Leverage Caps Seen to Shake Up Japan Forex Margin Trading Industry

Tokyo, July 27 (Jiji Press)--Japan's new restrictions on foreign
exchange margin transactions to be introduced next month will certainly
intensify the survival race among specialized traders.
Many over-the-counter brokers specializing in off-exchange currency
margin trading have enjoyed rapid profit growth by luring customers with
such a high leverage of more than 100 times collateral.
In the fiscal year that ended in March, the size of
over-the-counter foreign exchange margin trading in Japan surpassed 2,000
trillion yen in terms of transaction value.
But many specialized traders now fear they may go out of business
after Japan's Financial Services Agency newly imposes a leverage cap of 50
times in August. The ceiling is scheduled to be lower to 25 times a year
later.
Meanwhile, the introduction of the leverage caps is expected to
make stock exchange-based currency trading services more attractive to
individual investors.
Though volume for foreign exchange margin trading via stock
exchanges only totaled 100 trillion yen in fiscal 2009, the turnover is
widely expected to increase after the leverage caps are imposed.
Transactions in the exchange-based services will be little affected
adversary by the new regulations aimed at making foreign exchange margin
trading less speculative, because the average leverage offered in the
services stands at as low as five times, analysts said.
Currency margin trading via stock exchanges is also subject to a
tax break, another factor that is believed to help expand the less lucrative
but safer trading, they pointed out.
Anticipating the exchange-based margin trading will grow, major
brokerage houses are entering the business one after another.
Big brokerages are confident that their currency margin trading
services will attract many customers thanks to the strength of their brand
names, which they have built up on long experiences on the stock market.
"A year later, you will see volume of over-the-counter foreign
exchange margin trading halve and that of exchange-based trading double," an
official at a leading brokerage house said.
Among major brokerage groups, Daiwa Securities Co. and Okasan
Online Securities Co. have already been offering foreign exchange margin
trading services based on the Tokyo Financial Exchange's Click 365 system.
They both expanded market shares particularly after launching
campaigns to cut transaction fees in February.
Brokerage mammoth Nomura Securities Co. is set to start a currency
margin trading service in August. The company plans to offer transaction
fees that are the lowest in the industry for a limited time to beat rivals
even if such a move causes losses, Nomura officials said.
In a stark contrast, more than half of 90 specialized
over-the-counter trading firms are expected to go under over the next few
years.
It is difficult for them to shift to exchange-based margin trading
services because they do not have enough money to build infrastructure,
industry watchers said.
While some of the specialized brokers are trying to keep their
customers by improving convenience of their services, some others have
already given up staying in business and offered to sell themselves to
peers, they said.

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