- YOMIURI EDITORIAL
SMBC executives’ arrests over stock manipulation may unnerve investors
12:49 JST, March 10, 2022
Suspicion has surfaced that executives of a major securities firm distorted the fairness of stock trading. Prosecutors should thoroughly clarify the whole picture of the incident.
The special investigation squad of the Tokyo District Public Prosecutors Office arrested four senior executives of SMBC Nikko Securities Inc., including a senior managing executive officer, on suspicion of violating the Financial Instruments and Exchange Law by repeatedly engaging in illicit stock trading with the aim of propping up the stock prices of specific companies.
Those arrested are suspected of illegally stabilizing stock prices by placing large amounts of buy orders on the market for stocks of five listed companies, when they bought out the stocks from large shareholders outside the market, in 2019 and 2020. The moves are believed to have been aimed at preventing those major shareholders from canceling plans to sell their shares due to falling stock prices.
Apart from normal stock trading on the market, securities companies sometimes buy stocks in bulk from major shareholders outside the market and then sell them to customers for marginal profits. If the four broke the market rules to close such deals, it can be said to be a breach of trust to deceive investors and others.
In addition to the five stocks over which the arrests were made, Nikko may have been involved in fraudulent trading regarding five more stocks, making a total of about ¥1.1 billion in profits.
Prosecutors have reportedly obtained evidence that the crime was carried out systematically with company-wide involvement, such as procedures for placing buy orders and the share price targets being improperly shared among multiple departments within the company.
The four have reportedly denied the charges, saying they did not engage in illicit transactions. The focal points of the investigation will include how they began such transactions and whether other people were involved.
Nikko’s president told a press conference, “I deeply apologize for causing distrust in the fairness of the market.”
Nikko has had a string of scandals in recent years. A former executive officer was arrested in 2012 and a former employee in 2018 in connection with insider stock trading. It must be said that Nikko’s corporate governance has been lax.
There is a possibility that Nikko, as a corporation, could be indicted in the future. The responsibility of the management will also be called into question.
Nikko said it has set up an investigation panel of outside lawyers and other experts. Apart from the prosecution’s investigation, the securities firm should examine how its internal checking system, professional ethics education and other systems functioned in the past.
Other securities companies also need to check their own transactions once again.
As the government has been aiming to shift individuals’ assets from savings to investments in recent years, competition among securities companies, including foreign-affiliated firms, to acquire customers has intensified. The securities industry as a whole needs to work together to make efforts to restore trust in the industry so that the integrity of trading will not be questioned.
— The original Japanese article appeared in The Yomiuri Shimbun on March 10, 2022.
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