SFC Disciplines Nomura Hong Kong to the Tune of HK$4.5 Million

The firm has been publicly reprimanded and fined for its inadequate reporting of a trader’s misconduct to the Hong Kong

The Securities and Futures Commission (SFC) of Hong Kong has taken disciplinary action against Nomura International (Hong Kong) Limited (Nomura Hong Kong), publically reprimanding and fining the firm HK$4.5 million for failing to report significant misconduct by a former trader in a timely manner.

Nomura Hong Kong is a subsidiary of Nomura Holdings, Inc. (NYSE: NMR), a leading securities and investment banking company in Japan.

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The disciplinary actions relate to a trader who was on secondment from Nomura Securities Co., Ltd in Japan. The rogue trader incurred a US$3.3 million trading loss on May 23, 2013 after having deliberately made false entries in Nomura Hong Kong’s risk management system to conceal the real risk exposure of his trades.

Nomura Hong Kong took independent action after noticing discrepancies between the trader’s actual trading activities and the information he had provided to management. Consequently, the firm sent the trader back to Japan on June 5, 2013 and subsequently carried out an investigation into the trader’s activities.

However, the regulatory breach arises from the belated and partial notification of the misconduct to SFC. While the firm did notify the SFC on June 11, 2013 of the trader’s losses and that a review was being undertaken, it failed to provide the SFC with information gleaned from the review, which was completed on June 19, 2013, or subsequent drafts or any other related information.

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Delay in reporting may help the wrongdoer to perpetuate misconduct, and may jeopardize the investigations of law enforcement agencies.

It was not until the SFC made further inquiries about the results of the review on the rogue trader’s activities on July 10, 2013, that Nomura Hong Kong divulged the requisite information and admitted to the trader’s inappropriate conduct.

According the SFC’s Code of Conduct, Nomura Hong Kong and other intermediaries have a duty to report misconduct and suspected misconduct to the SFC immediately upon discovery – not only following their own internal investigations. As the SFC’s announcement states, “Delay in reporting may help the wrongdoer to perpetuate his/her misconduct, and may jeopardize the investigations of law enforcement agencies.”

Mr. Mark Steward, the SFC’s Executive Director of Enforcement, said: “Nomura left out highly relevant information from its first report to the SFC and then had to be chased to report properly. There can be no excuses for such delays in reporting matters requiring our immediate attention. Delays, like these, contribute to misconduct and prejudice investigations. Intermediaries must report problems to us immediately – not after internal investigation, not after legal advice has been obtained but straightaway, without leaving out any important information.”

 

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