I. Status Quo and Problems in Japanese Securities Market
o As the average age of the Japanese population gradually increases,
financial assets of individuals now stand at 1,200 trillion yen.
Accordingly, the Japanese financial and capital markets are expected
to devote more and more of their energies to the effective investment
of assets. In the meantime, the provision of funds to a variety
of new industries which pose significant financial risks has emerged
as another important problem.
o Such a role cannot be fully fulfilled under the traditional
indirect finance system based upon bank deposits and loans. The
securities market is expected to function as a financial intermediary
of the new age. The present Japanese securities market, however,
is not answering such expectations.
o People in the Japanese securities markets are faced with a wide
variety of problems. The problem of market infrastructure -- the
framework of market regulations including administration and accounting,
taxation, and legal systems -- is only one of them. Drastic and
comprehensive reforms of the market are required.
o We should free ourselves from social conventions regarding the
ownership of securities and cultivate the securities market as
a common asset of the people.
II. Objectives of Reforms and Procedures for their Implementation
o Five objectives of reforms
(1) To make the securities market the main financial intermediary -- market which can be the core of financial intermediation
(2) To restore the Tokyo market -- To make it comparable to the New York and London markets, i.e., one of the three largest financial centers in the world
(3) To establish a framework that can continue to function in the 21st century -- to make the securities industry a leading industry of the 21st century
(4) To make the market open to everyone -- participant-oriented market free and open to the general public
(5) To make the market a fair, transparent, and reliable one --
reliable, fair market
o Procedure for the implementation of reforms
(1) Reforms should be organized into a comprehensive package.
(2) Efforts should be made to complete most of the reforms by the beginning of the 21st century.
(3) Problems caused by the collapse of the bubble economy should
be handled at the same time.
III. Concrete Reforms
o Concrete reform measures will be based upon the following principles.
-- Variety of choices --
Efforts will be made to establish a scheme to answer the needs of market participants.
-- Attractive to participants --
Efforts will be made to create an attractive, competitive market with high added value.
-- Fair and reliable market --
Efforts will be made to enhance the reliability of the market
by giving sufficient information on risk to all investors rather
than trying to steer investors away from risk.
o More specifically, it is necessary to discuss the following matters concerning products, markets, and intermediaries.
o Subjects other than those stated below will not be excluded
1. Investment products = offering of attractive investment products
Offer a wide choice to investors by providing attractive, competitive
products at low cost and to thereby meet their varied needs.
<Specific Matters for Discussion>
o Diversification of products (definition of derivative products and securities)
o Investment trust (improvement of convenience, diversification of products, and expansion of sales channels)
o Enhancement of vitality of companies (ABS, MTN, stock options, etc.)
o Increasing profitability of securities (payout ratio, taxation on dividends, purchasing of treasury stocks for amortizing profit, mutual holding of stocks, etc.)
o Improved offering of information (consistent, timely disclosure of information and promotion of IR)
o Reduction of costs involved in bringing products to market (securities
transaction tax and commissions)
2. Market - offering of reliable, effective transaction framework
The competitiveness and functioning of the Japanese market as
a whole will be strengthened to meet diversified customer needs
through the promotion of competition between respective domestic
<Specific Issues for Discussion>
o Diversification of types of transaction and competition among various types of transaction (review of the obligation to concentrate transactions on markets, the status of the over-the-counter market, and handling of unlisted/unregistered stocks)
o Access to transaction/quotation information
o Upgrading of infrastructure including negotiation/settlement systems (upgrading of securities transaction/settlement systems, upgrading of the stock loan market, improvement of negotiation on the over-the-counter market, improvement of bond negotiation market)
o Revision of regulations and practices concerning listing
o Improvement of disclosure
o Enhancement of supervision, penalties, and dispute settlement schemes
o Investor education programs
o Measures to cope with the introduction of electronic technology
(measures to cope with securities transactions on the Internet
and disclosure by electronic means)
3. Market intermediaries (securities companies, assets management
companies) = (offering of a variety of asset management services
with high added value)
The nature of the role played by market intermediaries will change in the securities market of the 21st century. Efforts will be made to establish a framework to enable securities companies to diversify and differentiate their business activities and strengthen asset operation services.
Future administrations should focus their attention upon ensuring
that the market operates properly through the strict and flexible
enactment and enforcement of clearly defined regulations instead
of seeking to ensure the safety of individual intermediaries and
<Specific Issues for Discussion>
o Liberalization of commissions
o Diversification of business
o Utilization of stock holding companies
o Strengthening of asset management services (investment advisorys, investment trusts)
o Roles of analysts, rating organizations, and financial planners
o Improved oversight of financial soundness and stability of securities firms
o Ideal forms of advancement and withdrawal of intermediary firms
o System for disposition of bankruptcies, etc.