Business failures
The number of business failures per annum (resignation of membership due to business closures, dissolutions, terminations of registration, etc. excluding merger and business transfer) since JIPF's establishment is shown in the graph in Appendix 2.
Since JIPF's establishment, a total of 118 members, (an average of 8.4 companies per year) have withdrawn as a result of business closures, dissolutions, terminations of registration, etc. Of that amount, 109 companies were deemed to "clearly pose no danger to investor protection" because they were found to not be insolvent, to have correctly fulfilled their segregated custody obligation, or other mitigating factors at the time of becoming a Notifying Financial Instruments Business Operator. Out of the total of 9 companies that were referred to the Governing Council, customer compensation was found to be unnecessary for 7 companies. Four companies had correctly fulfilled their segregated custody obligation and presented no barriers to returning assets to customers. Of the 2 companies for which no deposits of customer assets were found at the point of verification, one company was determined not to require customer compensation because securities that had been redeposited overseas could be returned to customers through due legal process. Therefore of the 9 companies eligible for certification of customer compensation, two companies, Minami Securities in 2000 and Marudai Securities in 2012, were actually certified and eligible for indemnification.
Customer Compensation Cases
1) Minami Securities Co., Ltd.
a. Compensation made to customers of Minami Securities
On March 6, 2000, the Financial Supervisory Agency (precursor of the current FSA) decided that Minami Securities Co., Ltd., was insolvent and filed petitions for bankruptcy and provisional measures with the Tokyo District Court. The court decided to initiate bankruptcy proceedings on March 21 of the same year.
In an unexpected event, during the period from March 6 to 7, the president of Minami Securities, Mr. Hirata, embezzled customer stocks, etc. being held at the company's Tokyo branch worth a total of approximately ¥2.8 billion at the time.
JIPF paid out compensation of ¥5,891.86 million (see note) to 1,363 customers of Minami Securities and recovered ¥2,427.73 million of the company's assets, for a net payout of ¥3,464.13 million.
Note: the ¥10 million compensation limit was implemented on April 1, 2001. Therefore, customers were fully compensated for all assets deposited with Minami Securities because there was no restriction on compensation at the time of the bankruptcy.
b. Recovery of compensated securities
Having compensated Minami Securities customers for their securities, JIPF gained the rights to the securities involved.
However, because the documents submitted regarding the public notice and deletion of rights (currently the lost certificate notification) were not approved, JIPF continued to hold the rights for a long time without being able to have the registered names changed.
But when stocks were dematerialized in Japan in January 2009, the revision in the laws made it possible for JIPF to assert that the stocks that remained in the special account for which JIPF had compensated the customers of Minami Securities without the appearance of a bona fide third party were indeed said stocks. Accordingly, JIPF was able to use the courts' rapid reconciliation system to reach an agreement whereby the stocks could be converted into cash based on the transfer, etc. of the stocks by instruction of the previous customers of Minami Securities, allowing JIPF to collect on the compensated debt.
At of March 31, 2011, JIPF had collected approximately ¥61 million from 76 previous customers of Minami Securities, equivalent to about 1.8% of the net payout amount.
2) Marudai Securities Co., Ltd.
In March, 2012, in the process of an inspection conducted by the Securities and Exchange Surveillance Commission of Marudai Securities in Tokyo (which is capitalized at 365 million yen), it was discovered that customer funds had been diverted.
Thereafter, the joint inspection team by the JIPF and the Japan Securities Dealers Association confirmed that all the securities deposited by customers were properly held in segregated custody, but that this was not the case with their cash. The amount of the cash deposited in trust with a trust bank was 200 million yen less than the legally required balance.
The JIPF, as a result of deliberation on the necessity of compensation, certified that smooth return of the customer assets would be difficult. The JIPF has already begun the indemnification process, which will be completed by the end of June of this year, but has still been continued since July.
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