TOKYO (Reuters) - Japan's leading brokerage Nomura Securities <8604.T> has been dropped as an underwriter for planned bond offerings by the Development Bank of Japan because of its involvement in insider trading scandals.

It is the latest sign that an investigation by Japan's Securities and Exchange Surveillance Commission (SESC) into insider trading is hitting Nomura's business, and is likely to increase the pressure on the broker's CEO Kenichi Watanabe to move quickly to take action to limit further damage.

The state-backed Development Bank of Japan (DBJ) said it removed Nomura, but retained Daiwa Securities <8601.T>, which on Monday was dropped by Kawasaki Heavy Industries Ltd <7012.T> as underwriter for a bond issue. Daiwa, the country's second-ranked broker was found by regulators to have leaked inside information ahead of a share offering it underwrote two years ago.

Nomura has admitted it was the source of leaks - from its institutional sales department - on planned share offerings in 2010 by energy firm Inpex <1605.T>, Mizuho Financial Group <8411.T> and Tokyo Electric Power <9501.T>. Last month, it was omitted from a planned government sale of $6 billion worth of shares in Japan Tobacco <2914.T>.

The brokerage said last week it was acting to toughen up its internal controls and strengthen compliance. Watanabe's pay, and that of his chief operating officer, is to be temporarily halved, and two other executives stepped down.

The DBJ had in May mandated Nomura, Daiwa and Mizuho as lead underwriters for its bond offerings, a DBJ official said. Two tranches of agency bonds, three- and five-year, to be offered this month will now be lead managed by Mizuho Securities, Daiwa and Mitsubishi UFJ Morgan Stanley Securities.

"It's vital we conduct our bond offerings as smoothly as possible for the convenience of our investors," the official said. "In the situation where we cannot rule out the possibility for the Financial Services Agency to take administrative measures against Nomura, there is a danger that investors may not be able to place orders to Nomura if such a measure was imposed."

The DBJ may also drop Daiwa from its underwriting syndicate if regulators take action against the broker, the official said.

On Friday, the SESC said it fined asset manager Japan Advisory for insider trading ahead of a share offering by Nippon Sheet Glass <5202.T>, also in 2010. Daiwa, a lead underwriter on that offering, has said the SESC determined it was the source of the leak, adding it would conduct an internal investigation and bolster internal controls to prevent a recurrence.

(Reporting by Emi Emoto and Chikafumi Hodo; Editing by Ian Geoghegan)