FSA Nomura UPDATE2Kyodo News International, Inc.
TOKYO, Aug. 3 -- (Kyodo) _ (EDS: ADDING INFO IN 6TH TO 8TH GRAFS)
Japan's financial regulators ordered Nomura Securities Co. on Friday to improve its internal controls following leaks of confidential information from the nation's biggest brokerage.
The business improvement order from the Financial Services Agency came after Nomura apologized over the leaking of unpublished information to clients about new share offers by large companies, which the government has criticized for damaging investor trust in Japanese financial markets.
It is the first such order for Nomura since 2008. But the FSA fell short of suspending the brokerage's operations, apparently in consideration of the already announced resignations of some senior officials at its parent Nomura Holdings Inc. to take responsibility for the scandal.
"Taking into account the fact that (the information leakage) was repeated, we believe Nomura has to bear heavy responsibility," Financial Services Minister Tadahiro Matsushita told reporters.
But Matsushita also said the FSA recognized the group's management reshuffle, adding, "We strongly hope (Nomura) will press ahead with reforms to rebuild its company structure fundamentally."
The agency required Nomura to regularly verify and report on progress in its efforts to prevent a recurrence. The company was urged to submit the first report on Aug. 10, which will be followed by additional ones every three months starting in October.
Nomura is one of a number of major Japanese securities firms recently caught up in insider trading scandals.
In a different case, the Securities and Exchange Surveillance Commission on Friday filed additional criminal complaints with the prosecutors' office in Yokohama against a former executive of SMBC Nikko Securities Inc. and three others for allegedly trading stocks of two companies based on unpublicized information about their takeover bids.
The administrative order against Nomura followed a recommendation earlier this week by the SESC, the securities industry watchdog, for the FSA to punish the industry leader.
The SESC has separately proposed that the FSA fine some of Nomura's institutional clients, including both domestic and foreign financial institutions, for trading based on insider information about the new share issues by major companies, including Mizuho Financial Group Inc. and Inpex Corp., in which Nomura assumed the role of lead manager.
Such insider information could damage the financial strength of a listed company by triggering massive short-selling on expectations that issuing new equity would depress the company's share price because of the dilution of its per-share value. In such circumstances, issuers could fail to raise targeted capital in public offerings.
It has been long pointed out that in Japan, the volume of stock trading often expands abnormally ahead of the announcement of large new share offers, with experts suspecting insider trading by investment funds, which sell short and trigger larger selling as others follow suit.
Under Japanese law, heavier penalties are imposed on investors who make profits based on insider information than on those who leak it, the latter in many cases being securities firms' officials, who are only subject to relatively small fines, calculated based on their brokerage fees.
The government is currently studying whether to revise the law to enable stricter punishment of those who leak insider information.
The latest regulatory measure against Nomura focused on its flawed internal controls, such as insufficient compliance as well as failing to establish a firewall between the investment banking and brokerage divisions within the company.