The disciplinary actions were taken in two separate NYSE hearing panel decisions, addressing violations of NYSE rules and federal securities laws at two different areas of the firm. In each decision, Nomura consented to a fine of $400,000 and censure.
One decision (No. 05-112) concerns improper communication during the quiet period of a secondary offering, failure to ensure pre-use review and approval before the dissemination of trading-strategy reports, and allowing an unregistered employee to perform duties customarily carried out by registered personnel. The other decision (No. 05-111 ) concerns the firm’s financial and oversight lapses in the course of participating in equity reverse repurchase transactions, or “equity reverse repos.”
Regarding the improper communication decision, during the pre-effective period of a secondary equity offering several employees of Nomura sent e-mails to Firm customers soliciting indications of interest in the offering that were not accompanied or preceded by the offering’s formal preliminary prospectus. The hearing panel also found that Nomura failed to ensure proper supervisory review and approval of the activities of employees who were transmitting “market letters,” securities offerings or other sales material to customers or the public. Under NYSE rules, a market letter is any written comments on market conditions, individual securities or other investment vehicles.
Also, Nomura violated NYSE rules and federal securities laws by permitting employees to use an outside vendor’s proprietary e-mail system to conduct business, without ensuring that e-mail attachments were being properly retained and archived.
In the “equity reverse repos” case, the hearing panel found that in 2003 Nomura failed to establish and maintain appropriate procedures for supervision and control with respect to these business activities.
Specifically, the panel found that Nomura entered into equity reverse repos with a non-broker/dealer. At the end of a three-month period, the agreements increased from approximately $50 million to $350 million. As a result of extending 100 percent financing on the equity reverse repos, and recording the transactions on its books and records as stock borrowing transactions, the firm violated several Exchange rules and federal securities regulations.
These violations include failure to deduct certain margin maintenance from the firm’s net capital calculation, improperly extending credit to a customer and failure to preserve and maintain records of certain equity reverse repos for the required retention period. The firm reported both these matters to the Exchange.
In settling these charges brought by NYSE Regulation, Nomura Securities International, Inc. neither admitted nor denied the charges.
About NYSE Regulation
On December 17, 2003, the SEC approved a new governance structure for the NYSE. Under the new design, the NYSE Board of Directors is comprised solely of independent directors, except for the chief executive officer, who have no affiliation with any regulated member firm. A new position of chief regulatory officer was created and reports directly to the board of directors through a new Regulatory Oversight Committee. As a result, NYSE Regulation is insulated from potential influence from NYSE members and member firms, operates separately from the business side and is independent in its decision-making.
NYSE Regulation plays a critical role in monitoring and regulating the activities of its members, member firms and listed companies, as well as enforcing compliance with NYSE rules and federal securities laws. Nearly 400 of the largest securities firms in America are members of the New York Stock Exchange. These firms service 98 million customer accounts, or 84 percent of the total public customer accounts handled by broker-dealers, with total assets of over $4 trillion. They operate from 20,000 branch offices around the world and employ 144,000 registered personnel.
Nearly 700 employees, or more than 40 percent of the Exchange’s staff, work for NYSE Regulation, which consists of four divisions: Market Surveillance, Member Firm Regulation, Enforcement and Listed Company Compliance, as well as a Risk Assessment Unit and Dispute Resolution/Arbitration.
