Transcript Nasdaq Japan

Case 1-2
NASDAQ Japan
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The Players
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NASDAQ
Softbank Corporation
Osaka Stock Exchange (OSE)
Three limited partners
10 strategic investors
Indigo Markets
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The Business Goal
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Japanese stock market planned to become
the link to allow 24-hour trading in
combination with NASDAQs around the
world
Global standards to be applied
Do the benefits outweigh the costs?
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The Plan
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To shift the financial assets of Japanese investors
from safe low growth categories (80% is in cash,
savings, insurance) to more high risk and high
growth equity markets (currently only 5%).
An efficient, transparent global market would
enable Japanese investors to move more of their
personal wealth outside the country– much riskier
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The Environment
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Existing Japanese stock exchanges use an
Auction securities model that does not
perform efficiently enough to network with
other country’s stock exchange systems.
A hybrid market model is proposed to ease
the change
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The Issues
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What kind of market is this?
What role does culture play?
How should the business be structured?
Technology: build or buy?
Support systems: own, rent, outsource?
Can the US model work in Japan?
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Basic Market Model
Intermediation
services arise
as needed; fees
arise from
services
Buyer
Buyer
Seller
Seller
Market
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Auction Market Model
Fees arise from
auction services
Can be
completely
automated
Buyer
Seller
Market conducts auction
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NASDAQ US Model
EntrepreListing
neurship
Market- Clearing/
Making Settling
Fin’l
Mgmt
Market Makers
Issuers
Issuer Support
Service
Providers
Investors
NASDAQ
Regulators
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Settlement
Agents
Investor
Support
Service
Providers
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Hybrid Market Model
Profit is made on
difference
between buy and
sell prices; fees
may also be
earned for
services
Buyer
Seller
Market maker buys and
sells as principal
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A Bit of Chronology
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June 1999-JV signed between NASDAQ
and Softbank Corp
October 1999- NASDAQ Japan Club
April 2000-Agreement signed with OSE
June 19, 2000-Initial launch of NJI
June 19, 2001-Beta version of hybrid model
running on NJ servers
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A New Market Model
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Improvements in Phase 2 over Phase 1
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Change of Market Model
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Indigo market
Network
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Implementation of ATM (Asynchronous Transfer
Mode) in addition to TCP/IP (Real time)
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Technology Architecture
Regulatory
System
Trading Engine
J-Net
Disclosure
Clearance
Settlement
Market Data
Network
Member
Firm
Data Center
Website
Corporate
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Technology Changes
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Changes in Phase 2 from Phase 1
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Data center
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Trading Engine & Regulatory Systems
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Moved from Osaka to Tokyo
Managed by NJI (was managed by OSE)
Operated by NJI (was operated by OSE)
Networks
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Managed by NJI (was managed by OSE)
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Analysis-1
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NASDAQ and NJI tried create a market that
would totally transform the Japanese way of
thinking.
Because they wanted to do this quickly they
worked with established Japanese
Corporations
For example Softbank and OSE.
Most other corporations acted as limited
partners or strategic investors.
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Analysis-2
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The end result was an extremely
complicated entity and this complexity
could have contributed to their demise.
Another issue was the decline in the
economy in both Japan and the U.S. that
started in early 2001
The company is running out of cash
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Question 1
How did market structure and relationships change with the
introduction of the NASDAQ Japan Market in June
2000?
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Question 2
What impact will the launch of the NJM hybrid market model
have on market structure and relationships in Japan?
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Question 3
What are the strengths and weaknesses of the approach that
has been taken to building a global securities market?
Would you have done anything differently?
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Question 4
What challenges do NASDAQ Japan executives face in the
summer of 2001? What advice would you give?
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Prescription
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The goals of NJI were too aggressive for the
conservative Japanese market; technology
might not be so portable after all.
Plan to introduce the Phase II model
gradually over a period of time instead of
having to compromise with two tiered
system
Raise awareness of technology.
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Outcome
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Announced end of joint venture August 16,
2002.
Alliance ended on October 15, 2002.
NASDAQ wrote off 20 million dollars. Lost
money for two years and U.S. exchange did
not predict that would change.
Softbank had to add 1.7 billion dollars to its
growing list of failed investments
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