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Nasdaq Japan May Start as Early as Next Year

July 30, 1999

The birth of a Nasdaq market in Japan could turn out to be even more explosive than the "Big Bang" program of sweeping financial system reforms. A domestic version of the online U.S. exchange--the biggest in the world--could start as early as the end of 2000. The new market will be managed jointly by the U.S. National Association of Securities Dealers, which operates the U.S. exchange, and the entrepreneurial communications firm Softbank Corp. Once Nasdaq Japan is established, domestic investors will be able to trade shares on the U.S. market directly from Japan, and local start-ups will have a much quicker route to market listing, opening up investment and capital procurement opportunities. Moreover, increased competition with other exchanges is expected to lead to the general rejuvenation of Japan's financial markets.

Direct Access to U.S. Stocks
Nasdaq opened in the United States in 1971 as a market with a computerized trading system. Rather than the well-established companies found on the venerable New York Stock Exchange, it lists such high-tech firms with relatively short histories as Microsoft Corp. and Intel Corp. Nasdaq achieved remarkable growth with the rise of high-tech industries, and today it has become the world's biggest exchange, overtaking the NYSE in the number of registered companies and turnover.

According to the NASD and Softbank, the online market they will create in Japan through a 50-50 joint venture will give participating Japanese securities firms direct access to the Nasdaq computer system in the United States, allowing them to buy and sell shares in real time. At present, investors who wish to trade Nasdaq-listed shares must first place an order with a domestic brokerage, which then transfers the order to U.S. securities firm. This system is not only time-consuming but also costly, as it requires the double payment of processing fees.

The new market will give investors access to the more than 5,000 Nasdaq-listed stocks during U.S. trading hours. Even after the market closes, around 50 to 100 most heavily traded issues may be bought or sold. Steps will be taken to facilitate trading for Japanese investors; all company names will be expressed in Japanese, for instance, and all stock prices denominated in yen. Companies that gain a listing on the new exchange will be encouraged to eventually list on the U.S. market as well, giving them a chance to grow into globally competitive ventures.

Stiffer Competition Among Markets
Behind Nasdaq's decision to expand into Japan is escalating competition among financial markets worldwide. In the United States, for example, a rising number of institutional investors have begun trading through electronic clearing networks without using established exchanges. Nasdaq is countering the challenge by linking up with stock markets around the world in a move to offer 24-hour trading.

Softbank, meanwhile, has been aggressively involved in corporate investment for many years. One of its basic strategies has been to invest in emerging Internet-related companies in the United States, nurture them, and provide them with a listing on Nasdaq. It has "reimported" this formula and has been applying it domestically, helping U.S. companies establish Japanese subsidiaries and gain a listing on the over-the-counter market. The start of Nasdaq Japan would provide a significant boost for Internet-related ventures in Japan.

Under current laws, any group of six or more brokerages may set up an association of securities dealers to operate a new market. The NASD and Softbank have thus agreed to set up a planning company to invite securities companies to join their initiative and to negotiate with the Ministry of Finance. Whether the new exchange will inject new life into Japan's financial markets remains to be seen, though; the number of firms that are willing to register and able to meet the strict disclosure requirements for listing, which are in line with U.S. standards, is a big question mark. Success will hinge largely on the extent to which investors are offered attractive market services.

Trends in JapanEdited 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.