Nomura Securities Co. could face an administrative punishment and a management reshuffle after the securities house admitted to being involved in three insider trading cases.
On June 8, the Securities and Exchange Surveillance Commission recommended a fine of 14.68 million yen ($185,000) against First New York Securities over a 2010 insider trading case.
The U.S. company received pre-release information on Tokyo Electric Power Co.’s public share offering in September 2010 from a Nomura sales employee via a director at a Tokyo consulting company, according to the SESC.
Nomura on June 8 admitted for the first time that it was also involved in two other insider trading cases over share offerings by Inpex Corp. in July 2010, and by Mizuho Financial Group Inc. in June 2010.
Chuo Mitsui Asset Trust and Banking Co., which merged into Sumitomo Mitsui Trust Bank in April, had received inside information from Nomura in both cases.
The SESC recommended a fine of 50,000 yen against the bank over the first case in March, and a fine of 80,000 yen over the second in May.
“It is extremely regrettable that (First New York and Chuo Mitsui Asset) were found to have obtained insider information from our employees,” said a statement by Nomura on June 8.
Nomura had underwritten the three companies' share offerings.
“We have to acknowledge there were flaws in the way information was managed if we were involved in three cases,” a senior Nomura official said the same day.
The Financial Services Agency will consider an operational improvement order against Nomura based on the Financial Instruments and Exchange Law, according to sources.
If the FSA’s administrative punishment seeks management responsibility, Nomura could be forced to replace its top executives.
At a shareholders’ meeting of parent Nomura Holdings Inc. scheduled for June 27, calls are expected for Group CEO Kenichi Watanabe and other executives to clarify their responsibility.
Nomura said it will ask outside lawyers to investigate the three cases and announce punishments against executives and employees involved, in June at the earliest.
First New York was the first overseas financial institution against which the SESC recommended the FSA to impose a fine.
The U.S. company gained a profit of 7.2 million yen by short-selling 35,000 TEPCO shares a day before TEPCO announced its share offering.
Many foreign investors have said that insider trading based on leaked information is rampant in Japan's stock market. A large number of overseas funds are suspected of being involved in insider trading over share offerings by listed Japanese companies.
A securities industry official said First New York’s case is just “the tip of the iceberg.”
Under the Financial Instruments and Exchange Law, only the companies and people that made profits through insider trading are punished for violations.
The FSA plans to submit a bill to the Diet next year to revise the law to enable punishing securities houses that leaked inside information.
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