SMFG's brokerage launches probe after executives arrested

FILE PHOTO: Workers clean windows next to a signboard of Sumitomo Mitsui Financial Group
FILE PHOTO: Workers clean windows next to a signboard of Sumitomo Mitsui Financial Group's SMBC Friend Securities in Tokyo, Japan, January 23, 2017. REUTERS/Kim Kyung-Hoon

By Makiko Yamazaki

TOKYO (Reuters) -Sumitomo Mitsui Financial Group Inc's brokerage unit said on Saturday it has set up an investigation committee following the arrest of some of its executives over alleged market manipulation.

Tokyo prosecutors on Friday arrested four executives of SMBC Nikko Securities Inc, including a senior managing executive officer, the country's third-largest brokerage said.

"We seriously accept and regret the fact that several of our executives were arrested," chief executive Yuichiro Kondo told a news conference.

At issue are "block offers", after-hours transactions SMBC Nikko conducted for investors selling stocks of five companies in large volumes.

The block offer scheme lets investors unload their shares in bulk without creating a negative price impact on the market. Stocks are sold first to brokerages, which then sell them to other investors at a certain discount.

SMBC Nikko is suspected of having bought those stocks on the market through proprietary trading, action that could be seen as attempts to prevent closing share prices from falling from levels at which the investors in block offers were willing to sell.

The brokerage has suspended block offer transactions, which account for about 5% of its annual trading revenue, Kondo said, adding that the earnings and business impact of the latest incident is unclear.

The company gave only the titles of the four arrested without disclosing their names. Japanese media reported that they included Trevor Hill, senior managing executive officer and head of the equity department, and Alexandre Avakiants, executive officer.

SMBC Nikko was punished in 2012 for leaking insider information to clients ahead of a public share offering and soliciting trades from them based on the information. In 2018, a former employee was arrested on suspicion of insider trading.

(Reporting by Makiko Yamazaki; Editing by Sandra Maler and William Mallard)

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