TLDR:
- Nomura CEO Kentaro Okuda apologized for bond futures manipulation allegations
- Regulatory body recommended a fine of ¥21.8 million against Nomura
- Toyota Finance and others excluded Nomura from underwriting deals
- Incident occurred amid Japanese bond market revival
- Nomura pledged to improve internal controls to prevent recurrence
Nomura Holdings, Japan’s largest brokerage firm, found itself in hot water following allegations of bond futures market manipulation. The company’s Chief Executive Officer, Kentaro Okuda, publicly apologized for the incident during a financial forum in Tokyo on Wednesday, October 2, 2024.
The apology came in response to a recent investigation by the Securities and Exchange Surveillance Commission (SESC), the investigative arm of Japan’s financial regulator. The SESC recommended that the Financial Services Agency (FSA) impose a fine of ¥21.8 million (approximately $152,000) on Nomura’s domestic securities unit.
The allegations stem from a 2021 incident where a Nomura dealer reportedly profited by placing large orders for Japanese Government Bond (JGB) futures without intending to buy or sell all of them. This practice, known as spoofing, is considered a form of market manipulation.
The repercussions for Nomura have been swift and significant. Several firms, including Toyota Finance Corporation, have since excluded Nomura from deals to underwrite their debt.
This exclusion comes at a particularly inopportune time for Nomura, as the company has been vying to capitalize on a revival in the Japanese bond market, fueled by recent shifts in the country’s monetary policy.
In response to the allegations, Nomura issued a statement last week acknowledging the incident and outlining steps taken to address the issue. The company stated that it has been working to revise its JGB futures trading operations since the transaction in question. Nomura pledged to continue improving its internal controls to prevent similar incidents from occurring in the future.
Nomura is not the only financial institution to face such allegations in recent years. Other securities firms, including those operated by Citigroup and Mitsubishi UFJ Financial Group, have also been penalized for manipulating JGB futures prices.
The SESC’s recommendation for a fine against Nomura is expected to be carried out by the FSA in the coming weeks, as is typically the case with such penalties. The relatively modest size of the proposed fine, however, suggests that regulators may view the incident as a limited or isolated event rather than a systemic issue within the company.
Despite the apology and the company’s stated commitment to improving its practices, the incident has undoubtedly cast a shadow over Nomura’s operations. The exclusion from underwriting deals could potentially impact the company’s market share and reputation in the competitive world of Japanese finance.
