Nomura Securities International, Inc. (Nomura) has once again failed to keep its records of capital calculations accurate, and been handed a fine by FINRA.
Beginning in June 2019, the firm started engaging in reverse repurchase agreements (reverse repos) with its corporate affiliate Nomura Securities Corporation (NSC) as allowable assets.
Nomura inaccurately calculated its net capital by misclassifying 5,657 reverse repos, and overstated its daily net capital calculations from June 2019 to March 2021 in amounts ranging from approximately $183,000 to $1.95bn.
Because of the inflated tentative net capital calculations, the firm also inaccurately calculated its Customer Reserve Formula by failing to take required concentration charges on three occasions in the amounts of $151,903,500, $458,218,957, and $460,589,242.
Additionally, Nomura also failed to establish and maintain supervisory systems and procedures, including written supervisory procedures (WSPs), to ensure the accuracy of its net capital calculations.
Faulty FOCUS Reports
In total, FINRA found that Nomura:
- failed to accurately calculate its net capital;
- failed to accurately calculate its Customer Reserve Formula;
- filed 21 inaccurate FOCUS Reports; and
- failed to maintain accurate books and records.
The total failures violated Exchange Act Section 15(c), Exchange Act Rule 15c3- 1, Exchange Act Rule 15c3-3, Exchange Act § l7(a), Exchange Act Rule 17a-3, Exchange Act Rule l7a-5, and FINRA Rules 4511, 3110(a) and 2010.
Nomura has accepted and consented to the FINRA findings, and without admitting or denying them agreed to a censure and a $125,000 fine.
Since the end of March 2021, Nomura has canceled its reverse repos with NSC, and adopted WSPs that requires the firm to “review a report that includes a list of custodians for the securities used in its reverse repos and to deduct from its net capital calculations the market value of reverse repos custodied away from the firm”.
$875,000 fine in 2018
This is not the first time Nomura has failed to maintain accurate books and records. In August 2018, the firm also consented to a censure and a fine of $875,000 based on findings that violated Exchange Act Rule 15c3-3 and FINRA Rules 2010, 3110 and 4511.
Then, Nomura inaccurately calculated its Proprietary Account of Broker-Dealers (PAB) reserve computation from March 2014 through February 2015, which resulted in shortfalls in the firm’s PAB reserve account. The firm also failed to establish, maintain, and enforce a supervisory system reasonably designed to ensure it properly calculated its PAB reserve computation.
FINRA Rule 3110(a)
The rule requires each FINRA member to establish and maintain a system, including written procedures, reasonably designed to supervise the activities of its associated persons and to achieve compliance with applicable securities laws and regulations and applicable FINRA Rules.
FINRA Rule 4511 & Exchange Act Rule 17a-3(a)(l l)
The rule requires FINRA members to make and preserve books and records in conformity with Exchange Act 17(a) and Exchange Act Rule 17a-3.
Exchange Act Rule 17a-3(a)(l l) requires broker-dealers to make and keep current, among other things, “[a] record of the proof of money balances of all ledger accounts in the form of trial balances and a record of the computation of aggregate indebtedness and net capital, as of the trial balance date”. Implicit in the record keeping requirement is that a firm’s books and records be accurate.
