Last month, Japan's regulators proposed a $150,000 fine against Nomura Securities, exposing a scandal of market manipulation. This fine stems from an incident in 2021, where a Nomura trader engaged in manipulative trading of Japanese government bond futures (JGB futures) on the Osaka Securities Exchange. The trader's actions involved a technique known as "layering," intended to induce others to buy or sell futures.
The Securities and Exchange Surveillance Commission recommended an administrative penalty of 21.76 million yen ($150,900) on Nomura for manipulating the JGB futures market. Although the fraudulent profit from this manipulation was only about 1 million yen ($10,000), Nomura suffered significant losses in market trust and major client transactions.
According to reports, a swift cancellation of Nomura's Japanese bond underwriting business followed the firm's admission of market manipulation. Within a month, Nomura lost its primary dealer privilege in government bond auctions. At least ten companies, including life insurers, trust banks, and asset managers, temporarily paused some business activities with Nomura.
The ripple effect of the scandal continues as competitors aggressively target Nomura's market share. A rival executive noted that most market participants are attempting to seize Nomura’s share. This situation is occurring amidst a revival in Japan's bond market, which could significantly impact Nomura. The company's ranking in the corporate debt market has dropped from third place last month to fifth. This decline is crucial as many bankers' bonuses are tied to market rankings.
Since the manipulation was exposed in September, Nomura's promising outlook has been jeopardized. CEO Kentaro Okuda had been leading the company toward a profit recovery in the active bond market, anticipating a 79% net income growth in the upcoming financial report. However, the scandal threatens to affect the next quarter's results.
If the repercussions of the market manipulation persist, they could overshadow Nomura's centennial celebration next year. Founded in 1925, Nomura has grown from 84 employees to over 27,000, with operations worldwide focusing on public and corporate bonds.
Nomura is taking the situation seriously, enhancing internal management, and advising employees to avoid social activities with external parties. Analyst Hideyasu Ban emphasizes that the damage is done, and the company must explain how it will strengthen internal systems and oversight to prevent future incidents. Rebuilding trust with market participants is crucial for Nomura and the industry at large.
