TOKYO (Reuters) - Kenichi Watanabe was re-elected as CEO of Nomura Holdings (>> Nomura Holdings Inc.) on Wednesday, but faced a series of tough questions from shareholders about the Japanese broker's slumping share price and his handling of a protracted insider trading probe.

The 59-year old bowed in apology at the annual shareholders' meeting in central Tokyo's Hotel Okura and vowed to shore up compliance in the wake of the third insider trading scandal to rattle the broker since he took the helm in April 2008.

"We have caused worry and trouble, and for that I would like to humbly apologize," Watanabe said in his first public appearance since the first of three insider trading cases linked to Japan's largest investment bank was announced in late March.

Watanabe said he would publish an internal investigation into the matter by the end of the month. That report will be followed by a penalty from the regulator ranging from an order to improve compliance to a more damaging suspension of some operations for weeks, sources with knowledge of the situation have said.

Shareholders voiced their discontent on a range of issues - from a near-30 percent drop in the stock price over the past year to progress on Nomura's overseas expansion following its purchase of Lehman Brothers' Asian and European operations in 2008.

Some of the harshest criticism was reserved for management's handling of the insider trading scandal, which has dragged on for months as the broker struggles to come to a consensus with the regulator on how widespread the problems were.

One shareholder drew applause from a packed banquet hall when he said management's stated emphasis on compliance "rang hollow", adding that not completing the internal investigation in time for Wednesday's meeting was an "underhanded" move.

A second shareholder took aim at the broker's sales tactics, which have come under scrutiny. One salesman, for instance, entertained a client 39 times over nine months and showered him with expensive gifts, according to a report commissioned by an asset management firm implicated in the probe.

"The quality of the Nomura salesman is in decline. What happened to the pride of being No.1?," the shareholder said, triggering more applause.

Shareholders voted in all 13 directors on the slate, including board chairman Nobuyuki Koga, who along with Watanabe had been opposed by proxy advisory firm Institutional Shareholder Services, which argued the two leaders should take responsibility for the insider trading scandal.

The voting percentages will not be available until Thursday, Nomura said.

Earlier this month, Nomura confirmed regulators' findings in admitting it was the source of leaks on planned share offerings by energy firm Inpex (>> INPEX Corp), Mizuho Financial Group (>> Mizuho Financial Gr.) and Tokyo Electric Power (>> Tokyo Elec. Power). In all three cases, employees at its institutional sales department tipped off clients who profited by selling the shares short ahead of the offering and then buying them back at a lower price.

BETTER ETHICS

Watanabe said he would make improving professional ethics awareness one of three key focus areas of the firm's strategy - along with expanding in Asia and bolstering cooperation between operations in Europe, the United States and Japan.

In a regulatory filing, Nomura said Watanabe was paid 128 million yen ($1.6 million) in the business year to end-March, including stock options. Takumi Shiabata, the company's chief operating officer, received 113 million yen.

Early in the meeting, Watanabe offered the floor to the unnamed shareholder who had managed to place 18 mostly frivolous proposals on the AGM docket - including a call for Nomura to switch its toilets to squat-down Japanese style units to improve staff physique and discipline, and ultimately boost the stock price. The shareholder did not respond, and the proposals were dismissed.

Nomura shares closed up 2.2 percent, outperforming a 0.8 percent gain on the benchmark Nikkei average <.N225>. Nomura has lost nearly half its market value since Watanabe took the helm, roughly in line with the performance of global rivals Morgan Stanley (>> Morgan Stanley) and Goldman Sachs (>> Goldman Sachs Group, Inc.).

(Reporting by Emi Emoto and Nathan Layne; Editing by Chang-Ran Kim and Ian Geoghegan)

By Emi Emoto and Nathan Layne