(Bloomberg) — Japan’s Ministry of Finance will temporarily exclude Nomura Holdings from participating in government bond auctions after the company admitted manipulating the bond futures market.
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The ministry announced in a statement on its website on Friday that Nomura Securities will have its “special qualification” for Japanese government bond dealers suspended for one month starting October 15.
The move, first reported by Bloomberg, is another setback for Nomura after the revelations prompted several companies, including Toyota Finance, to move their bond underwriting operations elsewhere. The suspension of Nomura, one of the largest bidders of government bonds, will increase the burden on other bidders.
Takashi Fujiwara, chief fund manager of the fixed income investment division at Resona Asset Management (Tokyo), says, “Other securities companies will likely become more important.” “In particular, there are concerns about an oversupply of ultra-long-term bonds, which could lead to a decline in liquidity.”
Still, Yuki Fukumoto, a senior financial researcher at the Nissay Research Institute, said there is little chance of major market turmoil as interest rates are on the rise and demand is strong.
Nomura ranked fourth among primary dealers in weighted winning bids for the six months ending in September. Primary dealers are given access to department officials in exchange for their obligation to bid and purchase a certain amount of bonds in each bid. The group had 19 members as of December, according to the ministry’s website.
“We take this matter seriously and apologize for the inconvenience caused to our customers and everyone involved,” Nomura said in a statement. The company plans to make a public announcement if there is a possibility that it will have a significant impact on business results. The bank is scheduled to release its earnings for the three months to September on November 1.
Nomura’s shares erased their gains and closed 0.4% lower in Tokyo.
Nomura admitted to Japan’s financial regulator that its employees manipulated government bond futures by placing large orders with no intention of buying or selling all of them, Bloomberg News reported this week. The country’s securities watchdog had previously recommended that the Financial Services Agency fine the company 21.8 million yen ($147,000) for the 2021 violations.
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A spokesperson for the Japan Securities Dealers Association said in an email that it was “unfortunate and truly regrettable” that such a recommendation was issued to major companies at a time when securities companies should be increasing their credibility. . He said the industry group will consider taking action against Nomura after the Financial Services Agency addresses the issue and securities firms report the incident to the association.
The Treasury’s move was expected given past instances of bond market manipulation. In 2019, Citigroup was fined 133 million yen and suspended from major dealer groups. A year ago, Mitsubishi UFJ Financial Group’s securities business with Morgan Stanley received a 218 million yen penalty and was suspended from the group. The venture was also removed as an underwriter for several corporate bond deals.
There are also some bright spots. Nomura said in a statement Thursday that it has secured the role of arranger for the Tokyo Metropolitan Government’s planned issuance of 10 billion yen worth of green-blue bonds. These financial instruments generally fund green projects as well as projects that help protect and restore the world’s oceans and waterways. The company is also one of the co-lead managers for Tokyo Metro Co., Ltd.’s large-scale initial public offering.
–Thanks to Nao Sano, Takahiko Hinata, and Hideki Suzuki for their assistance.
(Updated with announcements from Nomura and the Japan Securities Dealers Association)
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