Nomura CEO in hot seat as insider probe drags on

Tue Jun 26, 2012 3:25am EDT
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By Emi Emoto and Noriyuki Hirata

TOKYO (Reuters) - Nomura Holdings (8604.T: Quote) CEO Kenichi Watanabe faces shareholders on Wednesday with no clear answers as to how to resolve a damaging insider trading probe that is hitting business at Japan's top brokerage and has raised doubts over his leadership.

The 59-year-old looks to have broad enough support to be reappointed at an annual shareholders' meeting in Tokyo, despite a call by an influential proxy advisory firm for his ouster and pressure from regulators to explain how Nomura allowed staff to tip off clients ahead of three share offerings it underwrote in 2010, and what it will do to stop it happening again, sources with knowledge of the matter said.

The stand-off between regulators and Nomura is part of a wider crackdown on insider trading that has ensnared some of Japan's largest financial firms. On Monday, prosecutors arrested a former SMBC Nikko Securities executive and three others in what was the first arrest of a securities company employee related to insider trading.

Earlier this month, Nomura confirmed regulators' findings in admitting it was the source of leaks on planned share offerings by energy firm Inpex (1605.T: Quote), Mizuho Financial Group (8411.T: Quote) and Tokyo Electric Power (9501.T: Quote). In all three cases, employees at its institutional sales department tipped off clients who profited by selling the shares short ahead of the offering and then buying them back at a lower price.

Nomura had hoped to complete its own investigation into the matter ahead of Wednesday's annual shareholder meeting, but its report - overseen by three external attorneys - is not now expected until at least the weekend. The findings of Nomura's investigation will be key in determining the scale of the sanctions it will face, sources said.

Regulators want to give Nomura a chance to clean its own house rather than be dragged into a protracted fight, but officials are frustrated with the broker's unwillingness to acknowledge the problems were widespread, sources said.

"At this point, it's unthinkable that Nomura would be able to submit a fully convincing report," said a senior official at the Securities Exchange and Surveillance Commission (SESC), the securities watchdog carrying out the investigation. Like others, the official did not want to be named as the probe is ongoing.

Nomura declined to comment.   Continued...