Japan Brokerages Face Industry Audit on Information Controls

Updated on
  • Securities industry group’s new chairman seeks inspections
  • Comes after Nomura found branch manager mishandled information

Shigeharu Suzuki.

Photographer: Tomohiro Ohsumi/Bloomberg

Japanese securities firms face an inspection by the industry association into how they comply with insider rules after Nomura Holdings Inc. found it breached laws governing the handling of nonpublic information.

The Japan Securities Dealers Association’s new chief pledged to examine how the firms train and educate branch managers -- who have dual roles as investment bankers and retail brokerage chiefs -- to ensure they don’t share confidential corporate information with sales staff.

Shigeharu Suzuki.

Photographer: Tomohiro Ohsumi/Bloomberg

JSDA Chief Executive Officer Shigeharu Suzuki said the audit idea was prompted by a Bloomberg News report last month that Nomura found a former branch manager mishandled private information that a company it took public was considering a stock split. The brokerage, Japan’s biggest, later informed the Financial Services Agency of the violation and outlined steps to improve how it handles corporate details.

“Accidents can occur any time because branch chiefs manage both corporate and retail operations, and they can do whatever they want if they’re malicious,” Suzuki, a former Daiwa Securities Group Inc. chairman, said in an interview in Tokyo last week. “Therefore, how to maintain discipline is extremely important, and we need to check how they act once they become insiders.”

Japanese securities law bans brokerage employees from sharing nonpublic information that could impact investors’ behavior. The restrictions apply especially to interactions between investment bankers and other staff.

Nomura Case

JSDA works as a self-regulator and representative of the securities industry. Its watchdog role encompasses rule-making, enforcement, inspection and disciplinary actions.

Nomura, which started an internal investigation in April, concluded that the manager of its Miyazaki branch in southern Japan discussed the potential stock split by Wash House Co. with an executive of that company in late January, people familiar with the matter told Bloomberg last month. Nomura was the lead underwriter of the initial public offering.

In February, the branch chief raised the possibility of the stock split with sales staff, who then discussed the prospects of it with clients before Wash House announced it on March 10. Shares of Wash House jumped about 80 percent in the five weeks leading up to the announcement.

To prevent information leaks, Nomura plans to boost monitoring of sales activities at its retail outlets and introduce training for branch managers to undergo before they work on IPOs, Bloomberg reported on June 27.

“Branch managers are the only ones who have roles in both corporate and retail businesses, and they could mix them up,” said Suzuki.

Women Managers

Suzuki, who took the post on July 1, also pledged to improve diversity at the JSDA. He said he wants to raise the number of female managers to more than 12 percent of the total from 8.2 percent as of March.

“JSDA tends to be quite a bureaucratic organization, and if we had more female managers and executives, the atmosphere here would change,” Suzuki said. “Women bring unique ideas and energy that can help us to get things done.”

He also said the association is in talks with a developer to move its office to a brand-new building in Tokyo’s Nihonbashi district within a year.

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