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September 27, 2017

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Nomura halves CEO pay in bid to end probe

TOKYO -- Nomura Holdings admitted to sweeping breaches of safeguards on confidential client information and will slash top executives' pay and briefly shut an equity sales desk as Japan's largest brokerage seeks to resolve a damaging insider trading probe.

Nomura said CEO Kenichi Watanabe's pay would be halved for six months to take responsibility for the brokerage's third insider trading scandal since he took the helm four years ago. The announcement confirmed the terms of a Reuters report late on Thursday. In the year to end-March, 59-year-old Watanabe was paid 128 million yen (US$1.6 million), including options.

A panel of attorneys brought in by the company to investigate the insider trading cases said it found a culture where equity sales staff regularly pumped colleagues for inside information about upcoming share offerings and then shared tips with investors as a normal part of business.

"The work environment appeared to be one in which employees would be willing to do anything to meet sales targets," the report said.

In some cases, members of Nomura's syndicate desk leaked information to sales staff by using a kind of code, the report said. They did so on the mistaken belief that it would not breach compliance standards as long as the literal name of the company involved was not used in phone calls and conversations, it said.

At the same time, the report said some Nomura brokers believed they could convey insider information to funds and other clients as long as they qualified the tip on a coming share issue by hedging it with a qualification like, "This is just a rumor, but..."

In an attempt to contain the damage, the broker said two executive officers — in charge of institutional sales and compliance — would resign from their positions after employees were found to have tipped off clients ahead of three planned share offerings Nomura underwrote in 2010. Those clients then traded on that information in a violation of insider trading laws.

"I apologize for hurting the public trust in the country's securities markets and for causing troubles to so many related parties," Watanabe said, bowing deeply at the start of a packed news conference at Nomura's headquarters in Tokyo.

The probe has been costly for Nomura. Some asset managers have stopped trading with it to meet their own compliance rules and it has lost underwriting business, including being left off the government's sale of $6 billion worth of Japan Tobacco shares, sources with knowledge of the matter have said.

Earlier this month, Nomura confirmed it was the source of leaks on planned share offerings by energy firm Inpex, Mizuho Financial Group and Tokyo Electric Power in 2010. In all three cases, employees in its institutional sales department provided the tip-offs.

The three cases highlighted a major weakness in the "Chinese Wall" safeguard that exists in investment banks to prevent bankers from passing on word of share offerings and other privileged client information to sales staff.

Nomura said it would halt the operations of its institutional sales department for one week starting on Monday, and its syndicate desk, where leaks originated, would be shut down for three days. In addition, pay for Chief Operating Officer Takumi Shibata will be cut by half for five months.

Nomura also said its institutional sales operation consisting of two trading desks — one focused on Japanese investors and one on overseas funds — would be effectively dissolved and put under the umbrella of other departments.

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