A chummy relationship between a manager and a former subordinate at Nomura Securities Co. apparently led to information on listed companies' share offerings being leaked to a trust bank.
A senior member of Nomura's sales promotion division was in the habit of chatting in-house about confidential matters with an individual of the division in charge of public share offerings, sources said June 20.
This seems to have been in clear breach of established procedures.
In the securities industry, the term Chinese wall is used to refer to a type of firewall within a company to prevent those in charge of public share offerings from leaking information to people in sales promotion divisions to ensure fair transactions.
Suspecting that the mechanism was not functioning, the Securities and Exchange Surveillance Commission has begun a special investigation into Nomura's activities.
According to the SESC's findings, Nomura leaked information on planned public share offerings by Inpex Corp. and Mizuho Financial Group Inc. to former Chuo Mitsui Asset Trust and Banking Co., now part of Sumitomo Mitsui Trust Bank, in 2010 before it became public.
The SESC suspects Chuo Mitsui traded based on the insider information to make profits.
In light of that, the SESC issued a recommendation to the Financial Services Agency to slap fines on the trust bank.
According to stock market sources, the information was leaked to Chuo Mitsui by Nomura's No. 1 sales promotion division for domestic institutional investors.
The manager in the division often talked by telephone with the member of the investment bank division, which helps companies to raise capital through public share offerings.
It turns out that the member of the investment bank division used to be a subordinate of the manager in question.
Several days prior to a formal announcement of a capital increase by Mizuho Financial Group, the manager sent an e-mail message to his subordinates, which read: "I want you to keep in the back of your minds that Mizuho Financial Group will probably try to increase its capital (through public share offerings). To my best guys, start ringing those gongs in your hearts."
The expression was meant to conjure up images of the start of a boxing match and perhaps reflects a dog-eat-dog mind-set among Nomura executives.
The e-mail seemed intended to get subordinates to rush out and find institutional investors who would purchase the newly issued Mizuho shares.
The manager himself wined and dined a fund manager at Chuo Mitsui.
Like other securities companies, Nomura maintains a list of companies that are researched by in-house analysts. When the capital increase of a company is approaching, the name of the firm is removed from the list, which serves as a means to tip off employees about which companies intend to increase their capital in the near future.
Inpex and Mizuho, along with Tokyo Electric Power Co., were removed from Nomura's list when their capital increases were approaching.
First New York Securities, based in the United States, is suspected of insider trading of TEPCO shares based on information from Nomura.
The SESC said the lists of company names seem to be at the root of the insider trading problem.
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