Prof. Stephen Y. L. Cheung

1
Securities Markets in Japan

• Prof. Stephen Y. L. Cheung
• Department of Economics Finance
• City University of Hong Kong

2
Country Profile (I) National Flag
3
Growth Real GDP
4
Exchange Rate
5
Nikkei 225 Stock Price
6
CPI and Growth Rate of M2CD
7
Interbank and Unemployment rates
8
Land Price Index
9
Bank Deposit

• 92.5 of GDP in Japan
• 34 of GDP in US
• Average deposit rate at 05/97 was 0.34

10
Mutual Fund Industry

• Until 1990, only domestic securities firms sell
  investment trusts
• Nomura, Daiwa, Nikko and Yamaichi represent 75
  of all investment trusts

11
Mutual Fund Industry

• Churn ratio measures the amount of switching
  between different funds
• 24 for UK
• 32 for US
• 209 for Japan

12
Mutual Fund Industry

• Grew by 260 in UK
• Grew by 480 in US
• Grew by 13 in Japan

13
Scandal (Nomura)

• Compensation the favoured clients for losses
• 10,000 VIP accounts
• 20 directors ( including the present and past
  chairman ) required
• Only the rich and powerful can make money from
  the stock market

14
Japanese Economy

• From 1992 to 1997, US GDP expanded by 22, Japan
  by 6.
• Big Bang - deregulate the financial industry
• liberalize broking commissions by 2001
• introduce more competition between financial
  institutions.

15
High Costs

• Housing Rules limit the plot ratio 200-300
• Distribution Three times more expensive than
  Hong Kong
• Retailing The large-scale retail store law

16
Business Costs
17
Country Profile (XI) Country Risk
18
Securities Regulatory Framework (I)

• follow US model
• more directly under government control
• MOF is main regulator of securities markets
• discretionary power through tsu datsu
  (administrative guidance)

19
Securities Regulatory Framework (II)

• scandals on securities houses broke out in 1991
  which led to establishment of Securities and
  Exchange Surveillance Commission in 1992
• under MOF, not an independent agency
• jishu kisei (self-regulation) is more advanced in
  Japan than other Asia-Pacific regions

20
Securities Regulatory Framework (III)

• division between banking and securities sector is
  not strong
• Chinese wall (fire wall)
• butnot so effective in close-knit nature of
  Japanese corporate culture

21
Securities Regulatory Framework (IV) Main
Securities Statutes

• Securities and Exchange Law (1947)
• Law Concerning Foreign Securities Firms (1971)
• Securities Investment Trust Law (1951)
• Law Concerning Depository and Book-Entry for
  Share Certificates (1984)
• Law for Regulating Securities Investment Advisory
  Business (1986)

22
Securities and Exchange Surveillance Commission
(I) Overview

• after WWII, SEC was merged with Financial
  Management Bureau
• in 1964, a Securities Bureau within MOF was
  established
• in 1992, Securities and Exchange Surveillance
  Commission was established under auspices of MOF

23
Securities and Exchange Surveillance Commission
(II) Overview

• structure
• under Financial Supervisory Agency
• 3 member commission
• two divisions
• coordination and inspection
• investigation compulsory or non-compulsory

24
Securities and Exchange Surveillance Commission
(III) Overview

• disciplines
• recommend to public prosecutors office to take
  action against offenders
• recommend MOF to take administrative action
  against firms concerned

25
Performance of Equity Fund - Japan
26
Tokyo Stock Exchange (I) Summary Statistics
27
Tokyo Stock Exchange (II) Number of Listed
Securities in 1998

• first section stocks 1,374
• second section stocks 526
• bonds 956
• source Tokyo Stock Exchange, Annual Report 1999

28
Tokyo Stock Exchange (III) Top 10 Most Active
Stocks in 1998 (Trading Volume)

• Nippon Steel 3,629m
• Sakura Bank 2,558m
• Long-term Credit Bank of Japan 2,437m
• Fuji Bank 1,618m
• Summitomo Metal Industries 1,591m
• NKK 1,499m
• Bank of Tokyo-Mitsubishi 1,385m
• Kawasaki Steel 1,250m
• Toshiba 1,217m
• Mitsubishi Heavy Industries 1,212m
• source Handbook of World Stock, Derivative and
  Commodity Exchanges 1999

29
TSE (XIV) Official Trading Hours

• Monday to Friday
• morning session 900 - 1100
• afternoon session 1230-1500

30
TSE (XVI) Main Indices

• TOPIX (first section with base date 4 January
  1968, market value weighted)
• Tokyo Stock Exchange Second Section Index (all
  stocks in second section with base date 18 August
  1969, market value weighted)

31
TSE (XVII) Securities Traded

• stocks
• domestic first section and second section
• foreign foreign section
• bonds
• straight bonds of government, municipality, bank
  and corporations
• convertibles bonds
• bonds with warrants
• yen- or foreign-currency-denominated foreign
  bonds
• futures and options

32
TSE (XVIII) Trading System

• computerized order-driven system
• 150 most active stocks in first section are
  traded on trading floor with FORES
• all other stocks are traded by computer CORES
• regular member firm receives order, relays it to
  clerk on exchange floor or entrusts it to saitori
  to match orders under supervision of exchange
  staff

33
TSE (XIX) Trading System
34
Osaka Securities Exchange (I) Summary Statistics
35
Osaka Securities Exchange (II) Number of Listed
Securities in 1998

• ordinary shares 1,272
• bonds 761
• source Handbook of World Stock, Derivative and
  Commodity Exchanges 1999