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Brokerage scandal puts Japanese equity scene in the dock

Not much, at this point, can be called predictable about the scandal plaguing Japan’s giant local brokerage agency, SMBC Nikko – a business that authorities have turned from a slave wolf into a lamb to sacrifice within a few short weeks.

Two senior officers have been arrested, five staff members are behind bars, and the number of those mentioned by prosecutors in connection with allegations of market manipulation continues to climb. Just a little extrapolation about how common trading activities may be in the SMBC Nikko blockchains being tested, and the entire Japanese stock scene is, to some extent, on the platform.

What can be predicted with some confidence is the corrupting pearl attachment of Japan as soon as the legal process presents to the country the daily aggravation of the floor of trading in Tokyo stock.

One of the many problems with SMBC Nikko, which has been under a combination of unregulated regulatory and criminal investigations for a year, is that prosecutors appear to be sitting on an unusually deep material archive.

This is material that will probably, with a minimum of effort on the part of the prosecuting lawyers and regardless of whether it does prove any guilt, sound crappy when read aloud in court. According to people close to the situation, the plaintiffs not only have a number of loosely worded emails flying between merchants and their bosses, but, as a result of the bank’s steps to continue trading in the depths of the epidemic (permanently open telephone line between offices), rare hours of audio from the floor itself.

No one, in any industry, can relish the exposure of their internal media. Even in relatively delicate transactions, the lack of professional reference has the advantage of crude transactions, which inevitably sounds awful out of context. Chat merchants, who can get a pirate tone, pass particularly badly beyond his habitat, especially by those who aim to show that it is always the little guy who gets hurt.

The language is imbued with adrenaline, partly because it is a game dominated by greed and partly because the nature of the environment requires, in the minds of many participants, a certain impudence.

According to reports from the former SMBC Nikko team, the material now in the hands of the plaintiffs was nothing out of the ordinary – exactly what you would expect from what was, before Imbrolio, a very profitable commercial floor that it earned.

At the heart of the criminal charges against SMBC Nikko and the people arrested is the claim that the bank’s proprietary trading desk has strategically bought the shares sold by corporate clients as large block transactions outside the market. Plaintiffs allege that these price-raising deals were made to prevent lucrative trading deals from collapsing if the price dropped too much. Four of the five detainees so far have maintained their innocence, and according to legal experts, are likely to argue that buying shares in the open market does not cross the limit for setting prices.

It will be for lawyers to argue and the result will have significant implications for the future of blockchain trading in Japan – especially by brokers like SMBC Nikko, which is connected to one of the mega-banks and with deep ties with Japanese companies. However, the risk for the defendants in the court of public opinion is that even the coping room that meets the requirements of the rules – with their strong level – can easily sound to outside ears like a den of conspirators.

The inevitable public shock may be exactly what both prosecutors and regulators are hoping for. The floor of SMBC Nikko’s capital transactions is described by those who still populate it as a place of mourning. Clients severed relationships; Friends and bosses are behind bars; Internal mental conversations from senior management will continue to ring hollow until the arrests actually stop.

This state of affairs is not accidental. On several levels, the authorities seem willing to set an example for this specific local mediation, perhaps because they suspect it is happening elsewhere and it may represent, in their eyes, the simplest way to solve a broader problem. By filing an indictment against a wide range of SMBC banker Nikko, from board members to a relatively junior staff, both the financial regulator and the plaintiffs are hinting at a systemic error and preventing any “rotten apples” excuses from the bank as a whole.

There’s a longer game here. Plaintiffs appear to have valuable cards to play with, and they may rightly be measuring public appetite for exciting revelations of unsaved merchant chatter.

leo.lewis@ft.com

Brokerage scandal puts Japanese equity scene in the dock Source link Brokerage scandal puts Japanese equity scene in the dock

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