Hong Kong's Securities and Futures Commission (SFC) has reprimanded and fined Nomura International (Hong Kong) Limited (Nomura Hong Kong) HK$4.5 million for failing to report significant misconduct by a former trader in a timely manner.

On 11 June 2013, Nomura Hong Kong informed the SFC that Mr X, a trader on secondment from Nomura Securities Co Ltd in Japan (Nomura Japan), had incurred a US$3.3 million trading loss on 23 May 2013 and that he had been sent back to Japan on 5 June 2013.

However, the SFC subsequently found out that at the time of the 11 June Report, Nomura Hong Kong already knew that Mr X had admitted to making false entries in Nomura Hong Kong’s risk management system to conceal the real risk exposure of his trades. He had also admitted to providing false information to Nomura Hong Kong. Nomura did not tell the SFC immediately about either of these matters, despite being obliged to do so by the relevant code of conduct.

Under paragraph 12.5 of the Code of Conduct for Persons Licensed by and Registered with the SFC, a licensed or registered person is required to notify the SFC immediately on the happening of any material breach, infringement, non-compliance with any rules, laws, regulations and codes administered or issued by the SFC, or where it suspects any such breach, infringement or non-compliance by itself or persons it employs or appoints to conduct business with clients.

The SFC also found out that by the time Mr X left Hong Kong when his secondment with Nomura Hong Kong finished, Nomura Hong Kong had already noticed some apparent discrepancies between his actual trading activities and the information he had provided to his managers. Mr X was sent back to Nomura Japan before the SFC had been properly alerted and before Nomura Hong Kong had completed its internal investigation into his conduct.

The SFC also found that by 19 June 2013, Nomura Hong Kong had already prepared a "draft preliminary report" of its investigation of Mr X’s trading activities, but it did not send the report or its subsequent drafts over to the SFC until the SFC made further enquiries.

It was not until 17 July 2013, after the SFC followed up on Nomura Hong Kong’s report of 11 June, that Nomura Hong Kong informed the SFC for the first time that Mr X had engaged in inappropriate conduct. Nomura finally gave the SFC the preliminary report two days later.

Mr Mark Steward, the SFC’s Executive Director of Enforcement whom the British Financial Conduct Authority has poached for a princely sum, was incensed that Nomura had omitted highly relevant information from its first report to the SFC and had then had to be chased up for it. "There can be no excuses,” he thundered. He goes to the UK in September.