# Towards Enhanced Market Integrity

The Securities and Exchange Surveillance Commission (hereinafter referred to as “SESC”) is engaged in market surveillance under a mission of ensuring the integrity of capital markets and protecting investors.

The SESC for the 8th term was established in December 2013, and it announced “Towards Enhanced Market Integrity” as a medium-term policy statement (hereinafter referred to as “Policy Statement”; See Appendix 2-1) in January 2014. Under the Policy Statement, the SESC formulated three policy directions consisting of: (1) Market oversight with prompt and strategic actions; (2) Enhanced surveillance in response to the globalization of markets; and (3) Efforts for enhanced market integrity. Pursuant to these three policy directions, the SESC continues to strive to secure effective and efficient market surveillance with strong emphasis on prioritized items: (1) Proactive market oversight through enhanced information-collecting ability; (2) Strict action against severe and malignant market misconduct and false disclosure statements; (3) Timely and efficient inspections in response to disclosure violations; (4) Use of administrative monetary penalty system against market misconduct, etc.; (5) Efficient and effective inspections corresponding to the characteristics of firms to be inspected; (6) Responding to malicious businesses engaged in fraudulent operations; (7) Effective dissemination of information; and (8) Enhanced cooperation with self-regulatory organizations.

### 1. Activities in FY2014

During FY2014 (April 1, 2014–March 31, 2015), which is the period covered by this publication, the SESC was engaged in market surveillance as described below and strategically utilized the power and human resources with which it has been vested.

With respect to routine market surveillance, the SESC continued its efforts, including accepting information from ordinary investors, etc., conducting market oversight targeting primary and secondary markets, cooperating with overseas regulators in view of the globalization of markets, reviewing insider trading, market manipulation and fraudulent activities, and responding to new financial instruments, etc. Sometimes the information collected or the market oversight would reveal certain conducts impairing the fairness of transactions as well as other problems. In these events, following an investigation and inspection by the relevant divisions within the SESC, the SESC would make a recommendation for administrative disciplinary actions or file a criminal charge.

Inspections of financial instruments business operators and the like revealed cases in which a type I financial instruments business operator failed to establish an appropriate trading screening system for proprietary trading of exchange-traded derivatives thereby overlooking market manipulation, and another type I financial instruments business operator who caused losses to customers through the book-value trading of privately-placed bonds which had declined in value between funds in a conflict of interest. The inspections of type II financial instruments business operators also revealed cases in which one operator obtained approval for registration based on false amounts on the balance sheet attached to the submitted application, and another operator, recognizing the intended misappropriation of the