After saving Svala from Leonid, connect with Komachi and bring her to see Swordmaster Shido on Castle Halgita's second floor. He asks you to help him get a new Katana since he lost the one that Shinkai gave him. Shido asks you not to say anything about it to Shinkai but talk to him anyway in the Castle's library. To make a new one, you will need one Lizard Fang, one Rachnuvus Cloth and one Titanium Metal. Edward can make these. Return to Shido with the katana for a reward.