Nomura Holdings admitted to widespread failures in protecting confidential client information on Friday and will slash pay for top executives and shut down an equity sales operation for a week as Japan’s largest brokerage tries to resolve a damaging insider trading probe.
Nomura said CEO Kenichi Watanabe’s pay would be halved for six months to take responsibility for the brokerage’s third insider trading scandal since he took the helm four years ago.
The broker also said two executive officers, one in charge of institutional sales and the other head of compliance, would be stepping down after employees were found to have tipped off clients ahead of three planned share offerings Nomura underwrote in 2010. Those clients then traded on that information in a violation of insider trading laws.
The self-imposed penalties were the result of an internal investigation, overseen by a team of outside attorneys, that Nomura had been scrambling to finish by the end of the month.
“I apologise for hurting the public trust in the country’s securities markets and for causing troubles to so many related parties,” Watanabe said, bowing deeply at the start of a packed news conference at Nomura’s headquarters in Tokyo.
The probe has been costly for Nomura. Some asset managers have stopped trading with it to meet their own compliance rules and it has lost underwriting business, including being left off the government’s sale of $6 billion worth of Japan Tobacco shares, sources with knowledge of the matter have said.
Earlier this month, Nomura confirmed it was the source of leaks on planned share offerings by energy firm Inpex, Mizuho Financial Group and Tokyo Electric Power in 2010. In all three cases, employees in its institutional sales department provided the tip-offs.
The three cases highlighted a major weakness in the “Chinese Wall” safeguard that exists in investment banks to prevent bankers from passing on word of share offerings and other privileged client information to sales staff.
In light of the infractions, Nomura said it would halt the operations of the institutional sales department for one week starting on Monday.
It was not immediately clear if Nomura’s self-imposed penalties would go far enough to satisfy the Securities Exchange and Surveillance Commission (SESC), which will continue to investigate the broker and could recommend additional sanctions as early as next month.
The SESC launched an investigation into all brokers last year with the aim of stamping out insider trading ahead of public share offerings, a near-endemic problem that had gone unchecked in Japan for years.
The SESC sent a team of investigators into Nomura’s Tokyo offices in late April after it had grown frustrated with the broker’s initial unwillingness to acknowledge that its compliance problems were widespread, sources have said.
Prior to the unveiling of Nomura’s report on Friday, the broker’s stock jumped 3.9 percent to an 8-week closing high of 294 yen, reflecting investor speculation it was moving towards a resolution of its stand-off with the financial regulators.