(Bloomberg) — Japan’s Ministry of Finance is temporarily excluding Nomura Holdings Inc. from taking part in government debt auctions after the firm admitted to manipulating the bond futures market.
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Nomura will be suspended from “special entitlements” of Japanese government bond dealers for a month from Oct. 15, the ministry said in a statement on its website on Friday.
The action, reported earlier by Bloomberg, is another setback to Nomura after the revelations led several companies including Toyota Finance Corp. to take their bond underwriting business elsewhere. As one of the biggest players in government bond auctions, Nomura’s suspension will increase the burden on other bidders.
“The weight of other brokerages will increase,” said Takashi Fujiwara, chief fund manager at Resona Asset Management Co.’s fixed-income investment division in Tokyo. “There is a particular concern that there is an oversupply of super-long-term bonds, and that liquidity may decline.”
Still, with interest rates on an upward trend and demand strong, there is unlikely to be any big disruption to the market, according to Yuuki Fukumoto, senior financial researcher at NLI Research Institute.
Nomura ranked fourth among primary dealers by successful bids weighted by duration in the six months through September. Primary dealers are given access to ministry officials in return for an obligation to bid for and purchase a certain amount of bonds at each auction. The group had 19 members as of December, according to the ministry’s website.
“We take this matter very seriously and apologize to our clients and all other concerned parties for the trouble this has caused,” Nomura said in a statement. It will announce if there is any possibility of a material impact on its financial results. The bank is scheduled to report earnings for the three months ended September on Nov. 1.
Shares of Nomura erased gains, closing 0.4% lower in Tokyo.
Nomura admitted to Japan’s financial regulator that an employee manipulated government bond futures by placing large orders without intending to buy or sell all of them, Bloomberg News reported this week. The nation’s securities watchdog had earlier recommended that the Financial Services Agency impose a ¥21.8 million ($147,000) fine against the company for the 2021 breach.
It is “unfortunate and truly regrettable that such a recommendation has been issued against a leading company” at a time when securities firms are supposed to be improving their credibility, a spokesperson for the Japan Securities Dealers Association said by email. The industry group will consider action against Nomura after the FSA deals with the matter and the brokerage reports the incident to the association, he said.
The finance ministry’s move was expected given past cases of bond market manipulation. Citigroup Inc. was fined ¥133 million in 2019 and suspended from the primary group of dealers. A year earlier, Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley received a ¥218 million penalty and was also suspended from the group. The venture was also dropped as an underwriter of several corporate bond deals.
There have been bright spots. Nomura said it won the role as arranger of the Tokyo municipal government’s planned green-blue bond issuance worth ¥10 billion, according to a statement on Thursday. The instruments generally finance green projects as well as those that help protect or revive the world’s oceans and waterways. The firm is also one of the joint lead managers for Tokyo Metro Co.’s marquee initial public offering.
–With assistance from Nao Sano, Takahiko Hyuga and Hideki Suzuki.
(Updates with statements from Nomura and Japan Securities Dealers Association)
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