Three lawyers hired by the Japanese broker who conducted an internal investigation and released their findings on Friday said that TOKYO Proprietary traders at SMBC Nikko SecuritiesNikko Securities engaged in inappropriate and unfair trading activities from 2019 to 2021.
The investigators found problems with traders and management, but they also found that those responsible for compliance with trading rules did not have the ability to supervise traders' activities.
The investigation's findings followed 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 boost the share prices of corporate clients whose stock they wanted to unload.
Nikko prop traders were involved in the activity for various reasons, including to prevent shares from falling too sharply and to maintain relationships with clients, according to the report.
The traders' conduct was against the interests of retail investors, who want to purchase shares as cheap as possible, according to the report. The report said 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 stated that traders should constantly exercise self-discipline over their own activities, but the Nikko traders didn't do so.
It also pointed out that Nikko's compliance sections were incapable of providing proper supervision and lacked experience and knowledge of trading activities. The traders justified their actions as contributing to the company's bottom line.
The report urges SMBC Nikko to revamp its compliance regime and overhaul its management so that it can provide proper oversight of the company's trading activities.