UPDATE 4-BNP Paribas manipulated stock trade-Japan watchdog

* Wants discipline for stock manipulation, false reports

* Says submitted report with some untruthful descriptions

* Japan unit could face order to suspend operations - media

(Adds comments from SESC official, background, share price)

By Junko Fujita and Mayumi Negishi

TOKYO, Oct 16 (Reuters) -

A BNP Paribas (BNPP.PA) unit submitted a report that contained false information on a controversial financial deal and one of its traders manipulated stock prices, and both should face discipline, Japan's securities watchdog said on Friday.

BNP Paribas Securities (Japan) Limited ran afoul of Japanese regulators last November over a convertible bond deal with property developer Urban Corp, which failed soon after the transaction, and was required to submit reports about the incident.

The Securities and Exchange Surveillance Commission (SESC) said on Friday that BNP Paribas had submitted reports that were incomplete and had put "untruthful descriptions" in them. The SESC said that it did not believe that the company had intended to deceive the regulator.

It also said that a trader had separately manipulated prices in a dealing with another undisclosed stock.

The SESC has recommended the country's financial regulator, the Financial Services Agency (FSA), take action against the company and the trader. It did not anticipate criminal charges, a SESC official told a news conference.

BNP Paribas shares were down 2.22 percent at 1258 GMT, against at 1.4 percent fall in the DJ Stoxx European banking index .SX7P.

"We take the SESC's recommendation seriously and we await the FSA's final decision," said Daniel Boyd, a spokesman for BNP Paribas in Tokyo.

The SESC said a trader in the equity and options department had placed a "massive purchase order" for an unnamed stock just before the close of trade on Nov. 5, 2008, with the purpose of fixing the price at its daily limit.

Officials declined to comment on what shares it found BNP Paribas guilty of manipulating, but earlier this week the Asahi newspaper quoted market sources as saying the case involved shares of mobile phone company Softbank Corp (9984.T).

An official at Softbank declined to comment on the report.

In November 2008, the FSA November ordered BNP Paribas to improve its internal controls and submit reports on the Urban convertible bond deal after it found that employees at the broker unit had asked Urban not to disclose information about a swap contract tied to a convertible bond that in effect was causing Urban losses. That information was not made public until Urban failed.

The FSA usually makes a decision on punishment within one to two weeks after an announcement on an infraction is made.

The Asahi said BNP Paribas' securities unit may face a suspension of operations, without citing sources.

BNP Paribas was ordered to suspend stock trading on its own account for 10 days in 2002 when Japanese regulators found it had manipulated stock prices. (Reporting by Junko Fujita and Noriyuki Hirata; editing by Chris Gallagher and Karen Foster)