Nomura Said to Fire Two Workers on Derivatives Breach (Update2)

By Takahiko Hyuga
Nov. 25 (Bloomberg) -- Nomura Holdings Inc., Japan’s largest brokerage, fired a Hong Kong-based trader and the employee’s manager because they breached internal rules on derivatives trading, said a person familiar with the situation.
Nomura fired the two employees after discovering the trader failed to value derivatives properly, the person said, declining to be identified because the matter is private. The person wouldn’t give the employees’ names or say when they were fired.
The Financial Services Authority in London said yesterday it fined Nomura’s U.K. unit 1.75 million pounds ($2.9 million) for falling short of expected standards in valuing financial instruments in its international equity derivative business. So- called mis-marking in 2008 worth a total of 16.3 million pounds was uncovered, the FSA said.
"We have to say our internal controls had weaknesses as there was mis-marking," said Keiko Sugai, a Tokyo-based spokeswoman at Nomura. The brokerage took internal disciplinary action "properly" against the employees involved, Sugai said.
She declined to say whether the workers were fired or disclose who they are.
Shares in Nomura fell 4 yen, or 0.7 percent, to 593 yen in Tokyo. Smaller rival Daiwa Securities Group Inc. rose 0.5 percent.
Nomura cooperated with the FSA’s investigation and qualified for a discount on the fine, which would have been 2.5 million pounds, the regulator said. The mis-marking took place before Nomura bought the European assets of Lehman Brothers Holdings Inc. after the Wall Street firm filed for bankruptcy in September 2008.

Trader Suspended

The securities firm said in June it fired an employee who worked in its merger advisory department because he breached an internal rule on insider trading.
Nomura’s systems in London that verified how derivatives were valued were "open to abuse," according to the FSA’s investigation report, with only a small number of stocks tested at a time. The improper valuation that led to the fine was identified by a London-based trader in June 2008. After and internal probe, the bank established that a Hong Kong trader had mis-marked his book, the report said.
The trader was suspended on June 30, 2008 pending an investigation, according to the FSA report.
"We are aware of the FSA’s decision in relation to Nomura and we have no further comment on this matter," said Jonathan Li, a spokesman for Hong Kong’s Securities and Futures Commission, in an interview.