The Securities and Exchange Surveillance Commission is investigating Nikko Salomon Smith Barney Ltd. on suspicion of manipulating stock prices while setting up an exchange-traded fund last year, industry sources said Friday.

The securities industry watchdog is treating the case as a possible violation of the Securities and Exchange Law, they said.

According to the sources, Nikko Salomon Smith Barney, a joint venture involving Nikko Cordial Corp. and Citigroup of the United States, signed an ETF contract with a casualty insurance firm in the summer.

Under the terms of the contract, the insurer was to pay an amount based on the closing price of shares on the last day of the purchasing period. The higher the closing price on the final day, the greater the profit for the brokerage.

During the process of the ETF’s formation, Nikko Salomon Smith Barney is believed to have subjected several issues on the Tokyo Stock Exchange to a purchasing flurry, thus artificially boosting share prices, the sources said.

This is the first case of possible share price wangling tied to the formation of ETFs, which were introduced in Japan in July 2001.

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