Photo/IllutrationKoji Nagai, group CEO of Nomura Holdings Inc., left, apologizes at a news conference in Tokyo on May 24. (Katsunori Takahashi)

Nomura Securities Co., Japan’s leading brokerage, has been accused of leaking important nonpublic information to clients in a fresh scandal that raises doubts about the company’s commitment to protecting fairness in the market.

The revelation reflects the company’s ability to fix deep-seated problems with its corporate culture, which has shown a tendency to put its business interests above everything else.

Nomura strategists and sales representatives leaked privileged information about plans to reorganize the Tokyo Stock Exchange (TSE) to institutional investors, according to a special investigation panel and the Financial Services Agency.

The investigation panel, set up by the brokerage, comprises lawyers and other outside experts.

A member of the bourse’s advisory panel that discusses the structure of stock markets operated by the TSE leaked to Nomura an important piece of confidential information about the TSE’s new listing criteria. The member was a fellow at Nomura Research Institute Ltd., the research arm of Nomura Holdings Inc.

The fellow told the company that the new minimum capitalization requirement for listing on the TSE’s prime market segment would likely be 25 billion yen ($231 million).

Because the figure was smaller than the expected 50 billion yen, Nomura’s salespeople used the information to advise nearly three dozen clients to buy or sell specific stocks.

The information did not pertain to acts of individual companies, so it did not constitute insider information as defined by the Financial Instruments and Exchange Law, according to the FSA.

But the investigation panel determined that the Nomura Research Institute fellow, Sadakazu Osaki, violated the confidentiality of the information.

The FSA issued a business improvement order to both Nomura Holdings and its core securities business unit, asserting that Nomura employees’ act of divulging the nonpublic information to specific clients for business purposes “could seriously undermine public trust in the fairness and integrity of the capital market.”

These decisions are quite reasonable. The TSE, operated by a private sector company, is one of the key components of Japan’s economic infrastructure.

Nomura should be held strictly accountable for its unethical act of using confidential information about the TSE for the benefit of its business operations.

Nomura was also taken to task in 2012, when it received a business improvement order for providing clients with insider information related to companies’ planned issuances of new shares.

Since then, the brokerage has taken steps to ensure strict management and confidentiality protection of insider information about individual companies. But Nomura has not established any detailed rules concerning information about systems.

Some Nomura employees have subscribed to the view that there is nothing wrong about leaking information about the TSE.

These facts underscore Nomura’s superficial understanding of legal compliance. The company has apparently considered compliance with the law in a narrow sense of the word.

Seven years ago, Nomura overhauled its management team, and its top executive pledged to “reinvent the company from the ground up.” Its ensuing efforts to reform its corporate culture have failed to achieve the goal if the latest scandal is any indication. Nomura will undoubtedly face many tough challenges in trying to revamp its corporate culture.

On May 24, Nomura announced disciplinary measures, including a 30-percent pay cut for Koji Nagai, group CEO, for three months. The FSA, however, has deemed the measures insufficient and required Nomura to take further steps to clarify the responsibilities of its board members and other employees.

A growing number of companies are excluding Nomura Securities from underwriting operations for their capital raising.

At its outset, the Nomura Group’s code of ethics says it should base its operations on “the essential role of the securities industry, which is to promote appropriate circulation of funds in financial and capital markets.”

The document also includes a warning against “abuse of confidential information.”

If it wants to continue playing a key role in the development of Japan’s capital markets, Nomura must act in accordance with the code at the very least.

--The Asahi Shimbun, June 2