The Financial Industry Regulatory Authority (FINRA) has hit Nomura
Securities International, an institutional brokerage firm, with a censure and
fine of $125,000 for allegedly inaccurately calculating its net capital between July 2019
and March 2021 and violating other four rules as a result.
The other violations committed by the firm, which is a subsidiary of
Nomura Holding America Inc., include failing to accurately calculate its
Customer Reserve Formula, filing inaccurate 21 Financial and Operational
Combined Uniform Single (FOCUS) reports with FINRA, failing to maintain
accurate books and records and being unable to “reasonably supervise” its net
capital calculations.
The details of the censure and fine are contained in a Letter of
Acceptance, Waiver and Consent filed by Nomura and accepted by FINRA last Friday. However, while Nomura has agreed to settle, the firm neither agreed to nor denied the claims, FINRA said.
According to the American brokerage and exchange regulator, Nomura
wrongly calculated its net capital by misclassifying certain reverse repurchase
agreements (reverse repos) entered with its corporate affiliate, Nomura
Securities Corporation (NSC), as allowable assets.
However, because the reverse repos, which were based on the Japanese government
bonds, were custodied in the affiliate’s name at the Bank of Japan, Nomura
should not have classified them as allowable assets for purposes
of its net capital calculations, FINRA explained.
“The firm’s inaccurate calculations of its net capital resulted in
material decreases to the firm’s excess net capital in amounts ranging from
approximately $183,000 to approximately $1.95 billion,” FINRA noted.
Watch the FMLS22 session on the flow of liquidity in retail and institutional trading.
FINRA also provided details on the other violations. According to the private regulator, while Nomura calculated 91 weekly Customer Reserve
Formula during the stated period, three of them were incorrect owing to the erroneous net capital calculation.
“As a result, the firm improperly omitted an undue concentration
charge for its Customer Reserve Formula in the amount of approximately $152
million on February 12, 2021, approximately $458 million on February 26, 2021,
and approximately $461 million on March 5, 2021,” FINA outlined.
Furthermore, during the period, Nomura filed 21 inaccurate FOCUS reports
as a result of the net capital mishap, FINRA said.
“Specifically, the firm failed to report the value of the reverse repos
as non-allowable assets. In addition, the firm inaccurately reported its excess
net capital on the FOCUS Reports,” the regulator explained.
Moreover, FINRA said Nomura fell short of the provision that requires it to make and preserve accurate
books and records. This happened because the institutional broker failed to properly calculate its net capital
and Customer Reserve Formula, the regulator said.
On top of these, Nomura lacked supervisory systems “reasonably designed
to detect custodial arrangements in which securities subject to reverse
repos were held in the custody or control of a counterparty.”
However, the regulator said Nomura following the end of the
stated period, has taken remedial actions to prevent future violations. The steps taken by the firm include cancelling its reverse repos with NSC and adopting a supervisory
system that mandates it to deduct from its net capital calculations the
market value of reverse repos custodied away from the company.
Meanwhile, FINRA recently fined Wells Fargo, Instinet and Justly Markets (formerly DBOT) for other various violations.
The Financial Industry Regulatory Authority (FINRA) has hit Nomura
Securities International, an institutional brokerage firm, with a censure and
fine of $125,000 for allegedly inaccurately calculating its net capital between July 2019
and March 2021 and violating other four rules as a result.
The other violations committed by the firm, which is a subsidiary of
Nomura Holding America Inc., include failing to accurately calculate its
Customer Reserve Formula, filing inaccurate 21 Financial and Operational
Combined Uniform Single (FOCUS) reports with FINRA, failing to maintain
accurate books and records and being unable to “reasonably supervise” its net
capital calculations.
The details of the censure and fine are contained in a Letter of
Acceptance, Waiver and Consent filed by Nomura and accepted by FINRA last Friday. However, while Nomura has agreed to settle, the firm neither agreed to nor denied the claims, FINRA said.
According to the American brokerage and exchange regulator, Nomura
wrongly calculated its net capital by misclassifying certain reverse repurchase
agreements (reverse repos) entered with its corporate affiliate, Nomura
Securities Corporation (NSC), as allowable assets.
However, because the reverse repos, which were based on the Japanese government
bonds, were custodied in the affiliate’s name at the Bank of Japan, Nomura
should not have classified them as allowable assets for purposes
of its net capital calculations, FINRA explained.
“The firm’s inaccurate calculations of its net capital resulted in
material decreases to the firm’s excess net capital in amounts ranging from
approximately $183,000 to approximately $1.95 billion,” FINRA noted.
Watch the FMLS22 session on the flow of liquidity in retail and institutional trading.
FINRA also provided details on the other violations. According to the private regulator, while Nomura calculated 91 weekly Customer Reserve
Formula during the stated period, three of them were incorrect owing to the erroneous net capital calculation.
“As a result, the firm improperly omitted an undue concentration
charge for its Customer Reserve Formula in the amount of approximately $152
million on February 12, 2021, approximately $458 million on February 26, 2021,
and approximately $461 million on March 5, 2021,” FINA outlined.
Furthermore, during the period, Nomura filed 21 inaccurate FOCUS reports
as a result of the net capital mishap, FINRA said.
“Specifically, the firm failed to report the value of the reverse repos
as non-allowable assets. In addition, the firm inaccurately reported its excess
net capital on the FOCUS Reports,” the regulator explained.
Moreover, FINRA said Nomura fell short of the provision that requires it to make and preserve accurate
books and records. This happened because the institutional broker failed to properly calculate its net capital
and Customer Reserve Formula, the regulator said.
On top of these, Nomura lacked supervisory systems “reasonably designed
to detect custodial arrangements in which securities subject to reverse
repos were held in the custody or control of a counterparty.”
However, the regulator said Nomura following the end of the
stated period, has taken remedial actions to prevent future violations. The steps taken by the firm include cancelling its reverse repos with NSC and adopting a supervisory
system that mandates it to deduct from its net capital calculations the
market value of reverse repos custodied away from the company.
Meanwhile, FINRA recently fined Wells Fargo, Instinet and Justly Markets (formerly DBOT) for other various violations.