(Bloomberg) -- Nomura Holdings Inc. faces a ¥21.8 million ($152,000) fine for allegedly manipulating the Japanese government bond futures market, a setback for the nation’s biggest brokerage during a revival of trading in the securities.
An employee at the company’s domestic securities unit is suspected of fraudulently moving JGB futures prices in 2021, the Securities and Exchange Surveillance Commission said in a statement Wednesday. The dealer profited by placing large orders without intending to buy or sell all of them, the watchdog said.
The potential fine, while small, may hurt Nomura’s reputation at a time when it is refocusing on Japan as a key growth area for its trading and investment banking business. The nation’s bond market has come back to life after the Bank of Japan raised interest rates and scrapped a policy of controlling bond yields earlier this year.
The act is serious and undermines the credibility of a securities firm as a gatekeeper in the market, an SESC official said. The watchdog opted to penalize the company, rather than the individual, because the employee was trading for Nomura’s own account and the firm was responsible for the ensuing profit, the official said at a news briefing in Tokyo.
“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. “We have been working to revise our JGB futures trading operations since these transactions occurred.” The firm also pledged to continue to improve internal controls to prevent a recurrence.
Asset managers might take their bond trading business elsewhere for a certain period, said Hideyasu Ban, a Bloomberg Intelligence analyst. Still, he added, “the market may not go so far as to think that the firm’s earnings will heavily suffer in a blow to its stock price.”
Shares of Nomura closed 1.5% lower in Tokyo on Wednesday, after the Yomiuri newspaper reported the probe. The stock has gained 21% this year.
The SESC recommends fines to the Financial Services Agency, Japan’s financial regulator, which usually carries them out weeks later. Securities firms have been penalized for manipulation of the Japanese government bond futures market in recent years, leading to a loss in business.
Citigroup Inc. was fined ¥133 million in 2019 and suspended from the primary group of dealers that participate at certain Japanese government bond auctions. 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.
Nomura and its competitors are seeking to capture business from the rebound in bond market activity in Japan. The firm’s fixed-income revenue jumped 29% in the quarter ended June from a year earlier. Investment-banking revenue rose 22%.
Still, the matter isn’t as grave as the market manipulation in stock block trading by SMBC Nikko Securities Inc., which resulted in criminal sanctions last year, said Michael Makdad, a senior analyst at Morningstar Inc.
“There may be some business impact,” Makdad said. “But if Nomura addresses the issues properly I wouldn’t expect a large impact on the firm’s long-term value.”
(Updates with comments from Nomura and analysts)
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