Japan suspends Nomura from bond auctions amid market manipulation scandal

​​In a significant development, Japan’s Ministry of Finance is set to suspend Nomura Holdings Inc. from participating in government debt auctions for a month, starting October 15.

This decision comes after the financial giant confessed to manipulating the bond futures market, as reported by sources with knowledge of the situation.

The ministry’s forthcoming announcement, expected later today, indicates a serious repercussion for Nomura, a key player in the Japanese government bond market.

The suspension follows a series of damaging revelations that have prompted several companies, including Toyota Finance Corp., to reallocate their bond underwriting business away from Nomura.

This withdrawal will inevitably place additional pressure on other bidders in the market.

As reported by Reuters, Takashi Fujiwara, the chief fund manager at Resona Asset Management Co.’s fixed-income investment division in Tokyo, noted:

The weight of other brokerages will increase if it leaves. There is a particular concern that there is an oversupply of super-long-term bonds, and that liquidity may decline.

This sentiment underscores the potential ripple effects Nomura’s absence could have on the overall market.

Nevertheless, Yuuki Fukumoto, a senior financial researcher at NLI Research Institute, remains optimistic about market stability, stating that the rising interest rates and strong demand are likely to mitigate significant disruptions.

Nomura had positioned itself as a formidable contender in the bond auction landscape, ranking fourth among primary dealers based on successful bids weighted by duration over the past six months.

Primary dealers, comprising a group of 19 members as of December, are required to engage with ministry officials in exchange for a commitment to bid for and purchase a designated volume of bonds at each auction.

In the wake of the announcement, Nomura’s shares fell by 0.7% in Tokyo trading, erasing earlier gains.

A spokesperson for the company declined to comment on the matter, and representatives from the finance ministry were also unavailable for immediate response.

According to Bloomberg News, Nomura had informed Japan’s financial regulator that an employee had manipulated the government bond futures market by placing large orders without any intention of executing all of them.

This breach from 2021 has led the nation’s securities watchdog to recommend a fine of ¥21.8 million ($147,000) against the firm.

The ministry’s decision to suspend Nomura aligns with previous actions taken in similar cases of bond market manipulation.

Notably, Citigroup Inc. was fined ¥133 million in 2019 and faced suspension from the primary dealer group.

Likewise, Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley incurred a penalty of ¥218 million and was also suspended from the group, losing its position as an underwriter for multiple corporate bond deals.

Despite the setbacks, there have been positive developments for Nomura.

The firm recently announced its selection as the arranger for the Tokyo municipal government’s upcoming green-blue bond issuance, valued at ¥10 billion.

These bonds are typically aimed at funding environmentally sustainable projects and initiatives to protect the world’s oceans and waterways.

Additionally, Nomura is set to serve as one of the joint lead managers for Tokyo Metro Co.’s high-profile initial public offering.

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