Last week's decision by Japanese regulators to bar Goldman Sachs from the covered warrants market is unlikely to hurt the underlying market, according to traders. Goldman was barred from trading in the covered warrants market for two weeks and from issuing warrants for four weeks after misquoting pricing on a Japanese name, believed to be Sumitomo Mitsui Banking Corp.
Traders believe the on-line warrant market in Japan will plod on, though Goldman's reputation may suffer in the short-term. It has not been a great year for the warrants business, noted one trader, adding that warrants are a bull market product. Local players hope that an on-shore warrant market will develop, noting that the majority of transactions are listed on exchanges in Luxembourg and Zurich.
Japan's regulators are thought to have taken strong action against Goldman because it accounts for some 80% of the Japanese warrants market, and therefore carries a responsibility greater than that of other firms. In the incident last week, Goldman is believed to have listed for half an hour a price 24 times the correct price on Sumitomo. "We think the penalty is extraordinarily harsh and disproportionate," said a spokesman.
Other players said to be active in the warrant market are Citibank, Credit Lyonnais and Société Générale. Officials at these firms declined to comment.
