Bloomberg News

Nomura Gets Biggest Fine in 12 Years by Japan Brokers Group

October 16, 2012

Former Nomura Holdings Inc CEO Kenichi Watanabe

The fine follows an Aug. 3 order by Japanese regulators that Nomura improve compliance after employees tipped off traders ahead of three equity sales by clients in 2010, Chief Executive Officer Kenichi Watanabe and Chief Operating Officer Takumi Shibata resigned in the wake of the scandal. Photographer: Kiyoshi Ota/Bloomberg

Nomura Holdings Inc. (8604) was fined 300 million yen ($3.8 million), the biggest penalty by the Japan Securities Dealers Association against any firm in 12 years, after employees leaked information on clients’ plans.

The Nomura Securities Co. domestic brokerage unit lacked internal controls to safeguard information on share sales it managed in 2010, the self-regulatory group for brokers said in a statement on its website today. The fine follows an Aug. 3 order by regulators that Tokyo-based Nomura, Japan’s biggest brokerage, improve compliance.

Brokerages in Japan are seeking an end to a crackdown on confidentiality breaches that cost Nomura’s two top executives their jobs and implicated staff from at least four securities firms including JPMorgan Chase & Co. A three-year U.S. probe into insider trading is set to result in a sentencing for former Goldman Sachs Group Inc. director Rajat Gupta this month.

“The amount really isn’t that big compared with cases in the U.S.,” said Takao Saga, a professor who studies the financial industry at Waseda University in Tokyo. “There are still clouds hanging over the Japanese stock market as individual investors stay away and overseas investors think regulations are lax.”

Japanese politicians have urged that rules barring the government from imposing fines against companies that leak information be toughened. The Financial Services Agency is preparing legislation that would establish penalties for tipsters and impose stricter punishment for insider trading.

U.S. Clampdown

In the U.S., judges are lengthening sentences as part of a clampdown on insider trading on Wall Street. Since Jan. 1, 2011, Manhattan judges have sent the average violator to prison for more than 22 months, up 20 percent over the previous eight years, according to an analysis of sentencing data by Bloomberg.

Gupta faces as many as 20 years for leaking stock tips to Galleon Group LLC co-founder Raj Rajaratnam. He will be sentenced on Oct. 24 for his part in the biggest hedge fund insider trading scheme in U.S. history.

Nomura said in June that employees provided information on offerings it arranged for Mizuho Financial Group Inc. (8411), Inpex Corp. (1605) and Tokyo Electric Power Co. to traders who sold the stocks before the deals were announced in 2010.

“We take this matter seriously,” Nomura said in an e- mailed statement today. “We will continue to further enhance our internal controls while working to prevent similar incidents and regain the trust of the public.”

Tarnished Reputation

The revelations tarnished Nomura’s reputation and led it to lose underwriting deals. Chief Executive Officer Kenichi Watanabe and Chief Operating Officer Takumi Shibata resigned in the wake of the scandal. Koji Nagai, who replaced Watanabe as CEO on Aug. 1, has vowed to avoid a repeat of the leaks.

Nomura’s fine exceeds the 200 million yen the dealers’ association imposed on SMBC Nikko Securities Inc. (8316) in June and was the biggest since Minami Securities was docked 500 million yen in 2000. SMBC Nikko, a unit of Japan’s second-biggest bank by market value, was found to have solicited clients by giving them confidential information on a public offering.

The dealers’ group is made up of more than 500 securities firms and other financial institutions operating in Japan, according to its website.

“Imposing a fine is a reminder that you will be penalized if you breach rules, so it works as a deterrent,” Waseda University’s Saga said.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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