Nomura fined £1.75 million for derivatives bookmarking failings

The Financial Services Authority (FSA) has fined Nomura International £1.75 million for "widespread systems and controls failings" around book marking within its International Equity Derivatives (IED) business.

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Nomura fined £1.75 million for derivatives bookmarking failings


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The problems came to light last year when Nomura discovered that one of its Tokyo-based dealers had inflated the value of his trading book by some £10.8million. The mis-pricing eventually forced Nomura to write down £16.8million from the value of its derivative book

In levying the fine, the UK watchdog describes the shortcomings as "fundamental and systemic" and particularly serious for a business trading complex and high risk financial products.

Margaret Cole, FSA director of enforcement and financial crime, says: "Firms must ensure their systems and controls develop at the same rate their business operations grow; if this doesn't happen - as in Nomura's case - they run the risk of having systems that are inadequate for their business."

She says Nomura breached two FSA Principles as the firm failed to conduct its business with due skill, care and diligence and failed to take reasonable care to organise and control its affairs responsibly.

"Financial instruments must be valued correctly by traders and a firm's systems and controls must be able to minimise the risk of traders mis-marking their positions," says Cole. "When a firm's systems and controls fall short of required standards, we will not hesitate to take action."

Nomura qualified for a discount on the fine for agreeing to settle with the FSA at an early stage in the investigation. Without the discount, the financial penalty would have been £2.5 million.

The watchdog says Nomura has commissioned both internal and external reports on its systems and controls in this area and has taken "extensive remedial action".

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