Financial Services Agency

June 7, 2006 Financial Services Agency Regarding administrative action against Monex, Inc. As a result of an inspection by the Securities and Exchange Surveillance Commission, Monex, Inc. was found to have violated laws and regulations, and requested administrative action. A recommendation was made (opens in a new window on May 31, 2006). 1. Inadequate management of customer securities trading, etc. to prevent unfair trading In such cases, a system has not been established to register the customer as an insider of the listed company, etc. (2) The person in charge of managing the insider registration system in the Legal Management Department has not completed the insider registration procedures for customers who work for listed companies, etc. in relation to their duties. As a result, they operate under a situation where there are many omissions in the insider registration of customers who are affiliated with companies such as listed companies, etc. As a result, the management of customers' securities trading, etc. is inadequate. We are operating under conditions that are insufficient to prevent fair trade. The above acts conducted by the Company and its employees are deemed to be "trading customers' securities" as stipulated in Article 10(4) of the Cabinet Office Ordinance on Act Regulations, etc. of Securities Companies based on Article 43(2) of the Securities and Exchange Act. It is recognized that it falls under the act of operating a business that falls under "a situation where the management status of etc. is deemed insufficient for the prevention of unfair transactions related to corporate information." 2. Inadequate management of electronic information processing system for securities business There was a problem in which trading prices were calculated incorrectly for some of the stocks on the market. It was caused by not making necessary program corrections. (2) Since many system failures occurred at our company, on October 12, 2005, we were ordered by the agency to report on the causes of failures and measures to prevent recurrence. A report has been submitted to the FSA to establish a system to grasp the extent of the impact of external system changes without overlooking them, and to thoroughly confirm whether system modifications are necessary and whether there are any problems with the content. The failure in (1) above was due to almost the same cause as the failure that occurred on August 29, 2005 due to the failure to overlook the extent of the impact of the migration to the new system of the JASDAQ Stock Exchange. Regarding that business, the executive officer of the system manager of the Company has changed the program of the company's system in accordance with the change of the trading system of the Osaka Securities Exchange. I neglected to do this, even though I could have easily figured it out. The above acts performed by the Company and its employees are prohibited by Article 10, Item 11 of the Cabinet Office Ordinance Concerning Act Regulations, etc. of Securities Companies based on Article 43, Item 2 of the Securities and Exchange Law. It is recognized that it falls under the act of operating a business that falls under "a situation where the management of the processing organization is deemed insufficient". Based on the above, the following administrative actions were taken against the company today. ○ Business improvement order (1) Investigate the cause of the large-scale omission of insider registration, clarify the problems in the management and operation of insider registration work at your company, and check the registration work To formulate and implement effective concrete improvement measures, including the development of systems. (2) The system failure that occurred on February 27th this year was caused by almost the same cause as the system failure in August last year, but the recurrence prevention measures reported to the authorities on December 28th last year are fully effective. Investigate the cause of failure, and establish an effective system management system, including reviewing measures to prevent recurrence. (3) Clarify the responsibility of the management, including the management, for the occurrence of the above (1) and (2). (4) Raise awareness of legal compliance among officers and employees, and implement training necessary for proper business operations. (5) Report in writing by July 7, 2006 on the status of responses to (1) to (4) above. (Note) 1. Regarding (1) above, please describe in particular the background to the introduction of the new insider registration system at the time of the merger, and how the management was involved in the introduction and made decisions. 2. Regarding (2) above, verify the effectiveness of the check system for systems that are outsourced for operation and management, and develop the necessary system.