By Noriyuki Hirata and Emi Emoto
TOKYO May 26 Japan's securities regulator will
seek a fine against a fund management arm of Sumitomo Mitsui
Trust Holdings for insider trading for the second time
and believes an employee of broker Nomura Holdings was
again the source of the leak, two people with direct knowledge
of the matter said.
The case is the second in two months to involve Nomura,
increasing the chances that Japan's largest broker will face
sanctions as part of an industry-wide probe into suspicious
trading around a series of share offerings in 2009 and 2010 that
have tainted the reputation of the country's financial markets.
It will also ratchet up the pressure on Nomura CEO Kenichi
Watanabe, who had just taken the helm in 2008 when the company
fired a Hong Kong-based employee at the centre of an insider
trading ring. Watanabe apologised publicly for that scandal and
vowed to fix the broker's internal controls.
"It's now no longer just one case, and that will lead to
suspicion there are problems with Nomura's ability to control
information. But we need to pay close attention to the details,"
said an analyst, who asked not to be identified because it was
his brokerage's policy not to comment on the investigations.
The Securities and Exchange Surveillance Commission (SESC)
will recommend a fine against the unit of Sumitomo Mitsui Trust
after finding a fund manager sold shares of Mizuho Financial
Group Inc with knowledge of the lender's planned stock
offering before it was made public, the people said.
The SESC believes an employee of Nomura, which was an
underwriter on the 780 billion yen ($9.8 billion) offering in
July 2010, provided that tip-off, according to the people, who
were not authorised to speak to media about the matter.
Nomura declined to comment. Sumitomo Mitsui Trust could not
be reached for comment. The SESC as a policy does not comment on
individual cases or ongoing investigations.
What will mark the second case targeting Sumitomo Mitsui
Trust follows a similar one in March when the firm acknowledged
a fund manager traded on inside information about a separate
share offering by energy firm Inpex Corp.
Nomura was also an underwriter on the Inpex offering, and
the regulator believes a Nomura employee leaked information on
that share sale as well, sources with direct knowledge of the
matter have told Reuters.
The SESC sought a 50,000 yen ($630) fine against the
Sumitomo Mitsui Trust unit in the Inpex case, and is expected to
levy a similarly tiny penalty for the latest infraction. The
Nikkei newspaper estimated it would be about 80,000 yen.
The small size of the fines, calculated on a pre-set formula
and based on the expected trading commission on the trades in
question, have been held up by critics as symbolic of the
regulator's lack of firepower to act as an effective deterrent.
What punishment may await Nomura will not likely become
clear until next month when the SESC is expected to complete the
probe it launched in late April on suspicion broker employees
had tipped off clients on a handful of deals.
Nomura was slapped with an order to improve internal
controls following the 2008 insider case, but it could face
stiffer penalties this time if the regulator finds the
compliance breakdowns to be widespread, analysts have said.
The Financial Services Agency, which carries out punishments
recommended by the SESC, has already set one precedent in the
case of Nikko SMBC Securities, which was found last month to
have leaked information to retail clients about the share
offering of its parent bank in early 2010.
Japan's third-largest broker was ordered to bolster internal
controls and it took other steps such as cutting director pay,
but its core operations were left in tact. However, in contrast
with the cases involving Nomura, no actual insider trading is
thought to have taken place.
The SESC is looking into other deals including the share
offerings of Tokyo Electric Power, which was
underwritten by Nomura, and a Nippon Sheet Glass share
sale managed by Daiwa Securities and JP Morgan.
The probe has added to the pressure on Nomura's share price,
which at 260 yen is not far from the multi-decade low of 238 hit
in January amid worries over its credit rating, which Moody's
cut to one notch above "junk" in March, and losses in Europe.
The company's $1.2 billion cost-cutting plan has helped
stabilise its earnings, however, and it booked its second
straight quarterly profit in January-March.