II. Objectives and Procedure of Reforms

1. Objectives of Reforms

When the above facts are recognized, it is evident which direction the reformation of the Japanese securities market should follow. Reforms should be enacted to realize the following five objectives to enhance the attractiveness of the Japanese market.

(1) Making the securities market the main financial intermediary

Efforts should be made to transform the market into an attractive and effective one which, as the center of financial intermediation, can answer the needs of the now-mature economy for the formation of national financial assets and appropriate distribution of funds. The securities market must provide a wide variety of attractive, valuable products to satisfy the needs of investors for asset management and to promote smooth funding by active risk taking. If the market adequately fulfills such positive roles and functions, it can contribute to maintaining a durable vitality in the national economy.

(2) Restoring the Tokyo market

Efforts should be made to make the Tokyo market a competitive, international one able to stand shoulder to shoulder with those in New York and London as one of the three largest financial centers in the world. The Japanese financial industry must not be allowed to become an empty shell. To that end, it is necessary to establish an infrastructure capable of satisfying the international standards and reducing transaction costs. At the same time, the market should be transformed in accordance with international rules and practices. Such efforts will make the Japanese market internationally useful and capable of contributing the to effective distribution of global funds.

(3) Establishing a framework capable of continuing to function in the 21st century

Efforts should be made in light of the approaching 21st century to create a world-leading market where market intermediaries can play an active part. If Japanese financial and investment services are revitalized through the activities of internationally competitive, efficient, and innovative market intermediaries that have an entrepreneurial spirit,and if high-quality services are provided at a low cost, employment in the financial and investment industries, mainly the securities industry, will be ensured in the 21st century. In addition, such revitalization would contribute to the maintenance and promotion of competitiveness of other Japanese industries utilizing these services.

(4) Making the market an open one

Efforts should be made to make the market a user-oriented one which is open to the people and which allows a variety of people and companies to freely participate and enjoy its benefits. Active utilization of the market by a large number and variety of market participants in accordance with respective needs would vitalize the market.

(5) Making the market fair, transparent, and reliable

Efforts should be made to create a reliable market where users can willingly participate regardless of their standpoints, backgrounds, or ability. For that, the principle of self-responsibility must be observed by every market participant. In accordance with this principle, the market must be transparent, reliable and fair, based upon clear rules, and it must be obvious and certain to everyone that none will suffer unfair disadvantages because of reasons not attributable to themselves. From this viewpoint, the public feature of market intermediaries to guarantee access by individual investors to the market must be adequately secured.

2. Implementation of reforms

(1) Reforms to create such a market must be able to fundamentally change the condition of the market and be conducted in a comprehensive manner so as to cover different aspects of the market. The framework of market regulations and system infrastructure must be reformed. In addition, market professionals should try to solve problems one by one from their own standpoints in light of the current market conditions mentioned earlier and do whatever they can to reform the market.

(2) Because specific issues requiring reform are mutually related, reforms must be conducted in a comprehensive manner. Therefore, it is necessary to clearly present the procedures by which reforms are to be implemented, including time frames if possible, for the implementation of these reforms. In addition, it is extremely difficult to revitalize an industry once it has lost its power and influence. Therefore, such reforms need to be conducted immediately. Because of the urgency of reforms, we should strive to complete most of them by the beginning of the 21st century, paying attention to the stability of the market as well as other matters.

(3) It goes without saying that in the implementation of reforms designed to create improved market conditions, it is essential at the same time to tackle problems presently faced by the financial and capital markets due to the collapse of the bubble economy. Such problems include the disposition of non-performing loans.

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