Japan’s FSA issues action against JPMC

The decision follows an irregularity in some yen interest rate options trades from December 2002 to July 2003, during which period a trader at the bank manipulated the valuation of yen interest rate options offered to clients. "These mis-valuations were discovered by JP Morgan after an internal investigation, which resulted in dismissal of the trader," the bank said in a statement.

The FSA nevertheless pointed out that it took JP Morgan Chase a long time to find the misconduct, "due to the fact that the internal checking did not work properly. Moreover, internal audit function [was] not properly performed either".

No suspension is resulting from the administrative action, but the FSA is asking the bank "to clarify the commitment of the management on compliance with laws and other related regulations", to develop and reinforce its legal and compliance department, as well as its operational and internal control systems regarding financial derivatives transactions.

The US bank said it "takes this matter very seriously and is determined to further strengthen our internal management controls to prevent recurrence of a similar incident".

Derivatives risks "overstated"

Most finance professors at the world’s top business schools believe the risks of using derivatives have been overstated, according to the International Swaps and Derivatives Association. Isda polled academics at the world’s top 50 business schools and found that 81% of respondents believe risks have been overstated. Isda also said 98% of its respondents agreed that managing financial risk more effectively is a way for companies to build shareholder value. "These findings show a clear consensus among the world’s top finance academics that derivatives are extremely valuable risk management tools and offer a beneficial way of delivering shareholder value," said Robert Pickel, Isda’s chief executive. "These experts believe, as we do, that they play a beneficial role in the global financial system."

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