Better info management needed to block insider trading
A securities firm has created an environment that invites insider trading by leaking confidential information on companies to its clients. The company must bear a heavy responsibility.
Acknowledging organizational flaws in the management of corporate information, Nomura Holdings, Inc. and Nomura Securities Co. have announced in-house punishments that include the resignation of an executive officer who was in charge of the department that received the information, pay cuts for top management executives and voluntary suspension of business of the institutional equity sales department for five business days.
In response to the announcement, the Securities and Exchange Surveillance Commission plans to recommend that the Financial Services Agency mete out administrative punishments to Nomura.
The scandal involving the country's top securities company has caused international confidence in the Japanese market to plunge. Nomura must gravely reflect on the case and review its information management system.
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Lack of work ethics
Since March, crackdowns have been carried out on one insider trading case after another in which companies have leaked information on capital increases prior to public offerings. In three of these cases, Nomura Securities, the lead managing underwriter in each case, leaked information.
At securities companies, a system called a "Chinese wall," a barrier to block the flow of information between a syndicate department that deals with corporate capital increases and an institutional equity sales department that conducts share trading for institutional investors, must be set up as a voluntary measure to prevent illegality.
However, senior employees at the institutional sales department of Nomura Securities regularly obtained information on capital increases from the syndicate department and provided it to clients.
A capital increase is an important company management strategy and such information should not be leaked for sales activities. It is apparent Nomura employees lack a sense of ethics.
In 2008, Nomura Securities employees in the department dealing with corporate mergers and acquisitions were arrested on suspicion of insider trading. At that time the FSA ordered Nomura to improve its business.
Nomura must bear a grave responsibility as it failed to improve its sloppy information management system.
Surprisingly enough, Nomura reportedly has emphatically told the SESC the company does not have any problem with its information management. It is inevitable the company will come in for intense criticism as it apparently lacks the ability to "purify" itself.
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3 top securities firms involved
In late June, a former executive officer of SMBC Nikko Securities Inc.--formerly Nikko Cordial Securities Inc.--was arrested on suspicion of becoming involved in insider trading. Information has also been leaked from Daiwa Securities Co. over a corporate capital increase through a public offering.
The involvement of all the three major securities firms in insider trading cases indicates the industry's serious penchant for leaking information.
The Japan Securities Dealers Association has compiled guidelines to establish and improve information management systems. However, it has been left up to the securities firms to decide to what extent they will abide by the guidelines. The entire industry must urgently tackle ways to prevent the leaking of information.
Under the current Financial Instruments and Exchange Law, those accused of insider trading are, in general, parties who trade shares after receiving information.
Japan has been criticized as an "insider heaven" by other countries. The government should study revisions to the law so those who leak information also can be punished.
(From The Yomiuri Shimbun, July 2, 2012)
(Jul. 3, 2012)
Renewable energy purchase system must be flexible
A system designed to spread the use of renewable energy, such as solar and wind power, started Sunday, with many problems still unresolved. The system should be carefully implemented.
The so-called feed-in tariff system obliges electric power companies to purchase electricity generated by renewable energy sources. Under the system, electric power companies continue to purchase renewable energy for up to 20 years at initially set rates.
The purchase rates are set at 42 yen per kilowatt-hour for solar energy and 23 yen for wind energy, about double the levels in Germany, which preceded Japan in introducing the system. To promote renewable energy in this country, the government decided to set the rates almost as requested by renewable energy producers.
Expectations are running high for the widespread use of renewable energy, which does not emit greenhouse gases and can be supplied within the country. Given such benefits, assistance measures are certainly necessary.
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Don't overly burden consumers
However, costs to purchase renewable energy will be added to electricity charges. We believe it will be necessary to avoid putting too big a financial burden on consumers.
In the first fiscal year, an ordinary household will be asked to pay 87 yen per month for the system. Many people would consider this amount acceptable. Yet, they should be warned they will be asked to share a growing burden as the scale of the feed-in tariff system continues expanding.
Germany has lowered the rates to purchase renewable energy a couple of times in recent years as part of its feed-in tariff system. But now that households are being asked to pay the equivalent of more than 1,000 yen a month to support the system, public frustration with the system is growing.
Many cases in Germany have been reported in which businesses installed new renewable energy generation facilities just before the energy purchase prices declined in order to lock into the higher current rates and maximize profits.
In Japan, many leading companies have already embarked on mega solar projects one after another. If such companies with deep pockets continue to rush into the business to exploit the high initially set prices in the early stage, utility fees may soar.
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Learn from overseas examples
It will be necessary for the government to examine similar systems and examples overseas in detail and make use of the lessons learned from them.
The government maintains that it will review the feed-in tariff system in the future. But we urge the government to act as flexibly as possible. In particular, it will be necessary to consider correcting the unreasonably high purchase rates as soon as possible.
The current system is designed to reduce purchase rates of renewable energy once power generation costs have declined as a result of corporate efforts or other reasons, thus putting power producers at a disadvantage. Some observers have pointed out the system's ill effects of discouraging businesses from trying to cut costs.
We urge the government to introduce a scheme that would set goals for future power generation costs, such as 20 years later, and gradually reduce the system's purchase rates. We believe this would encourage businesses to develop necessary technologies, such as those that would improve power generation efficiency.
Even with various efforts, it will still be difficult for Japan, which has limited land space and a large amount of rainfall, to stably secure a large amount of electricity from solar and wind power sources.
A realistic energy policy for Japan would be to expand renewable energy in a reasonable manner while it makes up for shortfalls of main energy sources such as nuclear power.
(From The Yomiuri Shimbun, July 2, 2012)
(Jul. 3, 2012)
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