Daiwa dropped from bond offering due to insider trading case

A businessman walks past a branch of Daiwa Securities in Yokohama, south of Tokyo, April 26, 2011.

TOKYO (Reuters) - Kawasaki Heavy Industries Ltd (7012.T) said on Monday it was dropping Daiwa Securities (8601.T) as underwriter for a bond issue after Japan's No.2 broker was found by regulators to have leaked inside information ahead of a share offering it underwrote in 2010.

The move highlights the widening business impact for brokerages ensnared in a regulatory crackdown on insider trading ahead of public share offerings, a near-endemic problem that triggered the launch of an industry-wide probe two years ago.

Nomura Holdings (8604.T), which has been implicated in three insider trading cases, is also losing out on some underwriting business, sources with knowledge of the matter have said.

The Securities and Exchange Surveillance Commission (SESC) announced its latest case on Friday, imposing a fine on asset management firm Japan Advisory for insider trading ahead of a share offering by Nippon Sheet Glass (5202.T) in 2010.

Daiwa, one of the lead underwriters on that offering, said the SESC has determined it was the source of the leak.

"We dropped Daiwa after media reports of it being implicated in an insider trading case related to a public share offering," said a spokesman for Kawasaki Heavy, which will now rely on Mizuho Securities to handle its planned issue of 7-year and 10-year straight bonds.

Daiwa declined to comment on Kawasaki Heavy's decision. It said in a statement on Friday that it would conduct an internal investigation into the matter and would bolster interal controls to prevent a recurrence.

Nomura was recently omitted from a $6 billion sale of shares in Japan Tobacco (2914.T) that is being planned by the government.

(Reporting by Naoyuki Katayama and Nathan Layne; Editing by Edwina Gibbs)