(Corrects 2nd bullet point to show shutdown is 5 days, not 6)
* CEO to have pay halved for 6 months
* Equity sales ops to be shut for 5 days, starting Monday
* Heads of institutional sales, compliance to step down
* SESC may announce its penalties next month
* Nomura shares up 3.9 pct at 8-week closing high
By Nathan Layne and Emi Emoto
TOKYO, June 29 (Reuters) – Nomura Holdings admitted to
sweeping breaches of safeguards on confidential client
information and will slash top executives’ pay and briefly shut
an equity sales desk as Japan’s largest brokerage seeks 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 announcement confirmed the terms of a Reuters report
late on Thursday. In the year to end-March, 59-year-old Watanabe
was paid 128 million yen ($1.6 million), including options.
A panel of attorneys brought in by the company to
investigate the insider trading cases said it found a culture
where equity sales staff regularly pumped colleagues for inside
information about upcoming share offerings and then shared tips
with investors as a normal part of business.
“The work environment appeared to be one in which employees
would be willing to do anything to meet sales targets,” the
report said.
In some cases, members of Nomura’s syndicate desk leaked
information to sales staff by using a kind of code, the report
said. They did so on the mistaken belief that it would not
breach compliance standards as long as the literal name of the
company involved was not used in phone calls and conversations,
it said.
At the same time, the report said some Nomura brokers
believed they could convey insider information to funds and
other clients as long as they qualified the tip on a coming
share issue by hedging it with a qualification like, “This is
just a rumor, but…”
In an attempt to contain the damage, the broker said two
executive officers – in charge of institutional sales and
compliance – would resign from their positions 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.
“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.
COSTLY LEAKS
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.
DESK SHUTDOWNS
Nomura said it would halt the operations of its
institutional sales department for one week starting on Monday,
and its syndicate desk, where leaks originated, would be shut
down for three days. In addition, pay for Chief Operating
Officer Takumi Shibata will be cut by half for five months.
Nomura also said its institutional sales operation
consisting of two trading desks – one focused on Japanese
investors and one on overseas funds – would be effectively
dissolved and put under the umbrella of other departments.
In total, 26 employees were impacted by the company’s
punishments, including those who saw their pay cut, stepped down
or were dismissed.
“Institutional sales veered away from its original mission,
often resorting to tips and rumors. It was a culture where
profit was above everything else,” said Koji Nagai, the head of
Nomura Securities.
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 industry-wide investigation nearly two
years ago aimed at stamping out insider trading ahead of public
share offerings, a near-endemic problem that had gone unchecked
in Japan for years.
The probe on Friday ensnared Nomura’s main domestic rival,
Daiwa Securities, with the SESC announcing it would
fine Tokyo-based Japan Advisory for insider trading on a 2010
share offering by Nippon Sheet Glass. Sources with
knowledge of the matter said the SESC determined that Daiwa was
the source of the leak in that case. Daiwa said in a statement
it would conduct an in-house investigation.
Nomura did not announce it had begun its own investigation
into insider trading until June, but officials revealed on
Friday it had begun in March when the Inpex case surfaced.
“At first it was just the Inpex case, then as things
developed there was another case and then another,” said Hideki
Nakagome, one of the external lawyers who conducted the
investigation. “When we started out we did not intend to make
the investigation public.”
STONEWALLING
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.
The report released on Friday faulted Nomura for
stonewalling during the early part of the SESC investigation,
saying the broker had been “insincere” in its own fact-finding.
For example, it said Nomura staff had been allowed to say
they did not remember details of what happened rather than being
confronted with details from a mass of emails, online chats and
recorded phone calls collected by investigators.
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.
(Additional reporting by Taiga Uranaka; Writing by Kevin
Krolicki; Editing by Ian Geoghegan)
