JEI's Spin on the News

NASD/Softbank Deal Challenges Japan Regulators And Brokers

Wednesday, June 16, 1999

Plans detailed June 15 by the National Association of Securities Dealers and Softbank Corp. to open a new over-the-counter exchange in Japan pose a major test for Japan's securities industry and its regulators. NASD and Softbank propose to open an electronic exchange modeled on NASDAQ where Japanese investors could research and trade not only the 5,000 or so shares listed on NASDAQ but also the stocks of high-growth Japanese companies. The fifty-fifty joint venture, Nasdaq Japan Planning Co., Ltd., will require listed firms to provide information according to NASDAQ and Securities and Exchange Commission guidelines, which generally are more comprehensive than requirements laid out by Japanese stock exchanges and the Japan Securities Dealers Association, which runs the JASDAQ over-the-counter exchange.

Two rule changes that are part of Tokyo's Big Bang financial market deregulation program made the new venture possible: a rule restricting stock trading only to established exchanges was lifted in April 1998 and the system for authorizing securities firms to do business was changed from a licensing model to a simple registration approach. (Under the previous licensing system, the Ministry of Finance set minimum financial requirements and could approve or deny applications at will. The new system spells out the minimum qualifications and eliminates MOF's ability to arbitrarily deny an application.)

The proposed over-the-counter market, however, is exactly the kind of initiative that some government and most private economists have been hoping for. Not only could it rekindle the interest of individual investors in buying stocks, but it could help Japan's venture businesses and venture capitalists lift the Japanese venture sector to a new level. The new exchange proposal seems well timed, as Japan's venture sector is showing increasing signs of a breakout.

EI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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