3. Market Intermediaries = (offering of a variety of assets management services with high added value)

The securities market of the 21st century will place a greater emphasis upon its role as a place for asset management. At the same time, companies raising funds on the market require that services be enhanced so as to enable them to establish the optimum financial structure. Such circumstances around the securities market will result in changes in the quality of roles of market intermediaries. Securities companies will be required to rid themselves of their brokerage-oriented attitudes and provide high value-added services, mainly assets management services, or services which minutely and appropriately answer customer needs. To answer such needs, it is necessary to establish a framework to let securities companies diversify and differentiate their activities. At the same time, it is necessary to create a climate where investment trusts, investment advisories, and other services can be strengthened.

Market intermediaries, as a matter of course, are important participants of the market. It should also be noted, however, that they play a public role in the market by providing individual investors with access to the market. The administration should endeavor to preserve this public aspect of market intermediaries. Future administrations should focus upon appropriate functioning of the market through the strict and flexible enforcement of clear regulations instead of simply trying to ensure the safety of respective intermediaries or transactions.

<Specific Issues for discussion>

o Liberalization of commissions

It may be necessary to liberalize commissions including brokerage commissions to activate the market through the diversification and differentiation of securities companies' management and the improvement of effectiveness and functions of the market.

The liberalization of brokerage commissions, in particular, would largely influence operations of securities companies, the structure of the securities market, and in turn, the Japanese economy and society. Should we not, therefore, consider and execute the liberalization within the overall framework of reforms of the securities market?

o Diversification of business

Market intermediaries, such as securities companies, may need to consider providing a variety of high value-added, attractive products and services including new types of wrap account services so as to fully perform the role expected of them. In such efforts, they have to try to eliminate fraud and conflicts of interest. At the same time, the idea of regarding trading as a supplement to brokerage services may need to be abandoned, in light of requests on the market for the expansion of market creation functions.

o Utilization of stock holding companies

If laws are enacted in Japan to license the establishment of stock holding companies, it may become necessary to consider providing a framework for utilizing those stock holding companies. Such a framework should enable the creation of high added value through diversified operation of business and more effective management. In the meantime, the possibility of damaging customer interests as a result of conflicts of interest should be eliminated.

o Strengthening of asset management (investment advisory, investment trust) services

As for asset investment (investment trust and investment advisory) services, effective and unique investment is being required amid the advancement of globalization. In light of this, we may need to consider the diversification of investment methods, etc. to establish a competitive asset investments industry.

o Roles of analysts, rating organizations, and financial planners

It is necessary to make risks and returns easy for investors, including individual investors, to understand, and to form fair market prices. In light of this, what roles should be played by analysts, rating organizations, and financial planners?

o Improved checks of the soundness and stability of securities firms

It may be necessary to provide improved checks of the soundness and stability of securities firms so as to strengthen their competitiveness through the diversification of services and products provided by such intermediaries. Measures for that should be clear, transparent, and in compliance with rules.

o Ideal forms of advancement and withdrawal of intermediary companies

It may be necessary to discuss measures not only for so-called "mutual participation" but also for accepting participation of appropriate companies and facilitating withdrawal as a result of individual managerial judgments, so that the market principle can function appropriately.

o System for disposition of bankruptcies, etc.

If the competition among intermediaries is to be promoted after the observation of the principle of self-responsibility is further secured, we may need to consider the penetration of divided management of customer assets, the expansion of the deposited securities compensation fund, etc. This is necessary in order to protect customers from suffering unexpected losses in case of the bankruptcy of market intermediaries.

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