Japan watchdog call to penalise Nikko

Japan’s securities watchdog on Thursday called for disciplinary action against Nikko Asset Management after a regular inspection revealed it had improperly handled certain investment trust applications.

The Securities and Exchange Surveillance Commission said Nikko Asset Management had discriminated against certain investors who had applied to purchase an open-ended stock investment trust in late 2004.

Nikko Asset Management is an arm of Nikko Cordial, which is just under 5 per cent owned by Citigroup.

In marketing the open-ended investment trust, Nikko Asset Management failed to indicate that it would not accept any purchase or cancellation orders on December 28 2004.

Consequently, a large number of purchase orders were placed by investors through various securities companies on that date, which Nikko Asset Management accepted.

However, the company changed the purchase date to December 29 2004 and absorbed the difference in the purchase price as a result of that change – but only for some investors.

The others who had to absorb the difference in cost themselves were not told by Nikko that the company itself would cover the difference.

“The above handling caused substantial differences in the financial benefits enjoyed by the investors,” the SESC said.

According to the SESC, Nikko Asset Management’s act calls for a business improvement order.

Nikko Asset Management said it takes the matter seriously and will strengthen its internal controls.

The recommendation of disciplinary action is the latest in a growing list of penalties imposed on financial institutions as the Japanese authorities seek greater discipline in the country’s financial markets. Last week, the SESC called for disciplinary action against Merrill Lynch Investment Managers in its first such recommendation against an investment trust manager.

MLIM is expected to be penalised by the Financial Services Agency for improperly trading shares between different investment trusts under its management.

The FSA has recently opted to impose more severe penalties against offenders.

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