U.S. LEADS JAPAN IN FINANCIAL FUTURES BUSINESS
U.S. firms are expected to enjoy the
advantage of superior experience over their Japanese
competitors in the new, promising business of bringing asset
rich Japanese investors to the U.S. financial futures markets.
    Japan allowed local financial institutions last month to
start using overseas futures in currencies, bonds and stocks to
help them manage their bulging foreign portfolios.
    "U.S. investment banks are going to take advantage. We've
been in the business for two decades, the Japanese have not,"
said Eugene Atkinson, president of Goldman, Sachs Japan Corp.
   
    Japanese investors were assumed to be eager to get into the
new markets, but in fact participation so far has been slow,
Japanese securities and bank sources in New York said.
    Koichi Kane, Executive Vice President of Nomura Securities
International, said, "They're still in a starting up period."
    "They're testing the water," Atkinson added. But once they
start, the Japanese are likely to become very big players,
opening up lucrative business opportunities, he said.
    U.S. investment banking sources said the slow start is
understandable because U.S. institutional investors, too, are
fairly new to the market.
   
    Futures markets have a long history in the U.S., but
because of the high risks involved American pension funds and
mutual funds were not allowed to use the markets until
relatively recently, a U.S. investment bank futures analyst
said.
    In addition to Japan's inexperience in financial futures,
an insufficient number of brokers in Japan is also to be blamed
for the slow start, the Japanese sources said.
   
    Japan is liberalizing its financial markets, but domestic
financial institutions are still not allowed to act as brokers
in Japan for overseas futures markets.
    This may change next year, when bankers speculate that
securities houses will be permitted to enter this line of
business.
    While the Japanese are out of the business, the Americans
have moved in, with First Boston Corp, Salomon Brothers Inc,
Goldman, Sachs and Co, Drexel Burnham Lambert Inc and
PainWebber Inc leading the charge, they said.
   
    In the U.S., Nikko Securities Co International Inc is
preparing to become a clearing member of the Chicago Boad of
Trade (CBT)in anticipation of growing Japanese demand for
futures products, Akira Tokutomi of Nikko said.
    Nomura, Japan's largest securities house, has not yet
decided whether to expand its futures brokerage business in the
U.S. to establish closer links between Japanese investors and
the U.S. futures markets, Kane said.
    The evening session of CBT, inaugurated recently to
coincide with early Tokyo business hours, has increased
Japanese participation to some extent, but the brokerage issue
is still a hurdle, the Japanese sources said.
   
    High liquidity is the biggest attraction of the futures
market, so the Japanese naturally want to join the daytime
trading session in Chicago if possible, they said.
    The Japanese are in the process of selecting brokers and
establishing channels to pay fees and margins, but harmonizing
clerical procedures and bridging the time gap between Tokyo and
Chicago are proving to be a burden, the sources said.
    Some Japanese banks, which are largely barred from the
securities industry in Japan, have contemplated buying into the
U.S. brokerage business, the Japanese sources said.
    
    One of the motives for doing so is to save on commissions,
which was also a spur for U.S. commercial banks to get into the
brokerage business, they said.
    "The simplest way may be to take over a brokerage house or
to go into a business tie-up," said Hiroyuki Kondo of Yasuda
Trust and Banking Co Ltd in New York.
    One trust bank source said total fees could amount to
around one mln dlrs a year if his bank used the futures markets
fully to hedge its huge pension fund and other assets.
    Japanese banks have been able to penetrate aggressively
many foreign financial markets by mobilizing their mammoth
capital assets, but the futures brokerage business to be a
different story, Japanese banking sources said.
    They cited stiff fee-cutting competition in addition to
difficulties recruiting influential Chicago brokers.
    In anticipation of sizeable orders in the future, some U.S.
brokers are now taking orders from the Japanese at around 13
dlrs per contract, below the break-even level, they said.
    Some Chicago brokers and brokerage houses are trying to
approach Japanese financial institutions about possible
tie-ups, a futures indusry source in Chicago said.
    But Japanese bank sources in New York said the small
capital base of many of these brokerages is making the Japanese
nervous about a capital link.
    Japanese banks are unlikely to ignore the brokerage
business once financial futures trading by the Japanese starts
growing fast and proves to be profitable, they said.
    But the big question, they added, is whether the Japanese
government would let banks engage in this new risky business.
 reuter
