Photo/Illutration Yuichiro Kondo, right, president of SMBC Nikko Securities Inc., apologizes at a March 24 news conference. (Yosuke Fukudome)

An indictment against SMBC Nikko Securities Inc. and the arrest of its deputy chief are likely just the start of the penalties the company will face for alleged market manipulation.

According to sources, the Securities and Exchange Surveillance Commission is moving toward recommending the Financial Services Agency take administrative disciplinary measures against the company. The FSA could order it to revise its business operations or even temporarily suspend operations.

Whatever measure is imposed will likely be a stiff one.

“This is a major problem that shakes trust in the securities sector to its very roots,” one high-ranking FSA official said.

And the FSA is not the only entity that could bring the hammer down.

The Japan Securities Dealers Association could impose its own punishment. A securities firm found to have broken the law can be fined up to 500 million yen ($4.1 million).

The Tokyo Stock Exchange could also take punitive steps, such as temporarily banning the firm from trading or fining it as much as 500 million yen.

The Tokyo District Public Prosecutors Office on March 24 arrested Toshihiro Sato, a deputy president executive officer, on suspicion of market manipulation and indicted five other SMBC Nikko Securities employees, including two executive officers, on the same charge.

The company itself was indicted for violating the Financial Instruments and Exchange Law.

Sato is accused of placing a large buy order at the end of a trading day last year to artificially prop up stock prices. He has reportedly denied any wrongdoing.

But the news of the arrests has already led some institutional investors to stop placing trade orders with SMBC Nikko Securities, according to sources.

Company President Yuichiro Kondo again apologized at a March 24 news conference for the arrest of one of his immediate subordinates. He acknowledged that his company would be unable to avoid taking responsibility, given his admission that its scrutiny over stock trading, as well as its internal oversight, were woefully inadequate.

But Kondo also denied the possibility of taking personal responsibility by immediately resigning, and said he never received any report from Sato about the questionable transactions related to block trades of stocks.

(This article was written by Chihaya Inagaki, Kuniaki Nishio and Rui Hosomi.)

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