Japan’s securities watchdog closed the books on its three-month probe of Nomura Holdings Inc.’s 8604.TO +0.74 percent involvement in insider trading, saying that although it had found “several” more cases on top of an initial three where employees may have leaked confidential information to clients, it didn’t have evidence that securities laws were violated.
The Securities and Exchange Surveillance Commission’s decision to conclude its investigation, announced Tuesday, comes the week after Nomura’s two most senior executives stepped down to take responsibility for the leaks, in which sales people allegedly gave investors advance notice of share offerings for Inpex Corp., 1605.TO -0.69 percent Mizuho Financial Group Inc. 8411.TO +2.31 percent and Tokyo Electric Power Co. 9501.TO +10.16 percent
The SESC said it recommended that the Financial Services Agency take action against Nomura, Japan’s biggest brokerage, for poor compliance standards, but didn’t specify any particular penalty. The FSA could do anything from ordering the broker to “improve” its operations – a light penalty – to a business suspension.
Such a general call for a penalty isn’t unusual in Japan. The FSA typically announces its decision within a month. The SESC is an independent commission under the jurisdiction of the FSA.
Nomura said in a statement that it takes “the SESC’s recommendation seriously and will further enhance and reinforce our internal control structure to regain the trust of the public.”
The resignations of Chief Executive Kenichi Watanabe and Chief Operating Officer Takumi Shibata marked the biggest fallout yet from regulators’ crackdown on insider trading ahead of equity offerings. Last week Daiwa Securities 8601.TO -0.35 percent Group Inc., Japan’s second-biggest broker after Nomura, said its employees also had likely leaked advance information on share offerings, and cut executive salaries to take responsibility.
The SESC’s decision to end its probe highlights the limits of what Japanese regulators can officially do to curtail the leaking of insider information. Japanese securities law doesn’t let regulators go after companies that don’t profit directly from insider trading. Despite the resignations of its top executives and the company’s admission that employees were likely giving customers confidential information, Nomura hasn’t been charged with any wrongdoing.
The SESC said there may have been several more cases in which Nomura sales people gave investors inside information, but since it couldn’t say whether the investors traded on that information it couldn’t proceed further. If the SESC gets further information on other cases, it will deal with it as necessary, an official said.
“There was a culture [at Nomura] where information could be passed on beyond corporate firewalls as long as the name of the company planning the share offering wasn’t given,” the official said.
The broker’s top management didn’t realise its problems and was initially overconfident about its compliance standards, the SESC said.
“The executives should have checked to see what kinds of problems they had, but they didn’t,” the official said. “They were absolutely sure such things couldn’t be happening.”
The FSA is continuing its own probe into information leakage over firewalls, asking 12 major Japan-based brokers to submit reports on internal controls by Friday.