Nomura Holdings, Japan's largest brokerage, said the country's securities watchdog was investigating an employee on suspicion of insider trading, that a newspaper reported involved leaking details of merger deals.
Nomura stock fell nearly 4 percent to 1,640 yen after the investigation was revealed, underperforming a weak financial sector.
A Nomura employee and two others are suspected of making around 40 million yen ($387,600) in profit from trading on insider information, the Nikkei business daily reported, quoting sources familiar with the matter.
A spokesman at Nomura Holdings declined to give further details, while a spokesman at the regulator, the Securities and Exchange Surveillance Commission, also declined to comment.
Chief Cabinet Secretary Nobutaka Machimura said he was unaware of details of the investigation but said the news was regrettable.
"There were many brokerage-related scandals in the past and the situation improved after the Securities and Exchange Surveillance Commission was formed, but when there is a case like this, confidence of the entire brokerage sector is hurt," he told a news conference.
The commission will investigate how the employee obtained the information used in the insider trading and examine the sufficiency of Nomura Securities' internal management structure, the Nikkei said.
The employee, a Chinese national who had been employed at Nomura Securities' corporate information division, leaked information about merger and acquisition deals and tender offers to two Chinese acquaintances, the Nikkei said.
The employee was now working at a Nomura group company in Hong Kong, it said.
The three allegedly used internal information about M&A deals and bids handled by Nomura Securities to trade shares of two listed companies in 2006 and 2007, the Nikkei said.