Nomura Holdings Inc. (8604), whose top two executives resigned last week to take responsibility for an insider-trading scandal, was ordered by Japanese regulators to improve its securities operations.
“Nomura must push ahead with reforms to restore trust in Japan’s financial markets,” Financial Services Minister Tadahiro Matsushita told reporters in Tokyo today. “Employees and executives should all take this order very seriously.”
The action concludes an investigation started in April that revealed Nomura failed to prevent employees from providing tips to traders on at least three share sales in 2010. Nomura has lost equity and bond underwriting business amid the probe, missing out on coordinating the global $8.5 billion initial public offering of Japan Airlines Co. announced today.
“This issue damages Nomura’s reputation significantly, and the penalty ordered today is credit negative,” Maki Hanatate, senior credit officer at Moody’s Investors Service in Tokyo, said in a telephone interview. “We need to examine how it will affect Nomura’s business, including mergers advisory, equity and bond underwriting, and trading.”
Nomura said in a statement today that it will continue to enhance internal controls, prevent similar incidents and regain public trust.
The Financial Services Agency’s order, the second for Nomura in four years, requires the company to implement preventive measures it set out after an internal investigation, the regulator said in a statement today. Nomura must report to the agency on the status of its remedies, which include ethics training and stricter monitoring of communication with clients.
The FSA’s penalty comes after its investigative arm found that Nomura Securities Co. solicited clients by giving them privileged information on companies, and failed to prevent unfair trading before public offerings it managed, the Securities and Exchange Surveillance Commission said on July 31.
Koji Nagai took over from Kenichi Watanabe as CEO on Aug. 1, a month after Nomura released a report by outside lawyers revealing that equity sales staff were “willing to do anything” to meet revenue targets. Atsushi Yoshikawa replaced Takumi Shibata as chief operating officer.
Nomura said in June that employees provided information on offerings it managed for Mizuho Financial Group Inc. (8411), Inpex Corp. and Tokyo Electric Power Co. to traders who short-sold the stocks before they were announced in 2010.
Shares of Nomura fell 2.6 percent to 268 yen at the close of trading in Tokyo. The Topix Index (TPX) dropped 1.2 percent. Nomura has tumbled 32 percent since the first case was revealed on March 21, about double the pace of decline in the Topix.
Credit default swaps offering five-year protection to Nomura bondholders have surged 105 basis points to 365 in the same period, according to data provider CMA. An increase in the swaps signals worsening perceptions of creditworthiness.
The FSA is examining whether leaks by securities firms may be more widespread, after also finding breaches by employees of Daiwa Securities Group Inc. (8601) and JPMorgan Chase & Co. (JPM:US) ahead of a share sale they underwrote for Nippon Sheet Glass Co. in 2010.
The agency last month asked 12 brokerages including Nomura, Daiwa, JPMorgan and Goldman Sachs Group Inc. to explain how they handle non-public information. The firms’ reports are due today.
Nomura may have given tips in more than the three cases identified, an SESC official told reporters on July 31, speaking on condition of anonymity due to the commission’s policy. The remarks echo a statement by Nomura last week saying there are “high possibilities” of other leaks.
Today’s punishment isn’t the first for Nomura over insider trading-related breaches. The FSA ordered the firm in July 2008 to improve internal controls over how it handles corporate information after an employee was convicted of insider trading.
Nomura lost its place as Japan’s No. 1 bond underwriter last month as some issuers dropped the bank in the wake of the revelations. State-owned Development Bank of Japan Inc. said on July 3 that it ditched Nomura as lead manager of a debt sale because it wanted to avoid “any disruption.”
Daiwa, Japan’s second-biggest brokerage, was named global coordinator of Japan Airlines’ IPO, with Nomura and other firms to help underwrite the domestic offering, the carrier said today. Nomura was demoted from global manager, two people with knowledge of the matter said on July 18.
Daiwa posted a second straight quarterly profit today on cost cutting. Net income was 2.7 billion yen ($34.5 million) for the three months ended June 30, compared with a loss of 9.4 billion yen a year earlier, it said.
By comparison, Nomura’s profit tumbled 89 percent to 1.9 billion yen in the quarter as investment banking fees and brokerage commissions fell, it said last week.
Daiwa last week said it will cut Chief Executive Officer Takashi Hibino’s pay by 10 percent for three months to atone for the leak on the Nippon Sheet Glass share sale. The brokerage said it didn’t “systemically” leak information on public offerings to clients.
To contact the reporter on this story: Takahiko Hyuga in Tokyo at email@example.com
To contact the editor responsible for this story: Chitra Somayaji at firstname.lastname@example.org