TOKYO (Reuters) - Japan’s securities regulator will seek a fine against a fund management arm of Sumitomo Mitsui Trust Holdings (8309.T) for insider trading for the second time and believes an employee of broker Nomura Holdings (8604.T) 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 apologized 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 (8411.T) 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 authorized 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 (1605.T).
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 (9501.T), which was underwritten by Nomura, and a Nippon Sheet Glass (5214.T) share sale managed by Daiwa Securities (8601.T) and JP Morgan (JPM.N).
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 stabilize its earnings, however, and it booked its second straight quarterly profit in January-March.
Additional reporting by Taro Fuse, Emi Emoto and Nathan Layne; Editing by Gerald E. McCormick