Nomura Said to Bolster Compliance After Japanese Law BreachBy
Submitted report of violation and remedy to Japan regulator
Internal probe found mishandling of information linked to IPO
Nomura Holdings Inc. plans to bolster internal controls after finding that it breached securities laws in its handling of nonpublic information about a company it took public last year, people with knowledge of the matter said.
Japan’s biggest brokerage submitted a report to the Financial Services Agency this month acknowledging that it violated local laws and detailing steps to improve how it handles corporate information, the people said, asking not to be identified because the matter is private.
Following an internal investigation, Nomura found a former branch manager in Kyushu in southern Japan mishandled private information that Wash House Co. was considering a stock split, Bloomberg reported earlier this month. Nomura arranged the coin-laundry operator’s initial public offering in November, a deal the former branch chief was involved in.
As part of efforts to strengthen compliance, Nomura plans to boost monitoring of sales activities at its 158 domestic retail outlets, the people said. It will also introduce training for branch managers to undergo before working on IPOs to remind them that they are prohibited from commenting about the companies after the listings, they said.
Shares of Nomura rose as much as 2.4 percent on Tuesday morning in Tokyo, more than four times the benchmark Topix index. Nobuyuki Fujimoto, a senior market analyst at SBI Securities Co. in Tokyo, said the firm’s efforts to fix internal controls will boost shareholder confidence.
“By strengthening its compliance, Nomura can avoid the risk it may lose potential mandates for underwriting for a certain period,” Fujimoto said.
The Securities and Exchange Surveillance Commission, Japan’s securities watchdog that reports to the FSA, will decide whether it needs to inspect Nomura after the agency examines the company’s report, people with knowledge of the matter said. Officials at the FSA and SESC declined to comment.
Kenji Yamashita, a Tokyo-based spokesman for Nomura, declined to comment.
Nomura, which started investigating the incident in April, concluded that the Miyazaki branch manager discussed the possible stock split with a Wash House executive in late January. In February, the branch chief raised the possibility of a stock split with sales staff, who then discussed the prospects of it with clients before Wash House announced it on March 10.
Wash House shares jumped 80 percent from early February through March 10. Although a stock split has no effect on the value of an investment, some traders see such actions as bullish indicators because they can help make shares more affordable for individual investors.
While Nomura didn’t find any evidence that individual employees including the branch manager broke the law, it concluded that the firm as an entity was in breach of a law governing the treatment of corporate information, Bloomberg reported June 9. The branch manager was relocated to Tokyo last month. Efforts by Bloomberg to contact him were unsuccessful.
Japanese securities laws ban brokerage employees from sharing nonpublic information that could impact investors’ behavior. The restrictions apply especially to interactions between investment bankers and other staff.
Nomura and its competitors such as Daiwa Securities Group Inc. are seeking to originate more IPOs through their branch networks spanning Japan. Nomura was the No. 1 underwriter of Japanese IPOs in the year ended March, data compiled by Bloomberg show.