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Tuesday, October 12, 1999 Published at 16:51 GMT 17:51 UK

Business: The Economy

Online trading sweeps Japan

Deregulation will open up the Japanese banking sector to ordinary people

Japan's financial "Big Bang" has paved the way for a boom in online share trading.

Investor demand for Internet-based trading has boomed since the commissions charged for share trading were overhauled on 1 October.

Some financial institutions now say that one million people could be trading online in the New Year.

[ image: Investors now have to pay fewer yen in commission]
Investors now have to pay fewer yen in commission
The reforms introduced on 1 October have removed fixed-rate commissions on share trades. The move has ushered in a new era of discount retail broking, an era in which low-cost online brokerages are likely to flourish.

Many Internet brokerages compete on price and the fixed-rate commission structure had placed them at a disadvantage prior to deregulation.

Accounts for online stock trading already exceed 150,000 and could swell to 250,000 by December and expand further to 500,000 to one million by the end of next year, the Daiwa Institute of Research has said.

Last week, Nomura said they had been forced to increase their computer capacity to deal with the demand.

While Daiwa offers online trading via mobile phones, Nomura offers trading via computer games, namely Dreamcast.

Among those targeting the Japanese market are US discount brokers such as Charles Schwab.

[ image: Japanese banks are witnessing a financial revolution]
Japanese banks are witnessing a financial revolution
The deregulation of trading commissions is part of Japan's financial Big Bang and is designed to inject competition into the banking sector.

The aim of deregulation was to make the financial industry stronger by increasing competition among banks, brokerages and insurers.

Earlier this year, the Financial Supervisory Agency relaxed the rules governing relationships between banks and their brokerage affiliates.

This made it easier for banks and their brokerage units to work together and take advantage of each other's customer base. The move helped Japanese banks, which were scrambling to build up their brokerage businesses to compete with Western banks.

A helping hand

Observers agree they will need all the help they can get, as deregulation is expected to sort the weak from the strong.

Many small independent brokerages still rely on stock commissions for a large proportion of their income and it is unlikely that a rise in trading volumes triggered by the deregulation will compensate for the lost commissions, financial rating agency Fitch IBCA said.

The intensified competition increases the chances that Japanese banks may now seek Western partners.

While a Western partner can offer expertise and financial muscle, a Japanese bank offers access to an A-list of domestic corporates.

[ image: Some Japanese brokerages will be hurt by deregulation]
Some Japanese brokerages will be hurt by deregulation
Foreign banks have long dreamed of getting a crack at managing Japan's massive household savings. At the same time, many in Japan believe that the debt-ridden banking sector may be responsible for the country's worst post-war recession. Japanese banks ran up bad loans to the tune of $621bn.

The strength of the government's commitment to reforming the banking sector is evidenced by its sale of LTCB to Ripplewood, the first outright sale of a Japanese bank to a foreign entity.

So far US investment house Merrill Lynch is the only non-Japanese bank to have established a retail banking presence. It did this by acquiring some of Yamaichi's bank and personnel.

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