Nomura Holdings Inc.’s chief executive officer will take a pay cut to assume responsibility for improper handling of stock market information by employees, the latest setback for the struggling securities firm.
CEO Koji Nagai will forgo 30 percent of his salary for three months, the firm said after finding that a researcher at an affiliate shared information on potential changes to the Tokyo Stock Exchange sections inappropriately.
The Financial Services Agency plans to order the brokerage to improve internal controls, a person with knowledge of the matter said earlier, in what will be the first such action against Nomura since 2012.
The incident could hinder Nagai’s plan to turn around Japan’s biggest brokerage after it posted the first annual loss in a decade. One corporate client has already said it will drop Nomura as underwriter of a planned bond sale.
A Nomura Research Institute analyst, who was on a Tokyo Stock Exchange panel considering an overhaul of market segments, leaked information on the threshold for the changes, Nomura said in a statement. The analyst wrote an email to a strategist at the brokerage in March saying that he felt the cut-off point for companies to remain on the exchange’s first section would probably be ¥25 billion ($228 million) — lower than had previously been anticipated.
Nomura Securities employees then shared the information with clients, with one salesperson sending an email saying “if the stocks were already sold on the assumption that ¥50 billion would be the threshold, there may be a chance that they will be repurchased.”
Although the incident didn’t violate laws, according to the bank, it found that the strategist and salespeople interpreted compliance too narrowly and that supervision was lacking. In an internal survey, some employees indicated that they thought there were no problems with the incident.
To prevent a recurrence, Nomura outlined measures intended to raise oversight and awareness of compliance. It will also close its GM Sales Department II in July, after an employee there sought to create a custom stock index based on the confidential information. As well as Nagai, other top executives will have their pay cut temporarily. Staff involved in the leaks and their supervisors have faced “strict disciplinary actions,” the firm said.
A business improvement order generally requires the recipient to fix internal controls rather than pay fines. The 2012 penalty against Nomura was issued by the FSA after it found that employees leaked information on equity offerings, which was subsequently used for insider trading. Nagai’s predecessor resigned in the wake of the scandal.
While the FSA doesn’t see the latest incident as amounting to insider trading, it determined that it undermined trust in the market, according to a report by the Nikkei business daily.
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