Internet firms with cheaper commissions major factor behind market changes

JAPAN - An increasing number of small and midsize securities companies have been closing their doors because of intensifying price competition with Internet rivals and their inability to respond to the ever-increasing speed of the trading system.

Some analysts predict more small and midsize securities companies will go out of business after the scheduled merger of the Tokyo Stock Exchange and the Osaka Securities Exchange in January next year.

The situation may change the landscape of Tokyo's Kabutocho--the centre of the nation's securities industry, according to observers.

Located on a busy street in Tokyo's Nihombashi district in Chuo Ward, Akakiya Coffee shop serves fresh, aromatic coffee made from coffee beans roasted by a special US-made roasting machine. The shop has become a popular place among shoppers and businessmen to take a break.

The shop was launched in October 2011 by Akakiya Securities Co., which was founded in 1922.

Akakiya cancelled its registration as a financial instruments business operator Tuesday, becoming Akakiya Holdings Co. This will allow the company to shift its focus to the operation of coffee shops and real estate rental beginning Wednesday.

"To date, we have been conducting various kinds of businesses, responding to the changing times," a senior official of the company said. "We decided to find new opportunities while we're still financially healthy enough to do so."

According to the Japan Securities Dealers Association, a total of 13 securities companies closed down as of Dec. 24 in fiscal 2012, including Akakiya Securities Co., a pace surpassing that of fiscal 2009, when 14 companies closed down in the entire fiscal year--a record for recent years.

"Small and midsize securities companies that cannot shift from old business models will face difficulties," association Chairman Tetsuo Mae said.

The rise of Internet securities companies with inexpensive commissions on securities transactions has been cited as a major reason behind the fact that small and midsize securities firms face an uphill battle.

Small and midsize securities firms, which focus on face-to-face counter sales, have been fighting a commission price war with Internet securities companies. At the same time, they have been unable to attract a wide range of clients by, for instance, providing them the asset management know-how that the major securities companies can offer.

In addition, dealers at small and midsize securities companies place trade orders based on their own judgment in proprietary trading while watching market price movements. That causes them to lose out to major and foreign-capital companies that place orders through computer-assisted programs to keep up with the accelerating speed of trading.

Where do TSE stocks go?

When Japan Exchange Group Inc., a holding company that is set be established by the merger of the TSE and OSE, becomes listed in January, every securities company that existed in 2001, when the TSE became a joint stock company, will become holders of shares of Japan Exchange Group. Each of those companies was allotted 20,000 unlisted TSE shares. After the January listing, those shares can be traded on the market.

"That would be a good time [to go out of business]," an owner of one of the small and midsize securities companies said. "By selling the shares for a profit, we'll be able to pay off debts and pay for the retirement of our employees."

An observer said: "Theoretically, securities companies would get 1.5 billion yen (S$21.5 million) by selling their 20,000 shares. More than 50 securities companies will probably terminate their businesses."

Most of the small and midsize securities companies had headquarters around the TSE in Kabutocho, building up a network of communications among their peers to exchange information. They were able to influence personnel affairs of the TSE and make rules for the industry.

However, their say in the business has been increasingly shrinking as Internet securities companies and foreign-affiliated companies, which have different interests, have increased their market shares.

Major securities companies have already moved their headquarters from Kabutocho to other places, while condominiums are being built on sites where securities companies used to stand. Kabutocho's image as the "vibrant centre of the stock business" is fading.