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SBI Securities Faces Penalties for Manipulating IPO Opening Prices

Japan
s 8473.TSE Mid and Small Cap 2000
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Japan’s Securities and Exchange Surveillance Commission (SESC) has recommended penalties for SBI Securities, the nation’s largest online brokerage, following findings of market manipulation. The SESC’s report to the Financial Services Agency (FSA) revealed that SBI Securities artificially propped up the opening prices of three initial public offerings (IPOs) it underwrote between December 2020 and September 2021.

The investigation identified two primary methods used in the manipulation. First, SBI Securities leveraged its network of approximately 200 independent financial advisers to influence customers to place buy orders at opening prices. This scheme involved persuading 174 customers through three advisers to buy shares at the behest of SBI Securities’ executive officers.

Additionally, the brokerage firm engaged institutional investors like hedge funds. The head of the institutional investor sales department at SBI Securities’ Hong Kong branch played a key role in soliciting purchases from nine companies.

This strategy was aimed at balancing buy and sell orders at the offering price level, thus preventing the opening price from falling below the initial offering price. However, on the listing date, a significant portion of these buy orders were either not executed or withdrawn, undermining the actual market demand.

The SESC concluded that these actions constituted “artificial market creation,” disrupting fair price formation in the market. Despite the involvement of executive officers and managing directors in setting order targets, top executives such as SBI Holdings Chairman Yoshitaka Kitao and SBI Securities President Masato Takamura were not implicated.

SBI Securities, which recently introduced zero-commission trading on Japanese stocks, has been actively expanding its corporate business, leading 15 IPOs in fiscal 2022 and seven in the first half of fiscal 2023. The price manipulation was presumably aimed at enhancing the firm’s reputation as an underwriter, as IPO opening prices are often viewed as indicators of underwriting success.

The SESC’s investigation also highlighted that while most IPOs underwritten by SBI Securities initially saw a price increase, about half are currently trading below their offering prices.

In response to these findings, SBI Securities issued an apology and committed to taking measures to prevent future occurrences. The FSA is now considering appropriate penalties, potentially including a suspension order, as a response to these manipulative practices.

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