markets Market Misconduct Kinki FY2020: 401 members Investigation of market misconduct Started Criminal & Investigation Division (excluding Local Finance Bureaus) 300 Administrative Chugoku Investigations Cross-Border Investigation Investigation of market misconduct Office (cross-border transactions, etc.) Shikoku 200 Disclosure Inspection Division Inspection of disclosure documents Kyushu Monitoring of financial instruments business 100 Securities Business Fukuoka Monitoring Division operators, etc. Monitoring of unregistered firms, etc. Okinawa 0 Criminal Investigation Division Investigation of criminal cases 1992 1996 2000 2004 2008 2012 2016 2020 5 (Ref.) History of the Securities and Exchange Surveillance Commission Since its establishment in 1992, the SESC has expanded its administrative investigations beyond its investigation of criminal cases to strengthen its functions as a market surveillance organization July 2011 SESC reorganized to its current structure of six divisions: July 1992 Planning and Management, Market Surveillance, SESC established within the Ministry of Finance, Securities Business Monitoring, Market Misconduct Investigation, consisting of two divisions: the Inspection Division and Disclosure Inspection, and Criminal Investigation the Criminal Investigation Division June 1998 Aug. 2011 SESC moved to the Financial Supervisory Agency Cross-Border Investigation Office was established within the Market Misconduct Investigation Division to respond to market misconduct involving cross-border and other transactions Jan. 2001 SESC moved to the FSA in reorganization of Japanese central government ministries Apr. 2014 Introduction of insider trading regulations governing Apr. and July 2005 transaction recommendations Introduction of administrative monetary penalty system Delegation of authority to inspect disclosure statements and to conduct investigations to impose administrative monetary penalties to the SESC Apr. 2015 Digital Forensic Solutions Office was established to preserve Sept. 2007 evidence on electromagnetic records (digital forensics) Addition of authority to conduct inspections Apr. 2018 on investment funds Addition of authority to conduct inspections on high speed trading business operators Dec.2008 Addition of authority to file petitions for court injunctions May 2020 against violations by unregistered business operators Addition of authority to conduct inspections of financial instruments business operators handling crypto-asset derivatives and electronic record transfer rights 6 (Ref.) Administrative Monetary