Source: Financial Services Agency
According to the report requested by the Financial Services Agency under Article 56-2(1) of the Financial Instruments and Exchange Act (hereinafter referred to as the "FIEA") and submitted by the Tokyo branch of Commerzbank Aktiengesellschaft (hereinafter referred to as the "Tokyo branch"), the following situations have been identified: Inadequate management of the electronic information process.
The Tokyo branch is conducting market making business of margin trading at Tokyo Financial Exchange Inc. (hereinafter referred to as "TFX") as a registered financial entity of the FIEA. Rates provided by the Tokyo branch to TFX are determined by adding spreads in accordance with situations to middle rates which are produced by the Commerzbank group's system.
However, near the close of transactions on October 30, 2009 (5 am on Octorber 31, 2009), the Tokyo branch posited a significantly different rate of JPY/ South African Rand from the market rates, which caused settlements at an extreme rate.
The basis on which the Tokyo branch provided the rate is as follows.
1- On November 1, 2009, the foreign base of Commerzbank Group (hereinafter referred to as the "foreign base") adjusted its trading system to change the number of decimals in the indicators provided to the TFX by the Tokyo branch. However,
the foreign base forgot to change the system where the spreads had been set and saved, as such procedures were not documented in its system manual, and
the Tokyo branch did not recognize in advance the fact that the system would be modified and overlooked the problems relating to the system adjustments.
2- On October 5, 2009, the foreign base adjusted the number of decimals in the spreads, which had been set and saved inside the system, as significantly higher rates with abnormal spreads had been provided to TFX after the system modifications described at 1. However,
the foreign base forgot to change the system where the spread, which were to be used 5 minutes before transaction end on every Friday, had been set and saved, and
the Tokyo branch did not check whether the rates provided to TFX were appropriate after the sets of system amendments, overlooked inappropriate rates and did not take necessary actions even though it had been providing inappropriate rates at 5 minutes before thes even though it had beefore thes even though it had been providing inappropriate rates at 5 minutes before the end of transactions every Friday.
Therefore, it is recognized that the Tokyo branch was in the situation of "inadequate management of electronic information process" under Article 123, paragraph 1 (14) of the Cabinet Office Ordinance Concerning Financial Instruments Business, etc, based on Article 40 (2) of the FIEA.
On the basis of the identified situations above, the FSA today issued the following administrative actions to the Tokyo branch based on the Article 51-2 of the FIEA.
Business Improvement Order
1- Clarify where the responsibility lies regarding the problems identified above.
2- Clarify the allocation of duties, such as delegation of powers and functions from the group headquarter to the head of the Tokyo branch, to ensure appropriateness of business management in the Tokyo branch. In addition, enhance the business management and control functions (especially system management function) in the Tokyo branch.
3- Establish necessary functions so that the Tokyo branch can recognize promptly and take appropriate actions in case of provision and settlements at an abnormal rate.
4- Submit reports to the Financial Services Agency on the implementation of the above-mentioned measures by February 5, 2010.