August 7, 2012
SMBC Nikko Securities Inc.

Improvement and Enhancement Measures on Control Systems over Undisclosed
Corporate Information

SMBC Nikko Securities Inc. (hereafter, “Nikko”) submitted a report with respect to management
and control of undisclosed corporate information (hereafter, “Corporate Information”) to
Financial Services Agency (hereafter, “FSA”), in accordance with Order for Submission ofReport (hereafter, “Order”) on July 3, 2012.
In accordance with the Business Improvement Order from FSA on April 20, 2012, we drafted
the Business Improvement Plan as improvement and enhancement measures over systems inplace to control and manage Corporate Information, and submitted the Plan to FSA on May 18.
Upon receiving the Order, we reviewed our control systems over Corporate Information andestablished further improvement and enhancement measures. We will establish even stronger
internal control systems through the steady implementation of these improvement andenhancement measures based on our public role of securities company, and Nikko will do ourbest to recover the confidence of customers and other interested parties.
Outline of our control systems over Corporate Information and further improvement andenhancement measures are as described below.

1. Outline of control systems over Corporate Information
Through establishing the “Regulations for Prevention of Insider Trading ” (hereafter,“Regulation”) and a Securities Trading Supervisory Operation Division as a supervisorydivision to control handling of Corporate Information, we enhance prevention of fraudulent
trading which uses Corporate Information and insider trading by establishing definition ofCorporate Information, reporting, handling of information, restriction on information transfer,prohibited acts, control systems over securities transactions.
This material is an English translation of Japanese announcement made on August 7, 2012. Although the company
intended to faithfully translate the Japanese document into English, the accuracy and correctness of this translation
are not guaranteed and thus you are encouraged to refer to the original Japanese document.

We have implemented strict controls over Corporate Information under the Regulation byclarifying Units closely related to corporations which may obtain Corporate Information in thecourse of business (named as “Private Side” and other units named as “Public Side”),
restricting information flow by establishing organizational/physical wall (Chinese Wall) inorder not to transmit information to Public Side unintentionally from the Private Side. Statusof control has been monitored by the Compliance Unit and audited by the Internal Audit Unit.
In addition, in February 2012, we have established a “Task Force to Enhance Management ofCorporate Information” (hereafter, “Task Force”), a subordinate body to the Compliance
Committee which serves an advisory function to the Board of Directors and appointed
Internal Administration Supervisor as Chairman of the Task Force. The Task Force discusses
the rules and regulations concerning Corporate Information, reviews case studies of peer
companies, social situation, level of control systems over Corporate Information, andconducts monitoring of the effectiveness of the measures regarding control systems over
Corporate Information and implementation of necessary enhancement measures.
2. Outline of further improvement and enhancement measures(1) Enhance further awareness to prevent insider tradingA) Clarification of our policy to claim damages caused by employees who are found to
be involved in insider trading. (Scheduled from August 2012)
To make all executives and employees thoroughly aware of importance of compliance,
we amend internal rules and clarify our policy that we shall claim damages caused byexecutives and employees who are found to be involved in insider trading with specificexamples. We also explain simply and make executives and employees aware that, if
they are involved in insider trading, they will be (a) exposed, (b) dismissed, and (c)charged with compensation for damages. We enhance their awareness of importanceof compliance by the process above.
B) Clarification of Prohibition of trying to obtain unnecessary Corporate Information.
(Scheduled from August 2012)
We amend internal rules and clarify our policy that we prohibit executives andThis material is an English translation of Japanese announcement made on August 7, 2012. Although the company
intended to faithfully translate the Japanese document into English, the accuracy and correctness of this translation
are not guaranteed and thus you are encouraged to refer to the original Japanese document.

2employees from trying to obtain Corporate Information which is unnecessary totheir business. We also state clearly on the internal rules that executives andemployees should immediately report to internal control managers, etc. when theyare asked to provide Corporate Information or other information which is closely
connected with Corporate Information by a person inside or outside of the company.
Compliance unit check the situation based on the report and, if necessary, deal it
appropriately by making them stop providing information, refuse businesses, etc.
(2) Making executives and employees who have no experience in the securities businessthoroughly aware of the importance of compliance including control over undisclosed
corporate information (“Corporate Information”).
A) Prohibition in principle of the appointment of a person who has no experience inthe securities business to an executive director or an executive officer of a unit
which obtains and handles Corporate Information (“Private Side”).

(Scheduledfrom September 2012)
We will not directly appoint, as a general rule, a person who has no experience inthe securities business to an executive director or an executive officer of a unit of
the Private Side * directly from outside Nikko. We will first appoint such person to aunit which does not obtain and handle Corporate Information for a period of at least
three months, in order to make them familiar with information management rules
which are unique to securities companies. Meanwhile, people who are considered
to have adequate knowledge and are mindful of compliance requirements toperform business of securities company, such as people who have experience ofsecurities business, are excluded from this rule.
* Executive Directors and Executive Officers under the control of Capital Markets
Unit (including the Head, same hereafter), Corporate Business & Investment
Banking Unit, Financial & Public Sector Business Unit, Institutional Business Unit,
Representative Managing Director of Osaka, and Representative Managing
Director of Nagoya.
B) Enhancement of follow-up trainings for mid-career executives and employees.
(Scheduled from September 2012)

This material is an English translation of Japanese announcement made on August 7, 2012. Although the company
intended to faithfully translate the Japanese document into English, the accuracy and correctness of this translation
are not guaranteed and thus you are encouraged to refer to the original Japanese document.

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We will provide mid-career executives and employees with follow-up trainings for thethorough awareness of importance of compliance, including the control of Corporate
Information which is unique to securities companies on a continuous basis in addition
to enhancement of initial trainings.
(3) Adding recording function to mobile phones provided by the company (Scheduled dateis under consideration)
To enhance monitoring function, we are planning to add recording functions to mobilephones provided by the company to executives and employees in sales unit of PublicSide. At the same time, we thoroughly make executives and employees aware againthat using private mobile phones for business purpose is strictly prohibited.
(4) Monitoring over executives (executive directors and executive officers) by internal audit
division (Scheduled from September 2012)
Currently, Statutory Auditors audit executive directors and executive officers byinterviewing them, checking their major corporate decisions and use of social
expenses and receiving from executives the confirmation letters with respect to theappropriateness of business execution, etc. In addition, we expand the scope ofinternal audit to executive directors and executive officers and internal audit division
will conduct audit over executive directors and executive officers with respect to themanagement of Corporate Information and other aspects.

Reference: Outline of the improvement and enhancement measures as specified in Business
Improvement Plan
(1) Improvement and enhancement measures on establishment and application of rules
and regulationsA) Increase the punishment for violations of laws and regulations and internal ruleswith respect to handling of Corporate Information.
B) Enhance the procedures on transmission of Corporate Information.
C) Distribution of portable reference manuals regarding the handling of Corporate
Information to all the management and employees.
(2) To make the management and employees thoroughly aware of importance ofThis material is an English translation of Japanese announcement made on August 7, 2012. Although the company
intended to faithfully translate the Japanese document into English, the accuracy and correctness of this translation
are not guaranteed and thus you are encouraged to refer to the original Japanese document.

4compliance including handling of Corporate InformationA) Provide intensive trainings to all the management and employees.
B) Continue providing effective trainings regarding Corporate Information control to all
the management and employees.
(3) Improvement and enhancement measures on early detection of irregular activities
Make the management and employees thoroughly aware of significance ofreportingirregular activities and whistle-blowing(4) Improvement and enhancement measures on monitoring system
Enhance monitoring over internal emails and meetings.
(5) Internal audit over implementation status of the improvement and enhancement
measuresAttachment:
List of Improvement and Enhancement Measures on Control Systems over Corporate
Information###This material is an English translation of Japanese announcement made on August 7, 2012. Although the company
intended to faithfully translate the Japanese document into English, the accuracy and correctness of this translation
are not guaranteed and thus you are encouraged to refer to the original Japanese document.

5List of Improvement and Enhancement Measures on Control Systems over Corporate Information
SubjectControl systems over Corporate Information

Rules & Regulations

Concern/Problems

Further Enhancement & Improvement Plan・Enhance control systems overCorporate Information

・Continuous efforts which have been already made such as Task Force*A subordinate body to the Compliance Committee which serves an advisory
function to the Board of Directors in order to cousult about control of Corporate
Information periodically.

・Enhance further awareness andunderstanding of the importance oflaws, regulations and internal rules

・Prepare the portable reference manuals regarding the handling of Corporate
Information which is easy to understand.
（Distribute to all executives and employees and up-load on the internal web-site）

Achievement

To beconducted byAugust 2012

・Enhance further awareness of the ・Clarify internal rules to claim damages caused by employees who areimportance of prevention offound to be involved in insider trading, and make executives and employees
insider trading
thoroughly aware of it.

Report (Registration)
Rules &Regulations
Management
Restriction on Information
Transfer（OTW, “Over The Wall”, etc.）

・Reinforce strict information
segregation between corporate
related unit (Private Side) and noncorporate related unit (Public Side).

・Make continuous efforts to segregate information (between Private Side andPublic Side) regarding offices, documents, electric files and others.

・Enhance control and restraint over ・Release new system to handle all the deals on individual basis.
Corporate Information by handling all
the deals on each staff’s individualb i strict OTW application*
・Amendment of OTW application for Public Side has ensured that information has・Morebeen placed under individual management instead of formerly practiced divisional
required to Public Side.
management, and timing of information transfer, transmission route, as well as・More strict application of Need-torange of transmission has been clarified. Whenever rules change, all executives
Know principles for Private Side.
*Procedures to transfer information to and employees will be notified appropriately.
the third parties other than Private
・Present p
practical examples
pof Need-to-Know p
principles
pfor Private Side to ensureSideSide.
all executives and employees thoroughly understand it.

・Continue prohibition of inappropriate ・Dissemination of continuous reminders to prohibit inappropriate solicitation.
Control over sales promotion
activities and preventive measures to solicitation.
avoid inappropriate solicitation.

Punitive measures

・Clarify punitive measures against
・Revise Employee Handbook to clarify punitive measures which may include
insider trading, tip-off of information termination of employment if executives or employees were engaged in insider
leading to insider trading and violation trading, tip-off of information leading to insider trading, and intentional violation ofof Chinese Wall regulations.
Chinese Wall regulations.
・Collect pledge letters from all executives and employees.
（Letters will be continuously collected annually.）・Improve effectiveness of trainings
regarding control of Corporate
Information.

・Provide intensive trainings to all executives and employees.

To beconducted byAugust 2012

Training & Education

・Improve awareness of theimportance of complianceincluding controlling Corporate
Information for executives andemployees, who have nosecurities business experiences.

To be conductedby August 2012○

To be completed by December 2012

○○○

○

○
○

・Provide interactive training for all executives and employees annually (In addition
to annual CLS training, provide annual interactive training, and ensure thatparticipants are aware if they belong to Public Side or Private Side.)・Improve effectiveness of training relating to Corporate Information.
（Make training more sophisticated by explaining substance of fraudulent tradingand presenting specific examples）
・Prohibit us from directly appointing employees who have no securities
business experiences as executives (Executive Directors and ExecutiveOfficers) in charge of corporate related unit.

・Provide follow-up trainings on a continuous basis for mid-career
executives and employees in addition to trainings for new hires.

SMBC Nikko Securities Inc.
FY 2013
Jan to Mar
Apr to Jun○（Completed）

・Clarify Regulation to prohibit trying to obtain unnecessary Corporate
Information.

Establishment of Chinese Wall

Jul to Sep

FY 2012
Oct to Dec

To be conducted by March 2013

To be completed by March 2013
（To be practiced in a phased way）

To beconducted bySeptember
2012

To be conductedby September
2012

1Subject

Concern/Problems

・Enhance system to detect irregular
activities regarding Corporate
Information in the early state
Early detection of irregular activities (including whistle blowing

Chinese WallControl over sales promotion activities andpreventive measures to avoid inappropriate
solicitation.
Monitoring by Management・Make all executives and employees understand the importance of whistle
blowing system, and significance of informing or consulting with managers,Supervisors Internal Control, head office or Nikko Alarm* whenever they becomeaware of possible irregular activities regarding handling of Corporate Information.
* Contact window for whistle-blowing.
.

○・Continue checking on handling of Corporate Information.

・Expand scope of monitoring bySecurities Trading Supervisory
Operation Division.

・ Upon completing installation of new ＣＲＭ*, monitoring by Securities Trading
Supervisory Operation Division will cover all sales unit (The system will be
installed at each division in a phased way. Investment Banking Unit alreadyinstalled the system in June 2012.)*New Client Relationship Management system of corporate unit.
.

・Enhance Monitoring over internal
meetings by Securities Trading
Supervisory Operation Division.
・Enhance inspection over internal
meeting materials at each division.

・ Start monitoring internal e-mails by keyword search.

Restriction on Information Transfer

Fraudulent Trading

Achievement

・Continue checking on handling ofCorporate Information.

Report (Registration )Monitoring

Further Enhancement & Improvement Plan

Jul to Sep

FY 2012
Oct to Dec

Jan to Mar

FY 2013
Apr to Jun○

To be completed by November
2012(in a phased way)

○・Securities Trading Supervisory Operation Division will attend meetings whereplans for product sales are discussed (Meetings where Corporate Information may
be unintentionally disclosed)
・Verify inspection system for internal meeting materials at the time of self-audit,
and perform sample checking at self-audit.

・Necessity of monitoring
conversation over mobile phone
provided by company.

・Add recording function to mobile phones provided by company in sales
unit of Public Side.
(Thoroughly make executives and employees understand that it isprohibited from usingpg private
pmobile phones
pfor business purposes.)p p)

・Continue inspection for fraudulent
trading・Continue inspection for trading of the stocks registered as Corporation
Information related shares by customers registered as internal person or ouremployees.

○○

Drawing actual plan○

・Enhance monitoring over trading unit ・Enhance monitoring over trading unit by appointing full-time officer in charge ofmonitoring.

○・Continue monitoring bymanagement

・Continue monitoring by Task Force.

○・Enhancement review overexecutives by internal audit

・Internal Audit Unit will audit executives (Executive Directors and ExecutiveOfficers).

Internal Audit
・Confirmation of implementation
・Examination on implementation status of the improvement measures.
status of the improvement measures.

To be conductedby September
2012

To be completed by March 2013.

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