Rules for Japan's brokerages urged Ruling party urges more competition.

August 12, 1991|By New York Times

TOKYO -- After a week of floating proposals for new rules to clean up Japan's scandal-ridden stock market, several leading figures in the ruling party have suggested for the first time that the best solution may be to permit more competition in the protected financial markets.

The head of a top policy-making council in the Liberal Democratic Party, Mutsuki Kato, and three party groups formed to evaluate financial reforms have separately called for the removal of fixed commission rates on large stock transactions, according to reports in newspapers and on television here.

Under such a plan, market forces would determine what large institutions would pay for the execution of stock-trading orders.

Prime Minister Toshiki Kaifu, who is under political pressure to demonstrate that he is dealing effectively with the scandal, was quoted by news organizations as endorsing the idea.

The proposal would amount to a revolution in Japan's troubled financial-services industry, which has long enjoyed the government's acquiescence in limiting competition.

With commissions fixed at a high level, dealing in the Japanese market is expensive and inefficient. But it produces enormous profits for brokerage houses.

Fixed commissions have been a sacred cow in Japan, even though they are regarded as dinosaurs in most of the world's markets. They were eliminated more than 15 years ago on Wall Street and 5 years ago in London, the international financial centers with which Tokyo is compared.

Outside of Japan, fixed commissions are generally regarded as an anti-competitive subsidy of securities firms. Inside the country, they are described as a means of assuring that small brokerage houses can survive.

Political backing for an end to fixed commissions from high levels of the ruling party does not guarantee that the new proposal will be enacted, but the proposal already appears to have won some crucial support within the powerful Finance Ministry.

The latest scandal, in which some of the biggest brokerage houses reimbursed corporate clients for stock-trading losses, has put the ministry on the defensive. It faces charges that it was lax in its oversight of the brokerage industry and that it has developed too cozy a relationship with securities firms, where many bureaucrats go to work after they retire from government.

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