Nomura Holdings Inc. (8604), Japan’s biggest brokerage, said it will cut top executives’ pay and suspend some operations following an internal probe into leaked information amid a government crackdown on insider trading.
Chief Executive Officer Kenichi Watanabe’s pay will be lowered by 50 percent for six months, while Chief Operating Officer Takumi Shibata’s compensation will be reduced for five months, the Tokyo-based company said in a statement yesterday. The institutional equity sales department will halt business for five days from July 2, it said.
Watanabe, 59, has been under pressure to explain how employees leaked information that third parties used for trading ahead of share sales managed by Nomura in 2010. An internal investigation found that some staff appeared to be “willing to do anything to meet sales targets,” according to the report.
Regulators have yet to complete their inspection of Nomura after finding that its staff gave tips on equity offerings by Inpex Corp. (1605), Mizuho Financial Group Inc. (8411) and Tokyo Electric Power Co. (9501) Watanabe told reporters that he wasn’t sure whether there were any other breaches although he doesn’t plan to pursue any more investigations by external parties.
The CEO, who delivered his first personal apology over the company’s involvement at a shareholders’ meeting earlier this week, said he has no plans to resign.
Watanabe was awarded a basic salary of 108 million yen ($1.4 million) for the year ended March, excluding stock options, Nomura said in a filing to the Finance Ministry this week. Shibata’s annual basic pay totaled 96 million yen. Keiko Sugai, a Tokyo-based spokeswoman, declined to comment on their compensation for the current fiscal year.
Shares of Nomura rose 3.9 percent to 294 yen, the highest since May 2, at the close of trading in Tokyo before the announcement, while the Nikkei 225 Stock Average (NKY) gained 1.5 percent. The brokerage has lost 26 percent in the past year.
The government’s probe has extended to Nomura’s closest domestic rival, Daiwa Securities Group Inc. (8601), according to two people with knowledge of the situation. A Daiwa employee leaked insider information on Nippon Sheet Glass Co.’s 2010 public share offering to a hedge fund, the people said, asking not to be identified before a public announcement.
The Securities and Exchange Surveillance Commission yesterday recommended Japan Advisory Ltd., a hedge fund advisory firm, pay a fine of 375,183 yen ($4,720) for trades related to the Nippon Sheet offering. Daiwa will start an internal probe into the Japan Advisory trades and strengthen its controls, the brokerage said in a statement to the Tokyo Stock Exchange.
A panel of lawyers hired by Nomura for its internal investigation identified problems in the firm’s sales structure, working conditions and compliance, according to the brokerage’s report. Sales staff were given “excessive inclinations in the drive for profits,” it said.
Minoru Hatada, who was in charge of the institutional equity sales department at the time of the incidents, will step down, as will Hiroshi Tanaka, who was head of compliance. Other employees “shall be severely penalized,” Nomura said in its proposed list of changes.
The brokerage plans to make it mandatory for institutional equity sales staff to use mobile phones with recording capability, and their taped conversations will be stored for two years instead of two weeks. Guidelines on entertainment and meeting expenses will also be issued, and Nomura will review whether there is an “excessive concentration” among the recipients, it said.
Hideki Nakagome, a former High Court chief justice who helped investigate Olympus Corp.’s accounting fraud, led the internal probe.
Regulators have also investigated firms including local brokerage units of Sumitomo Mitsui Financial Group Inc. (8316) and JPMorgan Chase & Co. (JPM:US) to restore confidence in Japan’s capital markets. The benchmark Topix Index (TPX) has dropped 10 percent since March 21, when the SESC began announcing that underwriters were leaking information before the stock offerings.
The SESC, a watchdog under Japan’s Financial Services Agency, last month found that a JPMorgan employee gave information on the 2010 offering by Nippon Sheet, two people with knowledge of the matter said on May 29. JPMorgan said on the same day that it’s “cooperating fully” with authorities.
A former executive at SMBC Nikko Securities Inc., a unit of Sumitomo Mitsui, was arrested this week, becoming the first banker from a major firm to be detained in connection to a suspected case of insider trading since an ex-Nomura employee was in 2008.
“It’s very regrettable,” Financial Services Minister Tadahiro Matsushita told reporters earlier yesterday, when asked about the history of violations at Nomura. “I want the company to make serious efforts to fix this by itself.”
The FSA separately ordered SMBC Nikko in April to improve its business after 23 sales staff disclosed information to 34 clients before an unidentified company’s announcement of an equity offering. Sumitomo Mitsui President Koichi Miyata this week apologized to shareholders and pledged to strengthen the banking group’s compliance.
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