ON THE DISMANTLING OF ‘BEDROCK’ REGULATIONS, Part 2

Stubborn “bedrock” regulations remain in Japan’s financial market.

These are embodied by proposals to expand the operation of Tokyo Stock Exchange (TSE), which at five hours daily has shorter trading hours than both London and New York, and to make interbank payment transactions real time 24 hours a day year-round.

Last November, TSE announced that it was going to delay introducing longer trading hours for stocks (1). The bourse said that it had explored expanding trading hours with a focus on night trading, but had been unable to get the majority of brokerage houses to sign on. TSE believes that even expanding trading is not necessarily a recipe that can be expected to attract diverse market participants—all of which points to strong fears that Tokyo’s international competitiveness will falter.

Meanwhile, the Japanese Bankers Association (JBA) last December pledged to offer world-leading payment services. These new services are to be expanded to cover what have been non-business hours, such as nights, weekends, and holidays. Toward this end, the organization committed to establish a new year-round, 24-hour platform that will enable funds to be sent between banks in real time (2). At the same time, when reporting on this story, The Nikkei, Japan’s leading business daily , noted only that the JBA had decided to launch a new interbank system that would be active 24 hours days, omitting the information about real-time interbank payments being made possible around the clock year-round because there are banks that are not keen to extend business hours and it is not clear when in fact this will be up and running (3).

Deregulation and technological progress are the two wheels that propel the vehicle of innovation forward. The proliferation of digital technology heightens the possibility of technological innovation catching on. At the same time, deregulation creates opportunities for the application of innovative technology. The dismantling of “bedrock” regulations of massive scale and, beyond that, establishing a growth strategy will not happen minus collaboration on the part of government—that is to say financial regulatory authorities—and entrepreneurs or corporations —namely financial institutions and financial service vendors. Put another way, if these entities can work well together—with motivated businesses with expertise in digital technology and a government-backed growth strategy initiative functioning as two wheels advancing in tandem—then innovation can be expected to accelerate.

Digital technology that can be used to realize innovation is already here. The challenge is to create opportunities to apply it—opportunities that presuppose the dismantling of these bedrock regulations.

 

(1) Tokyo Stock Exchange (TSE)

(2) Japanese Bankers Association (JBA)

(3) January 9 edition of Nikkei

 

Eiichiro Yanagawa About Eiichiro Yanagawa

Eiichiro Yanagawa is a senior analyst with Celent's Asian Financial Services group and is based in the firm’s Tokyo office. His research focuses on IT strategy issues in the Japanese and Asian banking and financial industries. His recent research has included core banking systems, ATMs, anti-money laundering technology, electronic trading, document management, IT spending trends, and business process outsourcing. Eiichiro's consulting experience includes development of bank IT strategies, thin client / desktop virtualization to support business continuity, evaluation of data centers for hosting core systems, and vendor selection of AML, risk management, and other technologies.

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