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BUSINESS: Equity options begin trading in Tokyo and Osaka: Japan's leading exchanges try to lure individual investors with lower-priced options that can leverage larger returns
SUSUMU MAEJIMA
ASAHI SHIMBUN
July 18, 1997
Language: English

Text:
In efforts to win back individual investors and better compete with overseas exchanges, the Tokyo and Osaka stock exchanges today began trading in equity options.

Equity options--the right to buy or sell shares at a predetermined price before a preset deadline--are traded on many exchanges around the world. But only options tied to stock indexes were approved in Japan.

Individuals are expected to invest in equity options because trading fees are far lower than market prices of the underlying stock. In contrast, institutional investors dominate trading in stock index options.

But industry analysts warned that it will take some time before equity options become popular because the government may change taxation policies and many lower-tier securities houses are inexperienced in financial derivatives transactions.

"If you ask for projections on the size of the market, I would say it's a big unknown," said an official with the Osaka Securities Exchange.

Tokyo and Osaka exchanges began trading in options on 20 stock issues. Seven are overlapping: Sony Corp., Hitachi Ltd., Mitsui & Co., Nippon Steel Corp., Toray Industries Inc., the Bank of Tokyo-Mitsubishi and the Industrial Bank of Japan.

Exchange officials said they selected internationally known, heavily traded corporations that also have large numbers of shares and shareholders. The two exchanges plan to add issues in the coming years.

Options allow investors to hedge stock holdings or leverage a small investment into a large bet. If stock prices fail to rise or fall as they expected, investors have only to not exercise options and forfeit trading fees, called premiums.

The Japanese Big Bang financial-market deregulation is fueling competition among stock exchanges in Japan and abroad.

In April, the government will liberalize foreign-exchange transactions, a move expected to encourage investors to seek better returns in overseas markets. Japan is also planning to allow stock transactions outside exchanges in fiscal 1998.

Stakes are particularly high for the Osaka Securities Exchange, which is trying to become the nation's leading exchange for trading in options, futures and other financial derivatives.

The Nagoya Stock Exchange, which has been studying plans to introduce equity options trading, plans to reach a conclusion by the fall, a spokesman said.

Exchange officials said they expect equity options will lure individual investors back to stock markets because many small investors buy and sell equity options in the United States, where trading was introduced in 1973.

In 1996, individual investors accounted for about 18 percent of the value of stock transactions handled by 70 large securities houses, down by 12 percentage points from 1986, according to the Tokyo Stock Exchange.

Japan has four options tied to stock indexes, such as the 225-issue Nikkei Stock Average and the more broadly based TOPIX.

Two of them are listed on the Osaka Securities Exchange, which accounted for about 99.5 percent of the nation's stock index options trading in 1996. The Osaka exchange also held a 77 percent share of futures trading the same year.

Most options are rarely exercised. Investors buy and sell options before expiration, trading on the changes in premium prices, which fluctuate usually with stock prices.

Copyright 1997 Asahi Shimbun

Copyright© 1997 Asahi Shimbun, Asia Intelligence Wire, Source: World Reporter ^TM

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