Japan Seeks Market Integration

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Although the Asia-Pacific region has become one of the fastest growing areas of financial interest, very little has been said about recent Japanese propositions to overhaul the country's exchanges and attract foreign investment.

Government officials have signaled a desire to restore Japan's position as an important regional financial center. While the Tokyo Commodity Exchange (Tocom) was once the second-largest commodities exchange after the New York Mercantile Exchange, it ranked 11 last year and was surpassed by China's Shanghai and Dalian exchanges.

"For the first half of 2010, the [Osaka Securities Exchange] (OSE) was ranked 15 in terms of contract volume in the world; Tokyo Financial Exchange was 18.

What's happening is that even though China is closed to foreign traders, they are climbing quickly in terms of volume along with India," says Paul Rowady, senior analyst at TABB Group.

The growth of numerous geographically close exchanges while interest in Japanese markets stagnates has prompted some in the Japanese government to discuss combining securities, currencies and commodities bourses by 2013 to boost trade and remain competitive.

A number of proponents, including Futures Industry Association (FIA) Japan Vice President Yasuo Mogi, have pointed to the "silo" structure of Japanese market regulation as the biggest detriment to growth. In a Nov. 19 public hearing on the issue he explained that existing laws, regulations and rules currently are separated into regulatory silos. Further, separate regulatory agencies and self-regulating organizations each issue their own reporting requirements based on which regulatory silo they represent. The result is a regulatory quagmire.

In FIA Japan's November newsletter, Chairman Mitch Fulscher wrote, "The critical issue to be first addressed is the need to break down the silos created by separate laws, separate regulatory agencies and regulations issued by the separate regulators and self-regulatory agencies . …