Notes on Media Briefing by Atsushi Saito, Director and Representative Executive Officer, Group CEO, Japan Exchange Group, Inc., on September 24, 2014

Transcription

1 Notes on Media Briefing by Atsushi Saito, Director and Representative Executive Officer, Group CEO, Japan Exchange Group, Inc., on September 24, 2014 I would like to briefly speak about the provision of services to Tokyo Commodity Exchange (TOCOM) in relation to the next-generation derivatives trading system, which is the only item on the agenda for today. As the handout shows, today we concluded a basic agreement on service provision regarding the next-generation derivatives system, and I would like to describe the process so far. We have carried out discussions to respond to TOCOM s requests since last year. Following a decision made in July to select NASDAQ OMX Group and NTT Data as development vendors for the next-generation derivatives trading system, late last month we put forward the idea of joint usage once again. We received a positive response, and that led to the conclusion of today's service provision agreement. Obviously, trading systems will be vital for exchanges, and I am indeed pleased to see their confidence in our system has led to a positive decision on joint usage. The OSE trading system will not be completely shared but partially shared with TOCOM to improve the convenience of market users and reduce their costs. We will discuss this further to finalize the official agreement scheduled in January next year. Q&A Q: My first question is about the joint usage of the system with TOCOM and the service provision you just mentioned. You touched upon the benefits for market participants. In a broader sense, there has been the concept of a comprehensive exchange, and this joint usage, I believe, will be a large part of it. What impact will this event give to the concept? Could you share your assessment or thoughts on this? A: Since we will be jointly using the system, we have to discuss the specifics with TOCOM before concluding the official agreement. We will provide not only the

2 trading system but also some business systems including clearing systems and a backup system all together. Thus, these discussions will bring about a good cooperative relationship in many respects. I am not sure that this will lead to what you call a comprehensive exchange. However, I believe we can build a very close relationship through the dialogue. Q: My second question is about the extension of trading hours for cash equities. The round table compiled a report at the end of July. What is the present status of the discussion? If any conclusion is in sight, how far is it down the line? A: The status is, as you may know, that comments in the round table discussions have yet to point toward a clear direction. The Exchange, however, has to carefully seek advice and comments from those who were unable to attend the discussions. This is not a thing you create and enforce upon others. I think securities firms and users hold a variety of opinions on the feasibility of an extension. I understand that the TSE Equities Department is carefully going round to gather feedback. We have to make a decision at some point. However, whether or not the extension will be good for investors or users is the most important. If we identify something towards this, we should be able to reach a decision quickly, otherwise, the process will take some time. Q: At the time of the establishment of JPX, you aimed to reduce system costs. You can expect to receive fees from TOCOM, so will this also be included? A: In our medium-term management plan, we have targeted system-related cost reductions of about JPY 7 billion in three years through systems consolidation. Sharing the system with TOCOM is a separate matter. Q: Does separate mean that joint usage will have a positive impact on JPX? A: While we will need to cover the necessary costs, we will be very careful not to incur excessive cost due to the joint use of the system with TOCOM. As I just said, however, since the details are yet to be determined, the only I can say at present is that we will control the system costs, and prevent them from veering too far from the medium-term management plan and from increasing because of this project.

3 Q: You are asking for public comments on the revisions to the listing rules for subscription warrant securities. What kind of feedback are you receiving? I would like to hear your impression at this point. A: We are in the middle of the public comment window. We will release the outcome after the window closes. Q: You mentioned the next OSE system will launch before the end of 2016, whereas I heard TOCOM hopes to launch it in fall Do you think you will be able to launch it in fall 2016? A: First of all, the next OSE system is still scheduled to launch in I cannot say anything definite about whether or not we can offer the service to TOCOM at the same time as the system launch at OSE. We understand their expectations, and it would look great if we start at the same time, but the service may be offered a few months later. I don t think it will be too far off from the actual launch, though. Q: I also have a question about the system sharing with TOCOM. Your news release says that Provision of Next Generation Derivatives System and Other Services to Tokyo Commodity Exchange. In terms of Other Services, are there any possibilities of tie-up to step up cooperation further in operational aspects other than system-related services, like backup services? Could you tell us about other possible services? A: From what I can see at this stage, it will probably not cover sales or marketing. Other Services means systems other than the trading system. This would include peripheral systems and clearing systems, and the backup for the main system. We have to ensure that these services are properly provided. Therefore, my understanding at this point is that Other Services does not include sales or marketing. Q: I have two questions. First, on the extension of the trading hours for cash equities, you mentioned that there is no clear reason for extending the trading hours. Does this mean that you do not have a concrete schedule for concluding the discussions? My second question is about Universal Entertainment. You mentioned that JPX Regulation was looking into the facts in the last press briefing. Could you provide

4 updates as two months have passed since then? In addition, I have the impression that those who have interests in this issue may have serious concerns that it seems that no action is being taken. Is TSE considering any measure to warn investors such as placing it under a certain designation? A: The first question is about whether we have a timeline. Although there is no definite deadline, it is unrealistic for us to let discussions go on forever, and I think our staff will have a schedule to some extent, which may be before the end of the year. However, as I said, we brought up the issue to ask if it could be beneficial for market users and asked for the views of investors and securities firms. We have done this twice before but we did not implement it then because of strong opposition. This time, opinions have been split into two distinct camps. However, this is not what the Exchange can decide on and make others accept. We hope we can reach a conclusion that satisfies all parties. For the issue of Universal Entertainment, I believe JPX-Regulation is handling it appropriately, probably with comments from external experts. As you said, no measure, such as suspension of trading, has been determined. My understanding is that this means that there have been no findings for any decision. Q: As the tie-up with TOCOM is hailed as a milestone, do you have any other idea of partnerships with other companies or futures trading exchanges? A: Are you referring to commodity futures? Q: Yes, I mean that the possibility of leasing the system out for commodity futures. A: We are not considering anything in particular in the near future. However, Myanmar is creating a stock exchange which will adopt, not our system, but a system that Daiwa Institute of Research is building, and we have been receiving technical inquiries from various exchanges. Nothing has been concluded so far because our high-spec systems are not always readily accepted. While there are no other opportunities like that with TOCOM right now, it does not mean that it is not possible in the future since we always receive many inquiries. Q: Are you considering future possibilities?

5 A: If any exchange is interested in our system and requests joint development or technical guidance, we are always happy to respond. As you may know, the system used by London Stock Exchange is also being used worldwide. Korea Exchange receives government backing to offer their systems to others and system sharing is part of their strategy. Like some private sector companies, exchanges are sometimes considered as part of the national interest. We are always looking out for such opportunities and will do so when the chance arrives. However, we do not have anything ongoing at the moment. Q: You mentioned that a conclusion about the extension of trading hours would be reached by the end of this year. If it is determined that the trading hours be extended, how long will it take to implement it? Will it take one year, or not take too long after the decision? One more question is that the yen has been weakening rapidly these days, and share prices rose significantly last week. I think this leads to much debate about how much a weak yen positively affects the Japanese economy or the stock market. Could you share your thoughts on the weak yen's impact on the market and the economy? A: For the first question, the timing will depend on the outcome. I do not know much about the technical aspects of our systems, but changes in the trading hours would probably place a certain burden on system vendors. The weak yen is a difficult issue. Things are different now and there have been warnings about excessive weakening. That may be true. However, from our point of view, the weak yen results in proportionally more sales and profits for those who have plants and sales overseas, or foreign affiliate companies of Japanese companies who generate their profits overseas. It would contribute to their businesses in terms of yen-based accounting. Such companies, in this sense, made sacrifices when the rate was at the 70-yen level. They had to expand outside Japan. However, the more they expanded overseas, the less these profits boosted their accounts. In contrast, when the yen weakens, profits made in stronger currencies increase, so the weak yen has its advantages. Even

6 though the weak yen will cause the price of imports such as oil and food to increase, it still has significant advantages for Japan overall for the time being. Q: My question is related to the expansion of trading hours. Tokyo governor Masuzoe said he would request 24-hour trading at TSE at our press interview. Could you share your thoughts? A: I had a chance to discuss the idea of Tokyo as a global financial center with Governor Masuzoe and others. Given that he touched upon the extension of trading hours then and the issue was included in published material, I think that he mentioned it based on the discussion. Q: A couple of questions. Firstly, I would like to hear your thoughts on the latest situation where the stock price rose above last year's high, and secondly, on the consumption tax increase on which Prime Minister Abe announced today that he will determine it in consideration of the situation at the end of the year. If possible, could you also tell us your view on NISA since FSA made tax system amendment requests regarding children s NISA and raising account limits? A: The stock price reached the highest in six years. As I always say, I am grateful that the price is exceeding JPY 16,000, and we are not in the worst situation. Stocks have also recorded new highs in New York, London, and Germany. I think when stock prices are high, people think positively, which is good for the country. I read an article about some well-known American investors who had invested some JPY 4 hundred billion in Ericsson. Their assets have increased because the stock price quadrupled in the US. I always think that if Japanese stock prices were to quadruple, the wealth of Japan would increase. Japanese stock prices have not risen and per capita GDP has instead shrunk. Stock prices should rise, not excessively, but healthily. This means that corporate profits must grow soundly. In the process, wages, job opportunities, and investor assets will also increase. It is not exactly the trickle-down theory but society will become more affluent in many ways. I don t think there is anything wrong with stock prices increasing.

7 The consumption tax increase is not something I think I can share an informed view on, but from a citizen s point of view, this has been written into law, so if the tax increase is not enforced, another bill will need to be passed, which, I think, is not a simple task and any impact will need to be considered. Overseas investors are investing with high expectations for Abenomics. While it may depend on the economic condition, amending the law to go back on the decision to increase the consumption tax will weigh heavily on Japan. I heard about the junior NISA program for which an investment cap of JPY 800,000 was mentioned. I hope this will be introduced. Such programs are well accepted in the UK where there are moves to create not only public pension schemes but also private ones. We also see the same trend in the US. We need such schemes to complement corporate pensions because we cannot expect to depend only on public pension. That may be possible in Norway and some oil-producing countries, but in Japan, money earned by citizens is paid as tax and redistributed to the people. Therefore, unless the tax rate increases, there will be less money to distribute. So, people should be able to prepare for their old age and the government has a duty to provide an easily-accessible system for the people. Q: I would like to ask about system sharing between TOCOM and OSE. I understand that the event will be beneficial from the point of view of investors in TOCOM because they will be able to gain access the latest systems of JPX which is a core exchange in Japan. What benefits will current OSE investors have? Could you give us a simple example? A: There are also those who use both TOCOM and OSE systems, and they will stand to enjoy great benefits.