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Japanese Brokers Expect Fee Dereg to Spur Web Trading

In anticipation of the scheduled government deregulation of brokerage commissions later this year, Japanese securities firms are increasingly looking to the Internet as a means of decreasing stock trading costs and increasing revenues.

Last week saw reports that two major securities firms and electronics giant Sony will each launch a joint-venture Internet brokerage, joining the 22 brokerage services already online.

Nikko Securities, Japan's No. 2 securities firm, intends to set up a separate unit, tentatively named Nikko Online Securities, that will specialize in Internet stock trading.

Nikko has not officially announced details of the planned venture, but according to the Nihon Keizai Shimbun, Japan's leading financial daily, the firm will team up with a systems-development company founded by former Charles Schwab & Co. president Timothy McCarthy.

The new company will be established in May, with the Nikko Securities group taking at least a 50 percent share. Operations will start on October 1, when commission fees on stock transactions are to be fully liberalized.

While fees on stock transactions of more than 50 million yen (US$424 thousand) were deregulated last year, securities firms must currently charge mandated commissions on trades of less than that amount.

Sony Corp. apparently plans to leverage its electronics expertise and household name status to launch a 50:50 Internet brokerage joint venture with Oki Matsumoto, an advisor at Goldman, Sachs & Co., who will also serve as the firm's president.

This venture, too, is set to start operations on October 1.

Meanwhile, Japan's third-largest securities firm, Daiwa Securities, reportedly intends to join seven other firms, including major US online brokerage DLJdirect Inc. and four Sumitomo group companies, in a joint venture online brokerage.

Tokyo-based DLJdirect SFG Securities Inc., may begin operations as early as June.

Nomura Securities, Japan's largest brokerage, operates an online system called HomeTrade for individual investors. Nomura reports that the number of active HomeTrade accounts has grown by over 230 percent in the past two years.

But it is second-tier player Matsui Securities that some analysts see as the dark horse in the online trading sweepstakes. Matsui currently has just 3,500 accounts on its 10-month-old Netstock online trading system, but aims to eventually eliminate its branches and marketing staff and specialize in discount online brokerage services.

In mid-March, Matsui expanded server capacity and added new hardware to more than triple Netstock's order-processing capacity. When commission fees are deregulated on October 1, the company may cut its transaction fees by up to 70 percent in an attempt to lure individual investors to Netstock.

The total number of online stock trading accounts in Japan is very small, probably less than 45,000. But there are optimistic predictions that the market could grow ten-fold within a year.

"I'd agree with estimates that put the total number of online accounts at around 400,000 by the end of this year," said Sadakazu Ohsaki, a senior economist with Nomura Research Institute.

To reach this level, however, Internet-based brokerages will have to overcome some hurdles. Although Japan's population has been characterized technology-savvy and investment-hungry, few individuals are making use of online financial services.

A Dentsu survey released in February found that while 65 percent of frequent Internet were knew about the online services offered by securities houses and investment trust companies, only 3 percent had utilized such a service.

With the cost of a daytime local phone call running 200 yen (US$1.70) per hour, furthermore, it seems unlikely that individual online "day trading" of stocks will catch on in Japan as it has in the US.