As part of an
increasingly global crackdown on insider trading, the Japanese Securities and Exchange
Surveillance Commission recommended administrative action against a global investment
bank based on findings that the firm failed to take measures to prevent illegal
insider trading with regard to the management of confidential corporate information
related to public offerings of new shares. Under such circumstance, employees
at the firm solicited customers to trade in securities and conduct other
trading by providing confidential corporate information. The Commission also found
that the firm’s governance system was inadequate given that its management team
did not exercise effective control of the system for managing confidential
corporate information. The recommendation was made to the Financial Services Agency,
which then ordered the firm to implement measures to improve its internal
controls in order to prevent a recurrence of this conduct and periodically
report to the FSA on the effectiveness of these remedial efforts. Nomura Securities
Co. Ltd, August 3, 2012.
The Commission
found that 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. 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. Within the institutional equity sales
department, confidential corporate information related to public offerings 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.
According to the
Commission, 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 compliance awareness arose, 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, said
the Commission, a member of the department routinely made active efforts to
obtain confidential corporate information related to public offerings 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.