TOKYO -- Japan's Finance Ministry issued an administrative order yesterday suspending equity brokerage operations for a month to six weeks at the headquarters and 85 branches of Nomura Securities Co., which was involved in the excessive promotion of a railway stock.
In addition, Nomura and the other three major Japanese brokerages -- Daiwa Securities Co., Yamaichi Securities Co. and Nikko Securities Co. -- were requested to suspend business operations with institutional investors for one to three weeks.
The request was made in response to recent revelations that the four firms continued to compensate favored clients after April 1990 in violation of a ministerial directive.
The Finance Ministry also extended its ban on Nomura in bidding for and underwriting government bonds for another month, until the end of November.
The suspension order against Nomura was based on the Securities and Exchange Law provision that allows the finance minister to order the closure of some or all of a securities firm's operations for up to three months for violating ministerial directives prohibiting the concentrated promotion of a specific stock.
Nomura is accused of promoting the stock of Tokyu Corp., a commuter railway company, in 1989. Normura's activities led to increased trading and a rapid rise in price of the stock.
The sales department at Nomura's head office in Tokyo and seven other branches that were found to have been especially active in promoting Tokyu stock were ordered to suspend equity brokerage business for six weeks, beginning Oct. 15.
In addition, the sales department of the Osaka branch office and 77 other branches throughout Japan that also excessively promoted Tokyu stock were ordered to suspend equity brokerage business for one month, beginning Oct. 15. The order will stop equity brokerage business at more than half of Nomura's domestic branches.
The suspension ordered by the Finance Ministry is the largest penalty ever imposed on such a wide range of branch offices. The longest suspension ordered in the past lasted only three days and involved only a single branch office.
In addition, Nomura will be prohibited from trading stock on its own account and from providing investment information to clients for one month.
Nomura President Hideo Sakamaki apologized to his clients for "all the trouble caused by the firm" and called the ministerial order "very severe."
Nomura also cut the salaries of top executives by 20 percent for periods ranging from two to 12 months. Two executives, Executive Vice President Yoshikazu Kitsuda and Executive Managing Director Junichi Nakano, resigned to take responsibility for their role in the Tokyu stock scandal.
A Tokyo-based analyst who covers securities firms said that the loss in earnings by Nomura due to the business suspension was less important than the long-term effect on Nomura's market share.
"The most important thing for Nomura is its ability to remain in the No. 1 position," said Stuart Matthews, an analyst with Barclays de Zoete Wedd Securities in Tokyo. "If Nomura is not the leader, they will not have a premium on their stock share price."