Tokyo prosecutors on Thursday arrested SMBC Nikko’s vice-president and brought criminal charges against the company and five bankers over alleged market manipulation, in a scandal that has tarred the equity division at Japan’s third-largest brokerage.
According to a document issued by the prosecutors, SMBC Nikko traders put in large buy orders towards the end of the trading day to artificially boost prices of stocks, a move authorities allege constitutes market manipulation.
The company and five bankers, including three executives, have been charged for suspected violation of Japan’s Financial Instruments and Exchange Act, according to the document. If convicted, the individuals could be sent to prison for up to 10 years and face fines of more than $80,000. SMBC Nikko, as a company, faces fines of up to ¥700mn ($5.7mn).
The high-profile arrests have sent shockwaves through the banking industry and put the spotlight on Japanese regulators and corporate governance as Tokyo works to re-emerge on the global stage as a major financial hub.
Four of the five charged bankers at Nikko were arrested earlier in March. People close to the four bankers told the Financial Times that they will now begin their bail application while maintaining their innocence. The FT could not immediately reach the fifth charged individual for comment.
SMBC Nikko said in a statement that it takes the arrests and indictments “very seriously” and acknowledged that there was a deficiency in the internal management system. “We recognise our responsibility as a corporation in that sense”, the company added.
Prosecutors also allege that Nikko’s arrested vice-president, Toshihiro Sato, was involved in the transactions. Sato, 59, has been questioned by the prosecutors several times on a voluntary basis, domestic media said, telling them that he had received reports on the transactions but that he was not aware of any illegality. He has not been charged.
SMBC Nikko bankers told the Financial Times there were no fresh messages coming from the leadership and the trading floor was a “total mess” on Thursday. Some people, worried about the viability of the business and their jobs, were in tears, and others compared the mood there to “mourning”.
The bankers said they thought prosecutors were making an example of SMBC Nikko to tackle alleged widespread market manipulation, speculating that regulators could launch investigations into similar trades at other brokerages.
Sato, who joined SMBC Nikko in 2019 and oversaw its equity division, has long worked at the market division of Sumitomo Mitsui Banking Corp, Japan’s second-largest lender.
In addition to the allegations levelled against the individuals, the prosecutors also accuse Nikko, as a corporate entity, of being responsible for what the regulator considers illegal stock trading and for running internal systems that were insufficient to prevent it.
The four people arrested before Sato include the Japanese head of equity trading, Makoto Yamada, and the American head of the equities division, Trevor Hill.
Hill, along with another arrested executive from the United Kingdom, Alexandre Avakiants, played a pivotal role in turning the company into a global powerhouse with offices in Hong Kong, New York and London.
The pair’s relationships, knowledge and experience will not be easily replaced from within Nikko and external hires were unlikely given the investigation, according to people at the company.
SMBC Nikko bankers charged with market manipulation by Japan prosecutors
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