The U.S. securities trading unit of Japan’s Mizuho Bank has been fined $1.25 million for failing to prevent material nonpublic information about clients’ stock buybacks from being disclosed to other traders and to hedge fund clients.
The U.S. Securities and Exchange Commission said Mizuho Securities USA’s inadequate enforcement of its own confidentiality policies over a two-year period resulted in traders on its U.S. equity trading desk being given direct access to buyback trade information from the international trading desk.
“The information often included the order size, the limit price, and key terms that indicated to the recipients that the orders were issuer buyback orders,” the SEC said in an administrative order. “This trade information was valuable to other market participants, particularly given that the party placing the trade was the issuer.”
As part of a settlement of the case, Mizuho agreed to pay the $1.25 million fine, without admitting or denying the SEC’s findings.
“Confidential information concerning issuer stock buybacks can be material to institutional investors, particularly when such trading comprises a significant portion of the daily trading volume in the stock being repurchased,” Antonia Chion, associate director of the SEC Division of Enforcement, said in a news release.
“Broker-dealers must be attentive to their responsibilities to maintain and enforce policies and procedures to prevent the misuse of such information,” she added.
As the SEC noted, information about stock buybacks is potentially market-sensitive because “Issuers are not required to, and typically do not, disclose the specific dates on which they will execute trades pursuant to an announced buyback program.”
The commission faulted Mizuho in particular for failing to maintain effective information barriers between different trading desks and to require employees to keep client information confidential.
In one case, the international desk executed orders to buy back one million shares of a client’s stock on four consecutive days in January 2014. Information about the orders was allegedly relayed to the head execution trader on the U.S. equity trading desk, who, on Jan. 7, passed the information directly to at least one Mizuho hedge fund customer.