Japan Regulator Orders SMBC Nikko To Stop Trading

Japan's Financial Services Agency (FSA) has ordered SMBC Nikko Securities Inc. to suspend part of its operations for three months, urging the brokerage to improve compliance following a market manipulation scandal that led to the indictment of former executives, Mainichi Japan reported.

Photo Insert: Corporate compliance was not functioning at SMBC Nikko because both management and employees lacked norms that could have averted the alleged market manipulation.

The financial watchdog also ordered parent Sumitomo Mitsui Financial Group Inc. to strengthen its supervision of the subsidiary.

The moves come after the Securities and Exchange Surveillance Commission found illegal trading practices at the brokerage in its probe and recommended last month that the agency impose administrative punishment on the firm.

Kyodo News also reported that SMBC Nikko illegally propped up some stock prices to stabilize them in transactions called "block offerings," according to the authorities. Six former executives of the company, including a former deputy president, have been indicted over the practice.

In block offerings, a brokerage mediates trading between large shareholders who want to sell chunks of shares and investors hoping to buy them during off-hours trading. The brokerage profits from the difference between the purchase and sale prices.

In Friday's order, SMBC Nikko was banned from engaging in block offerings until Jan. 6, according to the agency.

The commission's probe also found that SMBC Nikko shared customer data with group company Sumitomo Mitsui Banking Corp. without gaining consent and used it for its business operations.

Corporate compliance was not functioning at SMBC Nikko because both management and employees lacked norms that could have averted the alleged market manipulation, a brokerage-commissioned investigation panel comprising three lawyers concluded in June.

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