Nomura faces no more than wrist slap over insider scandal

JAPAN’s securities investigators urged a relatively light penalty on Nomura Securities yesterday and closed out a three-month investigation of the brokerage’s role in leaks of company share-issuance plans dating back to 2010.

The resignation of Nomura’s two top executives would clear the way for the Securities and Exchange Surveillance Commission ( SESC) to recommend a relatively light penalty.

The SESC urged that Nomura be given a regulatory order to improve its compliance practices, the lightest penalty it could have sought. One expert said that represented a “slap on the wrist”.

The recommendation moves Japan’s largest brokerage closer toward a resolution of a costly scandal that triggered the resignations of CE Kenichi Watanabe and his top lieutenant, Takumi Shibata, last week.

Nomura had apologised and said it had taken steps to keep information collected by its underwriting operation from leaking to its trading desk and investors. “We take the SESC’s recommendation seriously and will further enhance and reinforce our internal control structure to regain the trust of the public.”

Japan’s Financial Services Agency, which oversees the SESC, will decide on a sanction for Nomura in the coming weeks. At worst, Nomura might have faced a far more costly order to shut down its trading desk or other operations for weeks.

“People in the international community will be surprised that there was no business suspension order,” said Christopher Wells, a partner at White & Case.

The sanction would cap an investigation that began in April, as regulators cracked down on in- sider trading practices that critics say had become widespread in the Tokyo market in recent years.

Nomura admitted involvement in leaks on three share issues in 2010: by Mizuho Financial Group, energy company Inpex and Tokyo Electric Power.

Investors tipped off to those share-issuance plans looked to profit by selling the shares in advance of the announcement since the deals dilute the stakes of existing shareholders.

Shares in Nomura have lost about a third of their value since mid-March, but the stock has rallied since Thursday when the management shake-up was announced. The scandal had become costly for Nomura as clients suspended trading or pulled back from underwriting deals with the bank. In the past two months, at least nine Japanese issuers dropped or demoted Nomura as a bond or stock underwriter. Reuters