Japanese banking authorities yesterday ordered J.P. Morgan Chase & Co, the second-largest US bank, to suspend business on its own account for 10 days from Monday, after finding it made illegal trades involving more than ¥6 billion (US$50 million) in exchangeable bonds two years ago.
The Tokyo office of JP Morgan Securities Asia conducted "a series of securities transactions intended to create artificial market prices" in January 2001, the Financial Services Agency (FSA) said in a statement.
Japan's Securities & Exchange Surveillance Commission (SESC), a securities watch-dog, said this week it recommended the FSA penalize the US firm. The two regulators began inspecting J.P. Morgan in November.
The FSA also ordered the firm to strengthen its internal control system and ensure strict compliance by its employees.
JP Morgan was accused of placing an inordinate amount of sell orders on a share to push the price below a ¥797 threshold which would allow it to convert bonds it had issued to clients into shares.
Buying the shares later to fulfill the bond redemption was preferred to paying cash to the bondholders because the share price was declining.
The trader issued 1.6 million sell orders on the share with two minutes left before the market closed, far above the 100,000 shares traded daily, the SESC said, succeeding in dropping the price below the cutoff.
JP Morgan responded in a statement: "We take this matter extremely seriously and intend to further strengthen our internal control system implementing additional measures to prevent recurrence of this incident."
Japanese securities regulators have been tightening scrutiny of brokerages to reassure investors that markets in Japan operate fairly and transparently.
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