SMBC Nikko May Face Disciplinary Action After Trading Scandal

SMBC Nikko Securities Inc., the brokerage unit of Japan’s second-largest banking group, said it could face disciplinary steps after employees were arrested on suspicion of market manipulation.

“We understand we could be subject to disciplinary action,” Chief Executive Officer Yuichiro Kondo told reporters Saturday after four employees, including two executive officers, were detained for allegedly manipulating stock prices. “I deeply regret that we have created a situation that could undermine confidence.”

Kondo said authorities were also investigating other employees and the firm would open its own internal probe into its trading practices. He spoke after local media reported Friday that the brokerage’s Tokyo headquarters had been raided by prosecutors.

Friday’s raid and arrests cap months of investigations by Japanese authorities into the brokerage, a subsidiary of Sumitomo Mitsui Financial Group Inc.

SMBC Nikko in November acknowledged it was under investigation by the Securities and Exchange Surveillance Commission for an alleged breach of Japan’s financial law along with some employees. The scandal has caused the firm to miss out on bond underwriting deals worth billions of dollars.

Kondo said that the private share sales at the center of the allegations, known as block-offer trades, had been suspended since last year’s probe. He added it was too early to tell how the firm’s business performance would be impacted, but said block-offer trades represented about 5% of its total trading revenue.

Investigators suspect that employees tried to keep share prices from falling too much so that block-offer business with clients would go through, according to the Nikkei newspaper.

Director Shinya Inose, speaking alongside Kondo, said internal audits, compliance reviews and front-office checks may have all been insufficient to prevent problems.

SMBC Nikko had been flagged by regulators at least once before. In 2012, Japan’s Financial Services Agency told the brokerage to improve internal controls after a former banker was indicted for securities violations related to insider trading.

Source: Yahoo Finance

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