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Nomura Holdings Inc. Faces Fine Over Alleged Market Manipulation

by Lydia
Nomura Holdings Inc.

Nomura Holdings Inc. is facing a fine of ¥21.8 million ($152,000) for allegedly manipulating the Japanese government bond futures market. This development poses a setback for Japan’s largest brokerage during a period of revitalized trading in these securities.

Allegations of Fraudulent Activity

An employee within the company’s domestic securities unit is suspected of fraudulently influencing JGB futures prices in 2021, according to a statement from the Securities and Exchange Surveillance Commission (SESC) on Wednesday. The employee reportedly profited by placing large orders without any intention to execute all of them.

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Impact on Nomura’s Reputation

Although the potential fine is relatively small, it could damage Nomura’s reputation at a crucial time when the firm is reestablishing Japan as a key growth area for its trading and investment banking divisions. Following the Bank of Japan’s recent interest rate hikes and the abandonment of its bond yield control policy, the nation’s bond market has seen a resurgence.

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Regulatory Statements on Market Integrity

“This act is serious and undermines the credibility of a securities firm as a gatekeeper in the market,” an SESC official stated. The regulatory body chose to penalize the company rather than the individual, emphasizing that the employee was trading on behalf of Nomura and that the firm benefited from the resulting profits.

Nomura’s Response to the Allegations

Nomura has stated that it takes the matter seriously and is in the process of confirming the facts. A company spokeswoman refrained from providing further comments after the Yomiuri newspaper first reported the investigation.

Market Reaction to the News

Following the announcement, shares of Nomura closed 1.5% lower in Tokyo on Wednesday, reflecting investor concerns about the potential implications of the fine.

SESC Recommendations and Historical Context

The SESC recommends fines to the Financial Services Agency, Japan’s financial regulator, which typically enforces them weeks later. Other securities firms have faced penalties for similar manipulative practices in the Japanese government bond futures market in recent years, resulting in business losses.

Previous Penalties in the Industry

In 2019, Citigroup Inc. was fined ¥133 million and suspended from participating in certain Japanese government bond auctions. A year prior, a joint venture between Mitsubishi UFJ Financial Group Inc. and Morgan Stanley was penalized ¥218 million and faced a similar suspension, also losing its status as an underwriter for several corporate bond deals.

Potential Consequences for Nomura

If Nomura were to lose underwriting business as a result of this incident, it could significantly impact the firm’s ability to leverage the recent rebound in Japan’s bond market activity.

Positive Financial Performance Amid Challenges

Despite these challenges, Nomura’s fixed-income revenue increased by 29% in the quarter ending June compared to the previous year, while investment-banking revenue rose by 22%.

Conclusion

As Nomura navigates these regulatory challenges, the firm will need to focus on maintaining its reputation and capitalizing on the revitalized bond market in Japan to continue its growth trajectory.

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