4 Min Read
TOKYO (Reuters) - Japan's financial regulator handed Nomura Holdings the lightest possible sanction on Friday for its involvement in a string of insider trading cases, marking a key turning point in a costly scandal for the country's largest investment bank.
The so-called business improvement order from the Financial Services Agency (FSA) will require Nomura to report regularly on its efforts to shore up compliance after it admitted to leaking information on three share offerings it underwrote in 2010.
The sanction stopped short of a more damaging order to suspend some operations for weeks - a penalty that had initially been seen as a possibility in this case - and moves Nomura closer to the resolution of a scandal that triggered the resignation of Chief Executive Kenichi Watanabe last week.
But Nomura faces tough challenges beyond the insider trading probe. The new CEO, Koji Nagai, launched a review of its ailing overseas operations and vowed to fix a hard-charging culture in which the seeking out and leaking of client secrets thrived.
"This will reduce Nomura's regulatory risks but it faces other structural problems. It's not as if now its loss-making overseas business will post a sharp recovery," said Deutsche Securities brokerage analyst Masao Muraki.
In making its decision, the FSA took into account the steps taken by Nomura already, including a voluntary suspension of institutional equity sales activities for a week last month. Financial Services Minister Tadahiro Matsushita also referred to Nagai's comments last week that he would rebuild Nomura from "the ground up".
"In particular I applaud the resolve of the new leader to review the company structure and to rebuild its foundation," Matsushita told reporters.
The relatively light nature of the punishment was flagged earlier in the week when the Securities Exchange and Surveillance Commission, the agency that handled the investigation, recommended sanctions without calling for a halt of operations.
Nomura has acknowledged that its employees leaked information on three share issues it underwrote in 2010: energy firm Inpex Corp, Mizuho Financial Group and Tokyo Electric Power.
The scandal has cost Nomura business. In the past two months, at least nine Japanese issuers have dropped or demoted the brokerage as an underwriter and some asset management firms have halted trading with the firm.
At the end of June, Nomura published the results of an internal investigation that found breaches of basic investment banking safeguards against leaking of confidential information and announced a raft of measures to prevent recurrence.
As a first step, Nomura is required to report back to the regulator by August 10 on the implementation of those measures and any compliance issues discovered in an ongoing review of its operations.
"We will continue to further enhance our internal controls and work across the entire firm to prevent similar incidents occurring in the future and to regain the trust of the public," Nomura said in a statement on Friday.
The first report due by August 10 is expected to be accepted by the FSA, which is important because that would likely be viewed by clients that have stopped trading with it as a sign they could resume business with the brokerage.
Beyond the probe targeting Nomura, the FSA has not indicated when it will close out the investigation of insider trading practices in the Tokyo market, which has ensnared a number of other brokerages and asset management firms.
Major brokerages faced a deadline of Friday to report to the FSA on their compliance safeguards and whether they leaked information on planned share issuances to Japan Advisory, a hedge fund advisory firm linked to the Whitney Japan Fund.
The brokerages are expected to make summaries of those reports public next week after they have been reviewed by the FSA.
Editing by Michael Watson and Raju Gopalakrishnan