【NEWS RELEASE】

December 26, 2018
SMBC Nikko Securities Inc.

Re: The Investigation Report by the Investigation Committee and Our Improvement Measures

A former employee of our company was recently indicted in the Osaka District Court forviolation of the Financial Instruments and Exchange Act (violation of insider trading regulations).
We take this matter very seriously and sincerely apologize to our customers and other concerned
parties for causing great concern and inconvenience.
We have received the investigation report from the Investigation Committee which wasestablished on November 29. (The Investigation Committee is chaired by Takayuki Aonuma Esq.,
the former superintending prosecutor of the Nagoya High Public Prosecutors Office.)
We took this situation seriously and formulated improvement measures based on the investigation
report. We will further enhance our internal controls through the steady implementation of improvement
measures, and take all necessary steps across our organization to restore the trust of our customers andother concerned parties.

Attachments
・ Summary of Investigation Report・ Our Improvement Measures
EndDecember 25, 2018
To SMBC Nikko Securities, Inc.

Summary of Investigation Report

Investigation Committee

Chairman

Takayuki Aonuma

Commissioner

Takeshi Ohki

Commissioner

Akira InoueTable of Contents
Outline of the Investigation ................................................................................................ 1

I.
1.

Background of establishing the investigation committee ................................................... 1

2.

Purpose of this Investigation ........................................................................................... 1

3.

Members of the Investigation Committee ......................................................................... 24.

Period and method of Investigation.................................................................................. 2

5.

Frequency of holding the Committee ............................................................................... 3

6.

Qualification regarding limitation of the Investigation....................................................... 3
Facts found in the course of this Investigation ...................................................................... 3II.
1.

Issues regarding discovery of facts and its direction .......................................................... 3

2.

How A acquired information regarding TOB .................................................................... 3

3.

How A communicated information regarding TOB ........................................................... 4

4.

How the internal administration system for preventing insider trading was in place at Nikko

Securities .............................................................................................................................. 4
5.

How A was recruited as a specified professional employee (investment banking operation) andassigned to the Investment Banking department ....................................................................... 8
6.

The contents of the operation A was in charge of at the Investment Banking department etc. 8

7.

Status of training for prevention of insider trading at Nikko Securities ............................... 98.

Whether if there was an organized involvement or Similar Conducts by Officers andEmployees other than A ......................................................................................................... 99.

The contents of the prevention system set up based on the improvement report related to thepast insider facts. ................................................................................................................. 10
III.

Analysis of the cause regarding Information Acquisition and communication of information
10

1.

Characteristics of this case ............................................................................................. 112.

Analysis and review of the cause .................................................................................... 11IV.

Proposal of an improvement plan .................................................................................. 13

1.

Re-implementation of a thorough management principle and legal compliance, professional

moral .................................................................................................................................. 13
2.

Reinforcement of HR management and training ............................................................. 13

3.

Further enhancement of information management system ............................................... 14

I.
Outline of the Investigation
1. Background of establishing the investigation committee
On November 29, 2018, A, a former employee of SMBC Nikko Securities, Inc.
(“Nikko Securities”), was arrested on the charge of a violation of Financial
Instruments and Exchange Act, together with his acquaintance B, and on December
19, 2018, they were indicted on the basis of the fact violating the said Act. The
summary of the facts constituting indictment that were made publicly available is
as follows:
A is a person who knew, in connection with his duty, as an employee of Nikko
Securities, the fact that company X determined to the effect that it tender offer
bids the shares of company Y, which was known by the other employees etc. of
Nikko Securities, in connection with the execution of an agreement withcompany X, and B was an acquaintance of A:(i)

B, received facts related to the implementation of a tender offer bid, fromA, and purchased, under B’s name, a total of 296,000 shares of company
Y’s shares, at a total price of approximately 53,260,000 yen, from July 28,
2016, to August 3, 2016, which was before the said facts were madepublicly available.

(ii)

A, with the purpose of purchasing the shares of company Y in advance, tomake profits, around July 27, 2016, which was before the said facts weremade publicly available, communicated the said facts, and as set forth in(i), the said person purchased the shares of company Y under the said
person’s name.

Nikko Securities has been cooperating with the investigations etc. of the facts inviolation of the Financial Instruments and Exchange Act at issue by the Securities
and Exchange Surveillance Commission, but given that the aforementioned A and
B were both arrested by the Osaka District Prosecutor’s Office on November 29,
2018, it established this Investigation Committee (“Committee”) as of the said date.
2. Purpose of this Investigation
The purpose of this Investigation is (i) to understand the facts, such as how theinsider information related to the tender offer bid (“TOB”) of company Y’s shares
was acquired by A, (ii) to analyze the cause of the case, and (iii) to propose a plan1

to prevent recurrence.
3. Members of the Investigation Committee
Members of the Investigation Committee are as follows:- Chairman Takayuki Aonuma (Attorney-at-law, former Superintending
Prosecutor of Nagoya High Public Prosecutor’s Office)- Commissioner Takeshi Ohki (Attorney-at-law, former publicprosecutor)- Commissioner Akira Inoue (Executive Managing Director and Chief
Compliance Officer, Nikko Securities)
The Committee established a secretariat consisting of 16 officers and employees(officers and employees are hereinafter referred to as “Officers and Employees”),
and engaged 3 outside legal counsels (Michio Masaki, Miya Miyama, Ryota Saito)
as assistants and had them assist the Committee.
4. Period and method of Investigation(1) The period of Investigation was from November 29, 2018 to December 25, 2018.
(2) The methods of Investigation were as follows:(A) Examination of relevant materials
The Committee carefully examined relevant materials, such as Nikko
Securities’ rules and regulations, electronic data such as phone call logs usedat the said company, contents of emails sent and received and pc operation logs,
HR related materials related to recruitment and assignments, and compliancetraining materials etc.
Since the electronic data was submitted to the relevant authority, theInvestigation did not involve digital forensic.
(B) Interviews with relevant persons
The Committee conducted interviews with 35 Officers and Employees of
Nikko Securities, and one other relevant person, totaling 36 persons (52 times
in total).
(C) Onsite inspection
The Committee conducted an onsite inspection at the Investment Banking
department on December 3, 2018.

2

(D) Survey and establishment of whistleblower hotline
The Committee conducted a survey in regard to the cause of Information
Breach etc. from December 7, 2018 to December 21, 2018, and alsoestablished a whistleblower hotline to the Committee, in order to investigate
if there was any incident similar to the one at issue, separate from thewhistleblower hotline within the company.
5. Frequency of holding the Committee
The Committee was held 8 times between November 30, 2018 to December 25,
2018.
6. Qualification regarding limitation of the Investigation
The Committee conducted an investigation that was considered necessary toachieve the purposes of the Investigation, however, the investigation was
conducted in a limited period of time, on a voluntary basis, and when the relevant
authority was conducting probe and investigation, therefore, the said probe andinvestigation had to be given priority, and thus there was a limitation that theCommittee was not able to conduct any interview with A and B. Accordingly, it ispossible that the factual findings by this Investigation will be changed due todiscovery of new materials, such as materials other than those collected by theCommittee and evidences of the criminal proceedings etc.
II.
Facts found in the course of this Investigation
1. Issues regarding discovery of facts and its direction
There were certain limitations with this Investigation, but it would be difficult topropose a valid analysis of cause and methods to prevent recurrence, without
understanding the facts such as how A acquired the TOB information. Therefore,
the Committee attempted to presume the facts related to the Information Breach, asmuch as possible, from the electronic data etc. that was left at Nikko Securities.
Since this is a case on a matter before trial, detailed facts related to the breach foundby the Committee, matters and basis of presumptions etc. used for the finding, are
not described in the public version of this report.
2. How A acquired information regarding TOBIn April 2016 (those with the year omitted hereinunder are events during 2016),
Nikko Securities was requested to provide advisory service etc. for the TOB,
3

composed a project team mainly consisting of employees of the Investment
Banking department, and performed the service.
The TOB was publicly announced on August 3, and company X initiated TOB ofcompany on August 4, and completed on October 5.
A is a new employee who joined the company in April 2015, and was assigned to
the Investment Banking department in August 2015. He was not a project memberof the TOB, but he proactively searched for the TOB information based on
fragmented information that was shared within the department and acquired the
TOB information in late July.
3. How A communicated information regarding TOB
Prior to the public announcement of the TOB, A communicated the TOB
information to B by using his personal mobile phone etc.
Based on the facts of indictment that was publicly announced, it is presumed that
B purchased the shares of the company Y thereafter, but there was no purchase thatused the account at Nikko Securities.
4. How the internal administration system for preventing insider trading was in place at
Nikko Securities(1) Objective status of the placement
A. How the compliance system was put in place
Nikko Securities takes compliance seriously as one of its most important
item of its management, and has established compliance committee as anadvisory body to the management meeting. Also, it places an internal
administrator at every department, as a general rule, and has set upcompliance rules and placed compliance manuals etc. as the code of
conduct of Nikko Securities employees.
B. Prohibition of unfair trading and management of Corporate Information(A) Prohibition of unfair trading
Nikko Securities has implemented employee account trading rules
and officer account trading rules, as rules in cases of securities tradingby Officers and Employees, and has a set forth rules in details
regarding restrictions on opening account and trading. Also, withrespect to Officers and Employees who belong to the Corporate
Division (“Private Side”) which has high possibility of acquiring
Corporate Information, the rules in place are more rigorous than those4

for regular Officers and Employees, and have stocks with restrictions
on trading, and restriction on periods of trading.
(B) Management of Corporate Information
At Nikko Securities, the Trading Compliance department controls
and manages Corporate Information, and the insider trading
management rules define Corporate Information, method ofmanaging Corporate Information, and prohibited conducts etc. Also,in order to effectively function the insider trading management rules,
it takes measures such as separating the private side and the public
side (which are departments other than the private side), setting forthreporting requirement at the time of acquisition of Corporate
Information and management method of restrictions oncommunications, building information barrier (Chinese wall)
between them, and thereby preventing unfair trading in advance.
The outline of the management system related to Corporate
Information at Nikko Securities is as follow:(i) Reporting at the time of acquisition of Corporate Information
Officers and Employees must immediately report to the head of
department and branch as well as the head of Trading Compliancedepartment, and obtain approval, through the Corporate
Information Management System (“CIMS”) of the Trading
Compliance, Corporate Information Control department, when
he/she has acquired Corporate Information in connection withhis/her operation.
Those who are required to register with the CIMS are: (i) persons
in charge of each projects, and (ii) those who received information
due to operational necessity other than (i). In addition, for example,
in a case where there is an error in the transmission of an email that
contains Corporate Information, the recipient will not be registeredas a person involved under the CIMS, but will be managed by the
Trading Compliance department as a person who is possible ofknowing the information (Deemed to know).
(ii) Management of Corporate Information acquired
Officers and Employees must, when he/she acquired Corporate
Information or information that could possibly become a Corporate
Information, manage it in a strictly secured manner. With respect5to electronic files containing Corporate Information etc., it ismanaged in a way that the said Corporate Information is notcommunicated to a person who does not have the need to know for
his/her operation, by protecting it with a password, and restricting
access by taking measures to restrict access etc., and strictly
enforcing the “principle of Need to Know”, even within the samedepartment.
(iii) Restriction of communication and over-the-wall application
Officers and Employees are prohibited from communicating
Corporate Information to other Officers and Employees or third
parties outside the company, except when it is necessary due to an
operationally justifiable cause. Also, when it is necessary tocommunicate a Corporate Information to Officers and Employeeson the public side or third parties outside of the company due to an
operationally justifiable cause, an application must be submitted tothe head of the Trading Compliance Department and obtain his/her
approval in advance.
(iv) Prohibition of unnecessarily acquiring Corporate Information
Officers and Employees are prohibited from attempting to acquire
Corporate Information from other Officers and Employees or third
parties outside the company, without an operationally justifiable
cause.
(v) Violation of laws and regulations regarding Corporate Informationand violation of internal rules
In general, Officers and Employees are subject to punitive
dismissal when he/she is involved in an insider trading or he/she
has breached information to third parties that could lead to an
insider trading without a justifiable cause. The importance of the
management of Corporate Information is strictly informed, throughcontinuing and repetitive trainings etc.
(vi) Corporate Information Management Reinforcement GroupAs an organization under the compliance committee, a Corporate
Information Management Reinforcement Group, chaired by the
person in charge of compliance, has been established. Systems
related to Corporate Information and examples of other companies
are discussed, and measures related to the management of6

Corporate Information are implemented, on a periodic basis. The
contents of discussion at the said group are reported to thecompliance committee, and then reported to the board of directors
meeting and the management meeting, and thereby reinforcing the
involvement of the managements.
C. Monitoring etc.
(A) Monitoring related to Corporate Information
The Trading Compliance department implements monitoring ofoutlook email used within Nikko Securities, Bloomberg mail and chatand activity records etc. and are confirming if there is unnecessarycommunication of Corporate Information, or if there areinappropriate conduct such as searching of Corporate Information.
(B) Monitor of email sent outside the company
The internal administrator at the Investment Banking department isconfirming emails sent out of the company from members of theInvestment banking department who is in charge, ex-post, andverifying if there is any unnecessary breach of Corporate Information.
(C) Management of entering and leaving the room
Door at the operating room of the Investment Banking department
restricts entrance into and exit from the room by restricting assesswith an ID card.
(2) Status of the operation of internal administration system
A. Monitoring, Office Check
The internal administrator at the Investment Banking department was
engaged in monitoring of emails of employees and office check operationsetc., at the said department, however, no breach of Corporate Information
was identified. Monitoring of emails etc. was also performed by the
Trading Compliance department, but the result was the same. The rule was
not to save files containing Corporate Information etc. in a shared folder,
therefore, shared folders were not monitored.
In addition, the internal administrator gave several warnings because A’s
desk was found untidy during office check, but it was not that materials
related to Corporate Information was left unattended.
B. Personal mobile phones etc. of employees
The Trading Compliance department and internal administrator weremonitoring office PCs and mobile phones, but were not monitoring
7

personal PCs and mobile phones.
5. How A was recruited as a specified professional employee (investment banking
operation) and assigned to the Investment Banking department(1) A’s resume, and the purpose of application etc.
A graduated from a graduate school, and on April 1, 2015, and joined Nikko
Securities as a specified professional employee (this is a system that is applied
to employees who are expected to have high operational capability).
(2) Status of recruiting such as evaluation at the time of interview, and how he was
assigned to the Investment Banking department.
A. Status of recruiting such as evaluation at the time of interview
Recruiting new graduates at Nikko Securities are conducted separately by
five departments including the Investment Banking department,
respectively, and they are recruited as employees who pursue main career
track, as a general rule. With respect to A, after document-based screening,
he was interviewed multiple times by different interviewers, followed bya final interview by the HR department, and then got hired. The HR
department conducted a qualification test and checked if he belonged toanti-social forces or had criminal records etc., however, he was notdetermined to be disqualified.
B. How he was assigned to the Investment Banking department
A’s first choice was to be assigned to the Investment Banking department,
where he could make use of his expertise. The Investment Banking
department assigned A to the department from August 3, 2015.
6. The contents of the operation A was in charge of at the Investment Banking
department etc.
(1) The contents of the operation A was in charge of
The Investment Banking department gives its employees 5 different titles
depending on their tasks, and employees who were within approximately 3
years of employment were titled financial analyst, and were engaged in
preparation of proposition materials provided to clients etc. A was engaged in
the said task as a financial analyst since he was assigned.
(2) Performance and work behavior
A’s annual evaluation during fiscal year 2015 (final evaluation) was in theupper level. His evaluation such as work behavior was generally high, and8nothing suggests the possibility of any violation of laws and regulations or
violation of internal rules
7. Status of training for prevention of insider trading at Nikko Securities(1) Status of training for prevention of insider trading
At Nikko Securities, Officers and Employees are given repetitive andcontinuing trainings related to appropriate management of Corporate
Information and prevention of insider trading etc., and are thereby made to beaware of their social responsibility as the market intermediary, and are strictly
informed of compliance with laws and regulations and rules, and internal rules.
The said trainings were conducted 11 times in total, from April 1, 2015 throughMarch 24, 2017, during which period A was an employee, and A has attended
all of them.
(2) Status of the training for A and submission of a written pledge
A attended all trainings, and submitted a written pledge to Nikko Securities.
8. Whether if there was an organized involvement or Similar Conducts by Officers andEmployees other than A(1) Whether if there was any trading of company Y’s shares by person related to
Nikko Securities in connection with the fact of Purchase.
The Committee carefully studied records of emails sent and received in andout of the company, PC operation logs, printing logs, entry and exit logs etc.
and investigated whether there was any breach of information, with respect topeople related to the TOB project in July 2016, but was not able to identify any
facts that suggest operational involvement of Nikko Securities in the matter atissue, or communication related to the trading of company Y’s stocks by
Officers and Employees other than A.
(2) Result of the survey and whistleblower hotline regarding Similar Conducts
In order to investigate if there was any organized involvement by Nikko
Securities, of if there were Similar Cases by other Officers and Employees, theCommittee (i) conducted an investigation using a smart survey to all Officers
and Employees, (ii) established a whistleblower hotline and widely solicited
information from all Officers and Employees.
A. Survey
With respect to questions regarding the possibility of receiving treatments
such as termination or dismissal etc. when intentionally breaching
9

Corporate Information to third parties, all 10,359 people who responded,
except 479 employees who were on leave or on secondment etc.,(response rate – 95.58%) answered that they understood there was a
possibility.
Also, with respect to a question which asked if he/she knew of a casewhere a possibility of a violation of laws and regulations etc. wassuspected, 22 people answered positively. Accordingly, an interview was
conducted on these people, but other than those cases that were alreadyknown, they were only past rumors and personal impressions, and no facts
that suggested Nikko Securities’ organized involvement or Similar Cases
were confirmed.
B. Solicitation of information using a whistleblower hotline
No information related to a Similar Case was reported to thewhistleblower hotline that the Committee established which directly
connected to the Committee. There was also no report to thewhistleblower hotline established within the company during thisInvestigation.
9. The contents of the prevention system set up based on the improvement report related
to the past insider facts.
In August 2012, Nikko Securities established the following items of recurrence
prevention plan, upon receiving an internal investigation report regarding a former
executive officer seconded from a bank who was arrested for engaging in an insider
trading:(1) A thorough awareness of legal compliance including management ofCorporate Information to Officers and Employees who does not haveexperience of securities operation.
(2) Clarification of the procedure of engaging officers who are laterally hired(including secondment) as executive officer or level above that
(3) Action management for officers(4) Sharing of negative information related to people seconded(5) Reinforcement of further awareness on insider trading prevention
III.

Analysis of the cause regarding Information Acquisition and communication of
information

101. Characteristics of this case
The characteristics of this case is that (i) an employee who was not a project
member of the said department was able to acquire the Corporate Information, (ii)that he acquired a non-public project information, by actively searching based on
fragmented information that was shared within the department, with the intent to
conduct an unfair trade, and (iii) it was a conduct by a new employee who only
worked for about 1 year and 3 months after being hired as a newly graduated.
2. Analysis and review of the cause(1) Review of the internal administration system
A. We can evaluate that Nikko Securities has implemented a management
system of Corporate Information to a certain extent, and that its
monitoring through its monitoring system is well developed. It is also
gradually reinforcing its management system by learning lessons from its
past incident.
However, based on the fact that A has proactively searched and acquired
Corporate Information with a malicious intent, a more thoroughinformation management between employees who were in charge of the
project and others within the same department should have been
implemented.
B. With respect to Corporate Information, certain information management
such as not using individual company names and using project names andcode names instead for projects and related companies were in place. Also,
they handled matters by using meeting rooms as much as possible, andwere not speaking individual company names during discussions within
the department or over calls, but was possibly not thorough enough in avery limited part.
(2) Review of A’s hiring and assignment
At the time of hiring of A, Nikko Securities evaluated through multiple
interviews by different interviewer, and conducted qualification test including
those that measured the awareness of compliance, however, he was hired bygenerally achieving high evaluation. Also, A’s malicious intent could not be
detected through the contents of A’s subsequent evaluations etc. Additionally,
it cannot be said that assigning A to the Investment Banking department was
unreasonable. That being said, however, a newly hired is not necessarily
equipped with the strict professional ethical awareness required for an11

employee of a securities company, no matter how good a school grade he/she
may have. Professional ethical awareness must be given priority over work
capacity at the time of hiring, and ethical awareness must further be nourishedby deepening the ethical training after hiring.
(3) Review of the understanding of working status
A’s working status was highly evaluated in general, and no suspicious conductthat could predict Information Breach etc. was identified. However, logs of anumber of access to folders not necessary for the operation and internet
searches were identified during this Investigation. Also, during the desk checkby the internal administrator, issues such as A’s failure to lock his desk drawer
and untidy desk were identified and suggested. The level of employee’s
awareness towards information management can be understood to a certain
extent by closely looking at such employee’s daily job behavior.
(4) Review of education and training to A
Beginning with the newly hired training in April 2015, A participated in the
trainings related to insider trading rules, Corporate Information management,
professional ethics etc., took confirmation test regarding his knowledge oflaws and regulations and internal rules, and the strict penalty that will be
imposed when an involvement in an insider trading has been discovered.
However, if it were to be discussed on the premises that there are employeeswith malicious intent, it should have also been further emphasized that insider
trading is a crime that would inevitably leave traces no matter how it wasconcealed, and would easily be discovered and be arrested by the investigation
authorities, and that engaging in violation of insider trading rules etc. would
result in strict criminal penalty and other liabilities.
(5) Review of the fact that this case could not have been prevented even with theinsider prevention system based on the past incident
Nikko Securities implemented a recurrence prevention plan after the incident
where a former executive officer was engaged in insider trading in August
2012. On the other hand, in this case, an employee who was not in charge,
actively searched, acquired and communicated the Corporate Information,with malicious intent, by finding a gap in the Corporate Information
management system within the department, and therefore, this case is different
from the past case in terms of his position, background, and how the
information was acquired, accordingly, it was inevitable that the recurrence
prevention plan at the time was not useful.
12

IV.

Proposal of an improvement plan
As discussed above, based on the fact that this was a crime by an employee who
searched Corporate Information that was out of the scope of his task, with the intent
to conduct unfair trading, it is inevitable that a more thorough improvement plan be
implemented, based on the premises that there could possibly be Officers andEmployees with malicious intent in the company. And not only amending internal
rules or developing new tools, but also the top management must lead and show his
determination towards never having another wrongdoer, give a thorough instruction,and thereby aim to establish a professional ethics of the Officers and Employees,

more than anything. Trust from the market will not be gained without that. The
following is a proposal of the improvement plan, based on the investigation.
1. Re-implementation of a thorough management principle and legal compliance,
professional moral(1) Re-implementation of a thorough management principle etc.
The top management should thoroughly reimplement that actions based on
management principle and establishment of professional ethics are the mostimportant, and repeat communications between employees including young
employees and the management team on a company-wide basis, and establish
professional ethics and professionalism into the corporate culture.
(2) Reconfirm the importance of giving instructions to employees
Reconfirm the importance of officers, general managers and managers giving
not only instructions related to daily operation but also instructions related toawareness and behavior outside of the daily operation, to the extent of control
during daily operation, to their respective subordinates.
2. Reinforcement of HR management and training(1) Further reinforcement of hiring method and thorough implementation of
assignment operation
With respect to hiring, professional ethics etc. must be given priority over
operational capacity, and the method of confirming professional ethics
awareness must be further enhanced. Also, with respect to those hired at the
department in charge of M&A advisory service, the training menu related to“establishment of legal compliance and professional moral” at the time of
newly hired training must be deepened, and thereby establish professional
ethics awareness.
13

(2) Reinforcement of training related to prevention of insider trading
With respect to training related to prevention of insider trading, further
enhance awareness in regard to the following items.
A. Under the rules of employment, involvement in insider trading activities
are subject to punitive dismissal, and is also subject to damage claim of
all the damages incurred by the company. Further, there will be strict
penalties, such as criminal penalty, charges, effect on the family andcriticism from the society.
B. Officers and Employees should not communicate Corporate information,and should not attempt to acquire information, without an operationallyjustifiable cause. Avoiding unnecessarily communicating or acquiring
information will not only protect the company but also result in protecting
the Officers and Employees and their family etc.
C. Insider trading is strictly monitored by the Securities and Exchange
Surveillance Commission, self-regulatory-bodies, and securities
companies etc., and will inevitably be discovered.
(3) Changing the frequency of requiring submission of written pledge
Increase the frequency of submitting the “written pledge” related to preventionof insider trading, which is currently taking place once a year, and thereby
enhance awareness.
3. Further enhancement of information management system(1) Thorough implementation of project information management andenhancement of monitoring
With respect to the so called non-public confidential information, such as TOB
project information before public disclosure etc., limit to Officers andEmployees involved in the said project, further enhance thoroughness of theso called project information management and also periodic monitoring of thestorage of project management materials and access restrictions andverification of access logs etc., as necessary.
(2) Enhancement of equipment for project information management
For the purpose of further enhancing project information management,enhancement of equipment such as increase of individual rooms that can beused for meetings, replacing printers (prevent leaving printouts unattended bycontrolling printing), enhancement of instruments such as placing privacy
filters on pc screens, and installing monitor cameras as necessary, for the14

purpose of managing confidential information.
(3) Verification of the implementation status and effect of the improvement plan
With respect to the aforementioned improvement plan, for the purpose ofverifying the implementation status and its effect, implement voluntary
inspection at each relevant department and strictly verify this by compliancedepartment at certain frequency. Additionally, verify the effectiveness of thevoluntary inspection system by the audit department, including verification by
the compliance department.
END

15

Our Improvement Measures
1.

Improvement measures based on the incident(1) Re-enforcement of the management philosophy, establishment of professional ethics andemployee guidance.
I.

Re-enforcement of the management philosophy, etc. (scheduled for January 2019 andonward)i)

The top management will prompt all executives and employees that the most important
thing is to take action based on the management philosophy and establish professional
ethics.

ii)

By repeatedly communicating between employees, including junior staff, and the
management, our company aims to establish professional ethics and professionalism in
its corporate culture, based on the common sense of values that "To fulfill a role assound financial intermediary in order to contribute to the development of both capital
markets and our society" as stated in the management philosophy.

iii) As part of the above measures, we continuously share the view that action based on the
management philosophy and establishment of professional ethics are the mostimportant management issues in town hall meetings held regularly. This is aimed at
improving the sense of unity throughout the company through two-way communication
between the employees and the management.
II.

Reconfirming the importance of employee guidance (scheduled for January 2019)
Executives, general managers, and managers shall reaffirm the importance of providing
guidance to their subordinates not only in their daily work, but also their attitudes toward
daily living apart from daily work, etc.

(2) Strengthening personnel management and training, etc.
I.

Further expansion of recruitment and assignment processes, etc. (scheduled for April 2019)
With regard to employment, our company will place priority on the sense of professional
ethics, etc., rather than ability to perform work, and will further enhance the process ofconfirming the sense of professional ethics, etc. In addition, with regard to recruits of new
graduate for the Wholesale Business Unit, the training program on "Compliance with Laws
and Regulations and Establishment of Professional Ethics" will be expanded in the training
for new employment thus they will be assigned after a certain period of training (3 ~ 4months).

II.

Strengthen training on the prevention of insider trading (scheduled for January 2019 andonward)The content of the training which focuses on the prevention of insider trading, which
includes the sense of professional ethics, will be reviewed, and in particular, the following
items will be made more aware.
i)

Our company’s rules of employment stipulate not only disciplinary dismissal but also
full compensation for damages suffered by our company caused by insider trading andinvolvement.

ii)

Violators are not only subject to disciplinary dismissal and full compensation fordamages caused but also subject to severe punishment including criminal penalty,
surcharges, negative impacts on the family and public criticism.

iii) All executives and employees are prohibited from conveying material non-public
information to any irrelevant parties without a legitimate business need. Furthermore,
all executives and employees shall not attempt to acquire material non-public
information without a legitimate business need. The act of not providing and/or not
obtaining unnecessary information will protect employees, the company, and thefamilies and friends.
iv) Insider trading is strictly monitored by the Security and Exchange SurveillanceCommission, self-regulatory organizations and other securities firms etc. hence will be
exposed.
III. Change in frequency of requesting a written oath (scheduled for April 2019)
We request a written oath regarding insider trading annually now, but we will request it
semiannually.

(3) Further strengthening of information control system
I.

Strengthening of monitoring on project information control system (scheduled for January2019).
With regards to “Securing of undisclosed confidential information within related executives
and employees” in M&A advisory services’ project information control, in addition tofurther enhancement of project information management, storage of project management
materials, and access restrictions will be monitored periodically in addition to verification ofaccess logs when necessary.

II.

Facility expansion for project information control (scheduled for January 2019 and onward)
For the purpose of further enhancement for project information control in M&A advisory
services, we intend to replace printers to prevent printed confidential information left out,2

expand and reinforce facilities of conference rooms, and implement privacy filters tocomputer screens, as well as installing surveillance cameras as necessary.
III. Self-check for project information control(scheduled for April 2019)
In order to verify the status of implementation and the effectiveness of the above
improvement measures regarding project information control, departments in charge of
M&A advisory services will conduct self-check. In the meantime, the Compliance Unit willconduct strict and periodic reviews of the self-check for verification. The Audit Unit willthen review the verification done by the Compliance Unit and verify the effectiveness of theself-check.

2.

Description of the self-disciplinary actions

Chairman of the Board

Tetsuya Kubo

Reduction of executive pay by 20%

2 months

President & CEO

Yoshihiko Shimizu

Reduction of executive pay by 20%

2 months

Other 2 executives

Reduction of executive pay by 5~10% 2 monthsEnd3