On July 23, 2018, the Securities and Exchange Commission announced that the SEC charged Mizuho Securities USA LLC for its failure to safeguard information pertaining to stock buybacks by its issuer customers.  Mizuho, according to the SEC, failed to maintain and enforce policies and procedures aimed at preventing the misuse of material nonpublic information, including maintaining effective information barriers between different trading desks and requiring employees to keep client information confidential.  Mizuho agreed to settle the charges and will pay a $1.25 million penalty.

According to the SEC’s order, during a two-year period, Mizuho traders regularly disclosed material nonpublic customer buyback information to other traders and Mizuho’s hedge fund clients.  That information included the identity of the party placing the order, the order size, limit price, and indications that the orders were buyback orders. Such information was routinely communicated across trading desks, notwithstanding that during the relevant period Mizuho executed over 99.8% of all buyback orders by using algorithms, rather than through trader-negotiated open market trades.

The SEC’s order, among other things, stated:

As a result of these failures, during the Relevant Period, Mizuho’s execution and sales traders received confidential issuer buyback trade information on nearly every day that Mizuho executed buyback trades. Moreover, the head execution trader on Mizuho’s U.S. Equity Trading Desk was given direct access to Mizuho’s International Trading Desk’s order management system, which included buyback purchase trade orders, and he also routinely disseminated such information to traders on his desk.

In addition, on several occasions, Mizuho execution and sales traders disclosed to certain firm customers nonpublic customer buyback order information. 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. This trade information was valuable to other market participants, particularly given that the party placing the trade was the issuer. Moreover, many of the issuer buyback orders that Mizuho handled during the Relevant Period comprised a significant portion of the daily trading volume in the stocks being bought back, which increased the potential impact of the buyback orders on the prices of those stocks.

“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,” said Antonia Chion, Associate Director of the SEC Division of Enforcement.  “Broker-dealers must be attentive to their responsibilities to maintain and enforce policies and procedures to prevent the misuse of such information.”

The SEC’s order finds that Mizuho willfully violated Section 15(g) of the Securities Exchange Act of 1934.  Without admitting or denying the SEC’s findings, Mizuho consented to the order imposing a $1.25 million penalty, a censure, and ordering it to cease and desist from committing or causing any future violations.

Source: SEC.gov

Kehoe Law Firm, P.C.