SMBC Nikko could be subject to disciplinary action after a commercial scandal


(Bloomberg) – SMBC Nikko Securities Inc., the brokerage unit of Japan’s second-largest banking group, said it could face disciplinary action after the arrest of employees suspected of market manipulation.

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“We understand that we could be subject to disciplinary action,” chief executive Yuichiro Kondo told reporters on Saturday after four employees, including two senior managers, were arrested for allegedly manipulating stock prices. “I deeply regret that we have created a situation that could undermine trust.”

Kondo said authorities are also investigating other employees and the company will open its own internal investigation into its business practices. He spoke after local media reported on Friday that the brokerage’s Tokyo headquarters had been raided by prosecutors.

Read more: Tokyo prosecutors raid SMBC Nikko Securities office: reports

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 admitted in November that it was being investigated by the Securities and Exchange Surveillance Commission for an alleged violation of Japanese financial law with certain employees. The scandal resulted in the company missing out on multibillion-dollar bond deals.

Kondo said the private equity sales at the center of the allegations, known as block offering transactions, had been suspended since last year’s investigation. He added that it was too early to tell how the company’s trading performance would be affected, but said bundled trading accounted for around 5% of his total trading revenue.

According to the Nikkei newspaper, investigators suspect that employees tried to prevent share prices from falling too much so that bulk deals with customers materialized.

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, the Japan Financial Services Agency asked the brokerage firm to improve internal controls after a former banker was indicted for securities violations related to insider trading.

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