(Bloomberg) -- Smaller brokerages are gaining business in Japan's credit market after former top player SMBC Nikko Securities Inc. was affected by a trading scandal.
Tokai Tokyo Securities Co. and Shinkin Securities Co. moved up in the league tables in the first half of the financial year that started April, surpassing SMBC Nikko, data compiled by Bloomberg show. SMBC Nikko, the brokerage arm of major bank Sumitomo Mitsui Financial Group Inc., slipped further down the rankings and faces regulatory penalties after the securities watchdog found it engaged in stock market manipulation.
The jostling for business in the 89 trillion yen ($615 billion) market is taking place amid increasingly tough conditions, with companies hesitating to raise funds through bonds as borrowing costs rise. The Bank of Japan's insistence on maintaining super-easy monetary policy, which is isolating it from hawkish central banks globally, is putting a further dent into investor appetite for low-yielding yen assets.
Tokai Tokyo climbed to fifth position in the first half, just below major firms that dominate the rankings. It arranged 149 billion yen of deals, triple the amount in the same period last year.
"We really had to reinforce our sales efforts, so we met with as many investors as possible," because difficult conditions made it harder for the market to absorb deals, said Eiji Nasu, head of debt capital markets at Tokai Tokyo and a veteran Japanese bond market banker.
The securities house has traditionally earned mandates from local governments and power companies, but in the past six months it got business from issuers including a debut deal by infrastructure construction firm Infroneer Holdings Inc., Nasu said.
Shinkin Securities rose to sixth place in the rankings, increasing its business 32% to 99 billion yen, the data show. It mainly underwrites deals from the utility sector, and those companies needed to sell bonds to make up for rising fuel costs exacerbated by the weak yen, said Akira Hamana, manager of the firm's debt capital markets division.
Meanwhile, SMBC Nikko has lost billions of yen in corporate finance deals over the trading scandal. It underwrote 80 billion yen of domestic bond deals in the first half, a slump of 93% from the same period last year.
"We are doing our best to prevent a recurrence and restore trust," SMBC Nikko spokesperson Takuya Toda said in an email.
The Japanese market has been affected by scandals in the past such as Nomura Holdings Inc.'s information leak and bond futures spoofing at Mitsubishi UFJ Morgan Stanley Securities Co., but increased market interest in ethical investment has boosted scrutiny of governance recently.
Mizuho Securities Co. became the top underwriter of Japan domestic corporate bonds in the first half ended Sept. 30, followed by Nomura Securities Co., Daiwa Securities Co. and Mitsubishi UFJ Morgan Stanley Securities Co.
(Adds league table rankings for other major brokerages in the final paragraph.)
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