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SMBC Nikko’s’ unfair ‘trading revealed by lawyers’ probe

TOKYO – Proprietary traders at SMBC Nikko Securities engaged in “inappropriate and unfair” trading activities from 2019 to 2021, according to three lawyers hired by the Japanese broker who conducted an internal probe and released their findings on Friday.

The investigators found not only problems with traders but with management, saying that those responsible for compliance with trading rules did not have the capability to supervise traders’ activities.

The release of the probe’s findings follows the arrest of SMBC Nikko traders and executives, including former Vice President Toshihiro Sato, in March over allegations that the traders used the company’s proprietary account to bolster the share prices of corporate clients whose stock they wanted to unload.

The report noted that Nikko prop traders engaged in the activity for various reasons, including to help prevent shares from falling too sharply and to maintain relationships with clients.

But the report pointed out that the traders’ conduct was against the interest of retail investors, who seek to purchase shares as cheaply as possible. The report stressed that brokers are supposed to safeguard public confidence in the fairness of the market, and that the Nikko traders undermined that confidence.

The report also noted that while traders should constantly exercise self-discipline over their own activities, the Nikko traders failed to do so.

It also pointed out that Nikko’s compliance sections lacked experience and knowledge of trading activities and were incapable of providing proper supervision. The traders justified their actions as contributing to the company’s bottom line.

The report urged SMBC Nikko to revamp its compliance regime and overhaul its management so that it can provide proper oversight of the company’s trading activities.

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