The Ministry of Finance in Japan is about to suspend Nomura Holdings Inc.’s participation in government debt auctions, beginning October 15, for a period of one month.
Sources with knowledge of the situation reported that the financial giant admitted to manipulating the futures bond market.
The announcement that is expected from the ministry later today will have serious consequences for Nomura. Nomura is a major player on the Japanese government bonds market.
The suspension comes after a series damaging revelations which have led several companies, such as Toyota Finance Corp. to reallocate away their bond underwriting businesses from Nomura.
This withdrawal will undoubtedly place additional pressure on the other bidders on the market.
Takashi Fujiwara is the chief fund manager of Resona Asset Management Co. Fixed-income Investment Division in Tokyo.
If it leaves, the weight of other brokerages would increase. There is concern about an oversupply in super-long-term bond and the potential for a decline in liquidity.
This sentiment highlights the potential ripple effects Nomura’s absence could have on overall market.
Yuuki Fukumoto is a senior financial analyst at NLI Research Institute. He remains optimistic about the market’s stability, stating that rising interest rates and strong consumer demand will likely mitigate any significant disruptions.
Nomura has established itself as a formidable competitor in the bond auction landscape. It ranks fourth among primary dealers, based on the number of successful bids weighed by duration during the past six-month period.
Primary dealers, a group of 19 people as of December, must engage with officials of the ministry in exchange for an agreement to bid and purchase a certain volume of bonds at every auction.
Nomura shares in Tokyo fell 0.7% after the announcement, wiping out earlier gains.
A spokesperson from the company declined comment, and representatives of the Finance Ministry were also unavailable to respond immediately.
Bloomberg News reported that Nomura informed Japan’s financial regulator of an employee who had manipulated the futures market for government bonds by placing large orders with no intention of executing them all.
The nation’s securities regulator has recommended a fine against the firm of Y=21.8million ($147,000).
The decision of the ministry to suspend Nomura is in line with similar actions taken previously in similar cases involving bond market manipulation.
Citigroup Inc., for example, was fined Y=133 millions in 2019 and suspended from the primary dealer group.
Similarly, Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley was penalized Y=218 millions and suspended from the group. It lost its position as underwriter for several corporate bond deals.
Nomura has seen positive developments despite the setbacks.
The firm announced recently that it has been selected as the arranger of the upcoming green-blue bonds issuance by the Tokyo Municipal Government, valued at Y=10 Billion.
These bonds are usually used to fund environmentally sustainable projects or initiatives that protect the oceans and waterways of the world.
Nomura will also serve as a joint lead manager for the highly-publicized initial public offering of Tokyo Metro Co.
This post Japan suspends Nomura in bond auctions amid market manipulator scandal may be modified as new developments unfold
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