Nomura to Punish Tipsters as Japan FSA Signals End to Probe

Nomura Holdings Inc. (8604) said employees who leaked insider information on client transactions three years ago will be punished as the regulator signals an end to a crackdown that roiled Japan’s largest brokerage last year.

Nomura will take “strict action” against the two employees who gave confidential data to three asset management firms, spokesman Kenji Yamashita said yesterday, without giving details. Japan’s securities watchdog recommended fining the funds, including a unit of Nippon Life Insurance Co., for trading on the tips. JPMorgan Chase & Co. (JPM) also said yesterday that an ex-employee leaked information on a Japan deal in 2010.

The Financial Services Agency ordered Nomura to improve compliance last year and the Tokyo-based bank’s top two executives resigned after staff leaked information on share sales it managed. The scandal prompted the FSA to propose stiffer penalties for tipsters, including prison, to restore confidence in local markets that have rebounded this year.

“Strong punishments will probably be required to avoid any more leaks,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co. in Tokyo. “Brokerages operating in Japan have been strengthening internal controls for insider trading,” he said, predicting little impact on Japan’s financial markets from the latest revelations.

Photographer: Akio Kon/Bloomberg

Pedestrians walk past the Nomura Holdings Inc. headquarters in Tokyo. Close

Pedestrians walk past the Nomura Holdings Inc. headquarters in Tokyo.

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Photographer: Akio Kon/Bloomberg

Pedestrians walk past the Nomura Holdings Inc. headquarters in Tokyo.

Shares of Nomura rose 0.3 percent to 809 yen at the close in Tokyo, extending this year’s gain to 61 percent. The Nikkei 225 Stock Average (NKY) advanced 0.6 percent and has climbed 52 percent in 2013, the best performance among developed markets.

Bring End

The findings probably bring an end to the regulator’s probe into insider trading connected to public share offerings, an FSA official said at a news briefing yesterday, asking not to be named in line with the agency’s policy. At the same time, the FSA ordered Nomura to submit a report by early next month on the effectiveness of measures the firm has implemented since 2012 to prevent further leaks, the official said.

Nomura Chief Executive Officer Koji Nagai said the company has already taken steps to strengthen compliance and internal controls. “We are aware of our responsibility and will continue to make efforts to develop and support healthy financial markets,” Nagai, who replaced Kenichi Watanabe in August 2012, said at the bank’s investor forum in Tokyo today.

Nomura penalized 17 employees for information leaks last year, with punishments including dismissal, spokesman Yamashita said by telephone from Tokyo. The firm will act against the two employees in accordance with its internal rules, he said, while declining to identify the people.

JPMorgan Employee

JPMorgan, the biggest U.S. bank by assets, said a former employee leaked details on a share sale it was managing for Nippon Sheet Glass Co. (5202) in 2010. The bank discovered the person’s role during an investigation last year and reported it to the authorities, it said in a statement yesterday. The person was punished and has left the company, it said.

Japan’s Securities and Exchange Surveillance Commission recommended a 410,000 yen ($4,000) fine against Nissay Asset Management Corp. after finding that employees sold shares of Inpex Corp. (1605) based on information received from Nomura, an underwriter of the energy company’s share sale in 2010.

Nissay Asset, a unit of Nippon Life, Japan’s largest life insurer, apologized for the incident. The asset manager is cooperating with the SESC and conducting its own probe, it said in a statement yesterday.

Stricter Penalties

The other two fund managers facing fines for acting on tips from Nomura are Stats Investment Management Co. and Finnowave Investments Inc. The SESC also recommended fining MAM Pte for trading using information from JPMorgan.

Finnowave Chief Executive Officer Hideki Wakabayashi apologized in a statement on the Tokyo-based company’s website, saying actions by a former executive were very regrettable.

A person who asked not to be identified at Stats Investment in Tokyo declined to comment when contacted by phone. Calls to Singapore-based MAM were answered by a person who declined to comment.

Parliament passed a law in June that will allow authorities to punish those who leak confidential information to insider traders, bringing Japan in line with regulators in countries including the U.S.

Penalties include as much as five years in prison and 5 million yen in fines for individuals, and 500 million yen in fines for companies. Employees of securities firms who provide tips may also have their names published, according to the amendment, which is scheduled to take effect by next June.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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