August 3, 2012
Financial Services Agency

Administrative Action against Nomura Securities Co., Ltd.

1. On July 31st, 2012, the Securities and Exchange Surveillance Commission (SESC) recommended to take administrative action against Nomura Securities Co., Ltd. (hereinafter referred to as the “Company”). The recommendation was based on the findings of the SESC's inspection of the Company, whereby the following violations of laws and regulations by the Company were identified.

  • The Company's status of business operation was acknowledged to be such that it failed to take necessary and appropriate measures to prevent illegal trading with regard to the management of confidential corporate information related to public offerings of new shares as described below. Under such circumstance, employees at the Company were acknowledged to have solicited customers to trade in securities and conduct other trading by providing confidential corporate information.
  • (1) Failure to take necessary and appropriate measures to prevent illegal trading with regard to the management of confidential corporate information related to public offerings of new shares

    • A. Problems related to the compliance system

      An officer and a member of the internal control division were overly confident that the development and operation of the Company's system for managing confidential corporate information was appropriate, thus never causing any problem. As a result, regarding B., C., and D. below, the internal control division was acknowledged to have failed to adequately exercise its preventive function, as exemplified by its failure to adequately identify the actual status of the management of confidential corporate information and the sales operation and to check compliance with laws and regulations.

      In addition, those responsible for establishing and operating an appropriate legal compliance system and an appropriate system for managing confidential corporate information failed to recognize the duties they must perform in light of their responsibility and thus to take adequate actions. As a result, the Company did not play the role required as a financial instruments business operator and gatekeeper to financial markets, which is to identify and analyze the problems involved in this case at an early date and take appropriate actions in light of the intent and purpose of the Financial Instruments and Exchange Act.

    • B. Provision of information across the “Chinese wall”

      A manager of the institutional equity sales department made sure that the top priority of the sales operation was to generate profit throughout the department. As a result, a lack of legal compliance awareness arose at the department, leading to inadequate management of confidential corporate information related to public offerings of new shares. Based on the careless notion that there was no problem even if they could guess the specific names of the companies concerned through their conversation as long as they did not directly ask for those names, the member of the Department routinely made active efforts to obtain confidential corporate information related to public offerings of new shares and information from which the names of the relevant stock issues may be guessed from another department holding such information and used the information obtained in order to promote sales.

    • C. Aggressive attempts by sales personnel to obtain information from internal analysts

      A member of the institutional equity sales department who was in charge of sales to hedge funds made aggressive attempts to contact an internal analyst and obtain any information related to public offerings of new shares that internal analysts may hold. The internal analyst carelessly replied to sales personnel with regard to the status of internal control in the Trading Compliance Department concerning stock issues scheduled to be publicly offered.

    • D. Information-sharing within the institutional equity sales department

      Within the institutional equity sales department, confidential corporate information related to public offerings of new shares was shared on the assumption that it would not be inappropriate for the department's employees to mention the names of shares to be issued in relation to such information obtained as long as it is treated as “a rumor” or something similar in their conversation.

  • (2) The practice of soliciting customers to trade in securities and conduct other trading by providing confidential corporate information and other inappropriate business operations

    • A. Soliciting customers by providing confidential corporate information with regard to trading of securities and other trading

      • (A) Managing Director A, who routinely obtained confidential corporate information from another department holding such information, is acknowledged to have obtained confidential corporate information related to public offerings of new shares in Company A (hereinafter referred to as the “Company A information”). Managing Director A, together with Executive Director B, a subordinate, is acknowledged to have solicited a customer to trade shares in Company A and subscribe for publicly offered new shares in Company A by providing the Company A information before it was publicly announced.

        In addition, Managing Director A also solicited another customer to subscribe for publicly offered new shares in Company A by providing the Company A information before it was publicly announced.

      • (B) Employee C, who obtained confidential corporate information related to public offerings of new shares in Company B (hereinafter referred to as the “Company B information),” is acknowledged to have solicited a customer to subscribe for publicly offered new shares in Company B by providing the Company B information before it was publicly announced.

      • (C) Employee D, who obtained confidential corporate information related to public offerings of new shares in Company C (hereinafter referred to as the “Company C information)” by contacting an internal analyst and others to gather information, is acknowledged to have solicited a customer to trade shares in Company C by providing the Company C information before it was publicly announced.

    • B. Other inappropriate business operations

      • (A) There were several acknowledged cases in which employees are highly likely to have solicited customers by providing confidential corporate information relating to public offerings of new shares.

      • (B) There were several acknowledged cases in which employees may have provided customers with confidential corporate information relating to public offerings of new shares.

      The Company's governance system is acknowledged to have been inadequate given that the Company's management team did not adequately exercise effective control and supervision regarding the system for managing confidential corporate information as shown by its failure to identify the status of business operations described in (1) and (2) above.

      In addition, the Company's system for managing confidential corporate information related to public offerings of new shares as exemplified by (1) and (2) B. above is acknowledged to constitute failure to take necessary and appropriate measures to prevent illegal trading and so corresponds to the status specified under Article 123, paragraph (1), item (v) of the Cabinet Office Ordinance regarding the Financial Instruments Business, etc. based on Article 40, item (ii) of the Financial Instruments and Exchange Act.

      Furthermore, the practice of soliciting customers to trade in securities and conduct other trading by providing confidential corporate information as described in (2) A. above occurred and was overlooked due to the inadequacy of the Company's system for managing confidential corporate information. Therefore, this is acknowledged to be an institutional practice and so corresponds to the practice specified under Article 117, paragraph (1), item (xiv) of the Cabinet Office Ordinance regarding the Financial Instruments Business, etc. based on Article 38, item (vii) of the Financial Instruments and Exchange Act.

2. In light of the above, today, the FSA took the following administrative action:

  • Business improvement order based on Article 51 of the Financial Instruments and Exchange Act
  • (1) Ensure the implementation and the integration of the recurrence prevention measures specified in the report on the internal investigation as a part of the internal control system in the Company.

  • (2) Periodically submit reports on the implementation status of the recurrence prevention measures.

  • (3) Periodically examine the effectiveness of the recurrence prevention measures and report on the results of the examination.

    • (Note) When inadequacy has been recognized as a result of the examination, report the cause and the improvement measures.

  • (4) Regarding (1) to (3) above, submit the first report by August 10th, 2012. Thereafter, submit reports within 15 days from the end of each quarter. Regardless of the above reporting deadlines, report as needed.

Contact

Financial Services Agency
Tel +81-(0)3-3506-6000 (main)
Securities Business Division, Supervisory Bureau
(ext. 3352, 3722)

Site Map

top of page