DrKW gets five-day OTC derivatives trading ban in Japan

Japan's financial market regulator, the Financial Services Agency (FSA), has suspended Dresdner Kleinwort Wasserstein (DrKW) from trading over-the-counter (OTC) derivatives for five days. This follows an inspection that resulted in claims the German bank had breached the country’s securities and exchange rules.

The investigation, which was conducted by the inspection bureau of the FSA between February and June this year, found DrKW had begun trading OTC derivatives in December 1998 while only receiving regulatory approval in August 1999. DrKW also started trading credit derivatives in May 1999, six months prior to receiving approval in November 1999, according to Atsushi Sasagawa, deputy director at the FSA in Tokyo.

During the period April 2001 to February 2002, DrKW had also placed a number of its customers’ short-selling exchange-traded equity orders without legally required confirmation to the customers and disclosure to the stock exchange that the orders were short-selling. The bank is also alleged to have placed a number of short-selling equity orders on its own account without informing the stock exchange that the orders were short-selling between December 2001 and February this year. The short-selling orders were also placed at prices lower than the latest executed and published prices, claimed the Japanese watchdog.

In addition to suspending its credit and OTC derivatives trading activities, the FSA also suspended DrKW from intermediating in cash lending/borrowing, sale or purchase of monetary credit and trade other than that related to securities, for five business days. The FSA has placed a 10-day suspension on commissioned sales and purchases of stocks on behalf of affiliated companies.

The bank will have to submit a quarterly report to the agency on the implementation measures taken to improve its compliance with Japanese regulations. A DrKW spokesperson in Japan declined to comment on the matter.

The move comes after a spate of inspections at foreign banks operating in the country that have largely resulted in similar such actions taken by the country’s regulatory body. Notably, in December last year, Goldman Sachs was reprimanded for conducting non-securities business, such as credit derivative transactions and the intermediation of commodity derivative transactions, without prior approval or notification to the FSA, among other breaches, such as the short-selling of stocks without informing the stock exchange.