Photo/Illutration Yuichiro Kondo, president of SMBC Nikko Securities Inc., offers an apology at the conclusion of his news conference on March 5. (Yosuke Fukudome)

Tokyo prosecutors arrested four high-ranking officials of SMBC Nikko Securities Inc., including two executive officers, on suspicion of market manipulation in breach of the Financial Instruments and Exchange Law.

All four arrested March 4 worked in the firm’s equity department.

The Tokyo District Public Prosecutors Office identified the suspects as Trevor Hill, 51, a senior managing executive officer who heads the equity department; Alexandre Avakiants, 44, an executive officer who serves as deputy head of the equity department; Makoto Yamada, 44, who heads the equity section in the department; and Shinichiro Okazaki, 56, who heads another section in the same department.

According to sources, all four insisted during voluntary questioning prior to their arrests that there was nothing illegal in the transactions they were involved in.

President Yuichiro Kondo held a news conference on March 5 in which he apologized for the incident.

“We deeply reflect on and seriously accept having caused a situation that could shake trust in the market,” Kondo said.

He said nothing about resigning to show responsibility.

In a statement issued March 5, the company said an investigative committee made up of three lawyers had been assigned to look into the allegations.

“We take this matter very seriously and sincerely apologize to our customers and other concerned parties for causing great concern and inconvenience,” the statement added.

Prosecutors contend the four conspired to prop up the share price of five stocks, including those listed on the Tokyo Stock Exchange’s First Section, between December 2019 and November 2020.

The company was involved in block trades of those stocks and the propping up of the share price was seen as an attempt to ensure that the block trades went through.

Block trades involve large-volume sales of a stock by major shareholders. Because the sale of a large number of shares at the same time could lead to a sharp drop in the share price, securities firms arrange to sell the shares in smaller bundles to other investors outside of the market.

The share price for the transaction is determined by the closing price on the day the sale is to be made. But if the market share price drops, the shareholder that initially put the shares for sale can request a postponement in the transaction to avoid a damaging loss.

However, stopping a transaction is a step few securities firms are willing to make because of the risk of damaging the institution’s reputation and losing gains from the transaction.

Investigative sources alleged the four were involved in placing a large-volume buy order shortly before the exchanges closed to ensure the share price of the stock remained stable.

Normally those working in the equity department and trade in stock using the company’s own funds do not share information with those handling block trades so as to avoid the appearance of impropriety, according to multiple sources in the securities industry.

But the investigative sources said Okazaki, who was in charge of handling the block trades at SMBC Nikko, contacted Yamada when he held concerns about a possible drop in the share price of a stock being traded in such a manner. Yamada would, in turn, use the company’s funds to place the buy order to ensure the share price did not drop precipitously, sources said.

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