III. A PLAN TO REFORM THE SECURITIES MARKET

1. The Scope and Schedule of the Reform

The problems that the Japanese securities market need to overcome are rooted in wide-ranging factors. Rather than considering them individually, the reform effort must be a comprehensive one that reformulates the market framework in a manner that that encourages development that is guided by market forces.

The importance of reorientation of regulatory philosophy and building of market infrastructure cannot be overstated, but it is equally important to recognize that these cannot be panacea. Rather, one should consider restructuring of the market framework as a starting point, from which users, intermediaries and operators of the market must all strive to tackle the tasks that they face. The reform of the securities market is a comprehensive package of program and efforts that encompasses all market participants.

The Securities and Exchange Council proposes a reform package outlined below. It also recommends that the individual items in the package be implemented along a schedule laid out in the attached table.

2. Phasing of the Reform

The phasing of individual items in the reform package must be carefully thought out, if the market reform along this Council's objectives are to be implemented in minimum time with maximum results.

The phasing of the reform should reflect the following considerations:

A. In order to encourage creativity and effective competition, so that market develops on its own accord, it is important to create a framework in which a wide range of financial instruments and services become available. Liberalization of prices and market entry can have its intended effect only under these conditions.

B. Market reform will result in the emergence of a wide range of financial products and transactions. It is important to review investor protection measures, so that market rules can effectively cover these new products and services. In addition, along with measures to increase market entry and competition, it is essential that measures to improve bankruptcy procedures and otherwise provide for a non-disruptive exit of financial intermediaries, be put into place before or in unison with measures to introduce a more competitive environment.

Taking into account the effects that reform in one area may have on others, the Council believes that the reforms should be implemented in its entirety, including legislative initiatives, along the aforementioned timetable.

For those measures requiring legislation, details should be worked out by Fair Transaction and Market Infrastructure Subcommittees of this Council in the coming months and presented to the Diet for approval as soon as feasible.


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