Posted inRegulation

SFC fines Nomura for regulatory breach

Nomura International in Hong Kong has been fined after it failed to disclose that a trader had caused a $3.3m trading loss by making false entries in its risk management systems.

A notice published on Thursday by the Securities and Futures Commission (SFC) revealed that the trader for Nomura Securities, who the regulator did not name, had incurred the loss on 23 May 2013.

His secondment was subsequently terminated and he was sent back to Nomura Japan the following month.

This, however, breached regulations as the SFC said it had not been properly alerted and the trader was sent back to Japan before Nomura Hong Kong had completed its internal investigation into his conduct.

The company has therefore been fined HK$4.5m ($58,000) for breaching Hong Kong regulations.

According to the SFC, in June 2013 the trader had admitted making false entries in Nomura Hong Kong’s risk management system to conceal the real risk exposure of his trades and to providing false information to Nomura Hong Kong.

However, Nomura had failed to disclose this information to the SFC immediately and therefore breached the regulator’s code of conduct.

Following the termination of the trader’s secondment, Nomura Hong Kong had noticed some discrepancies between his actual trading activities and the information he had provided to management.

It had subsequently prepared a draft preliminary report of its investigation on the trading activities, but it did not give the draft report to the SFC until the regulator made further enquiries.

It was not until 17 July 2013, after the SFC followed up on Nomura Hong Kong’s 11 June report, that Nomura Hong Kong informed the SFC for the first time that the trader had engaged in inappropriate conduct.

Nomura gave the SFC the preliminary report two days later.

“Nomura left out highly relevant information from its first report to the SFC and then had to be chased to report properly,” said Mark Steward, the SFC’s executive director of enforcement.

“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.”

Part of the Mark Allen Group.