Intended to substantially liberalize financial and securities business as part of Japan's "Big Bang," the Financial System Reform Law entered into force in December 1998. A year later, the introduction of a registration system in place of the former licensing system governing securities business is drawing a growing number of new market entrants from other industries, while there has been a sudden leap in the number of securities companies handling stock on-line through the Internet. Off-exchange trading, whereby investors can trade stock without going through the stock exchange, has also grown swiftly, as have investment trust sales by banks and other financial institutions. While this diversification of sales channels for financial commodities is widening investor options, a financial services law now needs to be formulated as soon as possible to protect consumers.

Other Industries Flock to Securities
The securities business was formerly regulated by licenses issued by the Ministry of Finance, and companies seeking to launch operations in this area had to undergo rigorous scrutiny from the ministry as to their financial foundations and other pertinent factors before being granted the necessary license. Now that the transition has been made to a registration system, this scrutiny has been reduced to a check primarily from the perspective of legal compliance, such as in the management of clients' assets.

A string of new market entrants has since emerged, with 21 companies registering for the first time in the 12 months since December 1998, five up on the 16 companies granted licenses between January and November 1998, when the license system was still in place. Moreover, only four of the new participants are wholly-owned subsidiaries of securities companies or spin-offs thereof, with the remainder having moved into the business from other sectors. Surprisingly, not only do these new participants comprise both banks and non-banks, but they also have their roots in a wide range of business areas, including general trading companies and electrical manufacturers.

The progressive liberalization of stock transaction commissions was also completed in October 1999, spurring a sudden increase in the number of securities companies engaging in online trading through the Internet. Net trading allows all business related to stock transactions to be processed by computer, cutting back personnel and other costs. As a result, companies have substantially reduced their commission rates, with some even offering a maximum discount of 98%, slicing a 30 million yen (285,714 U.S. dollars at 105 yen to the dollar) transaction charge to 2,900 yen (27.6 dollars).

Internet trading not only offers lower commission payments, but also allows any investor with a computer to trade anywhere and at any time, merits which had boosted the number of Internet trading accounts to 300,000 as of the end of 1999. Initially, large and middle-ranked securities companies were leading the way, but Internet-based companies with no physical premises are now starting to join in. Other firms, such as general trading companies, electrical manufacturers, and travel agencies, as well as foreign investors, are also expected to establish a presence, lifting the number of Internet trading accounts to over one million during 2000.

Investment Trust Sales Channels Also Diversify
Off-exchange stock trading and investment trust sales by banks and other financial institutions are also attracting attention as evidence of the growing diversity of sales routes for financial commodities. Life insurance companies and other institutional investors in particular are turning more and more to off-exchange trading as a means of cutting costs by eliminating the fees paid to exchanges, while also allowing a finely tailored response to customer needs. Off-exchange trading over the 12 months from December 1998 amounted to 19.5 trillion yen (185.7 billion dollars), or 11.5% of Tokyo Stock Exchange trading over the same period. The lower costs involved in this form of stock trading should make it increasingly popular for small-scale transactions by individuals.

Investment trusts are now being handled by all branches of many major banks, city and trust banks included, while small and medium-sized financial institutions such as regional banks, credit banks, and credit cooperatives are also entering the competition for trust sales. As of the end of October 1999, investment trusts sold by financial institutions other than securities companies amounted to 2.4 trillion yen (22.86 billion dolloars), 4.5% of total investment trust sales. At a time when extremely low interest rates have reduced the attractiveness of deposits, individuals may start to look to investment trusts as a new means of managing their financial assets.

The down side to this intense competition in the financial world is the growing likelihood that consumer knowledge, experience, and understanding will fail to keep pace with the speed of financial change, resulting in some consumers getting hurt. To deal with this situation, the government is considering the introduction of a financial services law that would include consumer protection and confirmation of management accountability for financial commodities, and this needs to be set in place as soon as possible.

Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.

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