When a major securities company deliberately tramples on the fairness of the market, it should be severely condemned. The resignation of its top executives is a matter of course.
Kenichi Watanabe, chief executive officer of Nomura Holdings Inc., and another senior executive of the firm will step down at the end of this month to take responsibility for insider trading scandals involving capital increases through public offerings by listed companies.
In late June, Nomura revealed the findings of in-house investigations into the leaks of internal information to clients of its brokerage unit and also announced a set of steps to prevent the recurrence of insider trading. At that time, Watanabe said he would have his pay cut by half as a disciplinary measure, but he denied any intention to resign.
It seems he subsequently found a reshuffle of the company’s executive lineup unavoidable as major firms moved to desert Nomura, as shown by its exclusion from an increasing number of lists of key coordinators for planned stock and other securities offerings. His decision is rather belated.
Koji Nagai, serving as president of Nomura Securities Co. under the umbrella of Nomura Holdings since April this year, will take over as chief executive from Watanabe, while continuing to hold his current post as head of the nation’s biggest securities house.
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Excessive drive for profits
In a press conference on Thursday, Nagai stated he will “renew this company from its foundation.” To be true to his words, he should thoroughly push ahead with the company’s internal reforms to prevent a repeat of insider trading.
This will be the first time in 15 years for Nomura’s top post to be assumed by someone from the company’s equities sales unit. He must do his utmost to tighten the lax discipline among the firm’s sales employees, whose business ethics have eroded due to an excessive drive for profits.
Cases of insider trading, such as those in which confidential information on planned capital increases is abused, have been revealed one after another this year. Nomura alone accounts for three such cases, the greatest incidence of such wrongdoing.
It has been disclosed that Nomura’s sales unit in charge of institutional investors obtained confidential information about planned public offerings from the corporate affairs unit handling corporate clients’ capital increase plans. The sales unit clandestinely provided certain investors with the information as part of the brokerage’s “quick-eared tips.” A wall that was supposed to have been built to block flows of information between the two units existed in name only.
The act of helping large-lot contract clients profit by providing them with share information not available to the public is certain to work to the detriment of ordinary investors, including individual investors, by distorting the impartiality of the market. Such conduct is unforgivable.
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Toughen insider rules
A follow-up in-house probe by Nomura revealed there may have been other cases in which its employees leaked information. This makes us suspect insider irregularities at Nomura were a matter of routine. The full truth of the matter must be exposed.
Cases in which information leaks led to insider trading have also been disclosed at other brokerages, such as SMBC Nikko Securities Inc. (formerly Nikko Cordial Securities Inc.) and Daiwa Securities Co.
Strong suspicion has therefore arisen that provision of capital increase information to large-lot investors, major clients of securities houses, has long been a common business practice at major brokerages.
The entire securities business world, including the Japan Securities Dealers Association, must buckle down to the task of preventing new instances of insider trading, through such steps as strengthening the association’s self-imposed insider rules.
The government, for its part, is considering revising the Financial Instruments and Exchange Law to raise the punitive surcharges against insider trading and to punish the individuals who leak information.
To remove the stigma on the Japanese market as “an insider-trading paradise,” penalties against insider transactions should be quickly toughened.
(From The Yomiuri Shimbun, July 28, 2012)