Tokyo

NOMURA Holdings' chief executive officer will take a pay cut to assume responsibility for improper handling of stock market information by employees, the latest setback for the struggling Japanese securities firm.

CEO Koji Nagai will forgo 30 per cent of his salary for three months, the firm said after finding that a researcher at an affiliate shared information on potential changes to the Tokyo Stock Exchange sections inappropriately. Japan's financial regulator plans to order the brokerage to improve internal controls, a person with knowledge of the matter said earlier, in what will be the first such action against Nomura since 2012.

The incident could hinder Mr Nagai's plan to turn around Japan's biggest brokerage after posting the first annual loss in a decade. One corporate client has already said it will drop Nomura as underwriter of a planned bond sale.

A Nomura Research Institute analyst, who was on a Tokyo Stock Exchange panel considering an overhaul of market segments, leaked information on the threshold for the changes, Nomura said in a statement. He wrote an email to a strategist at the brokerage in March saying that he felt the cut-off point for companies to remain on the exchange's first section would probably be 25 billion yen ($228 million), lower than previously anticipated.

Nomura Securities employees then shared the information with clients, with one salesman sending an email saying "if the stocks were already sold on the assumption that 50 billion yen would be the threshold, there may be a chance that they will be repurchased". Although the incident didn't violate laws, according to the bank, it found that the strategist and salespeople interpreted compliance too narrowly and supervision was lacking. In an internal survey, some employees answered to say there were no problems with the incident.

"I was very surprised when I learned about this," Mr Nagai said at a news briefing on Friday. "It's shocking that there are employees, even if it's just a few, who think it's OK because it's not corporate confidential information." To prevent a recurrence, Nomura outlined measures to raise compliance awareness and oversight. It will also close its GM Sales Department II in July after an employee there sought to create a custom stock index based on the information. As well as Mr Nagai, other top executives will have their pay cut temporarily. Staff involved in the leaks and their supervisors have faced "strict disciplinary actions," the firm said.

A business improvement order generally requires the recipient to fix internal controls rather than pay fines. In 2012, the FSA issued the penalty against Nomura after finding that employees leaked information on equity offerings that was subsequently used for insider trading. Mr Nagai's predecessor resigned in the wake of the scandal.

While the FSA doesn't see the latest incident as amounting to insider trading, it determined that it undermined trust in the market, the Nikkei reported. Osaka Gas Osaka Gas Co plans to drop Nomura as an underwriter for a bond sale due to the report on the FSA's move, a spokesman said.

Mr Nagai's pay cut comes just a month after he and other executives had their bonuses scrapped following the company's 100.4 billion yen loss in the fiscal year ended March. The CEO has embarked on a $1 billion cost-reduction program centering on revamping its global markets and investment banking operations. He is also reducing retail branches at home. Investors have so far shrugged off the news of impending regulatory action. Shares of Nomura closed 2 per cent higher in Tokyo before the company issued its report. Nomura Research Institute gained 1.1 per cent. Nomura owns about 39 per cent of NRI, according to the research institute.

The Nikkei identified Sadakazu Osaki as the NRI researcher who leaked the information. NRI spokesman Yasuhiro Komatsu said the company hasn't allowed Mr Osaki to speak publicly since the incident. While the information he provided to Nomura Securities was all publicly available, his act was inappropriate, Mr Komatsu said. BLOOMBERG