Nomura Holdings Inc., Japan’s largest brokerage, has faced significant repercussions following the discovery of market rule violations by authorities. This marks the second instance this year where Japanese firms have removed underwriters over breaches, highlighting ongoing regulatory scrutiny in the financial sector.
Removal by Japanese Firms
At least four major Japanese companies, including Toyota Finance Corp., Sumitomo Mitsui Trust Holdings Inc., and Okinawa Development Finance Corp., have announced the exclusion of Nomura as a lead manager for several yen bond deals. The decision follows an investigation by Japan’s securities watchdog, which suspected Nomura of market manipulation related to government bond futures. The findings of this investigation led to the brokerage’s removal from critical bond management roles.
Impact on Nomura’s Shares
In response to these developments, Nomura’s shares plunged 8.1% on Monday, contributing to a broader selloff in the Japanese stock market, with the Topix index falling by 3.5%. This decline was exacerbated by the recent victory of Shigeru Ishiba in the ruling Liberal Democratic Party’s leadership contest, which caught investors off guard, as many had anticipated a push for more monetary stimulus from his opponent.
Statements from Nomura and Affected Firms
Nomura issued an apology for the disruption caused by the regulatory issues, stating in an email to Bloomberg, “We apologize for any inconvenience caused to those involved. We will work to prevent a recurrence and restore trust.” Meanwhile, a spokesperson for Sumitomo Mitsui Trust indicated that the decision to exclude Nomura was based on concerns that the regulators’ penalties could impact the bond issuance process. Kensuke Kina from Okinawa Development Finance expressed similar concerns, noting potential negative effects on sales due to issues surrounding Nomura’s credibility.
Historical Context of Regulatory Troubles
This situation is not unprecedented in Japan’s financial industry. Past regulatory troubles have led companies to remove brokerages from debt underwriting mandates. For instance, earlier this year, Mitsubishi UFJ Morgan Stanley Securities Co. was largely sidelined for several months following penalties imposed by regulators for breaching information firewalls, according to data compiled by Bloomberg.
Current Market Dynamics
Nomura’s removal comes during a particularly busy period for yen corporate bond deals, with sales exceeding ¥10 trillion ($70 billion) in the fiscal first half, which began in April. The coming months typically see increased activity in the yen primary market, making this a critical time for brokerages.
Additionally, Hokkaido Electric Power Co. has also withdrawn Nomura’s management role for yen transition bonds, further compounding the challenges facing the brokerage as it navigates regulatory scrutiny and seeks to restore its standing in the financial community.
Conclusion
The exclusion of Nomura Holdings from lead management roles in yen bond deals underscores the severe implications of regulatory violations in the financial sector. As the brokerage works to rebuild trust and address these issues, its future involvement in the lucrative bond market remains uncertain amidst ongoing scrutiny and competition.
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