Case 1-2
NASDAQ Japan
Nasdaq Japan 1
The Players
NASDAQ
Softbank Corporation
Osaka Stock Exchange (OSE)
Three limited partners
10 strategic investors
Indigo Markets
Nasdaq Japan 2
The Business Goal
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?
Nasdaq Japan 3
The Plan
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
Nasdaq Japan 4
The Environment
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
Nasdaq Japan 5
The Issues
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?
Nasdaq Japan 6
Basic Market Model
Intermediation
services arise
as needed; fees
arise from
services
Buyer Buyer Seller Seller
Market
Nasdaq Japan 7
Auction Market Model
Fees arise from
auction services
Can be
completely
automated
Buyer Seller
Market conducts auction
Nasdaq Japan 8
NASDAQ US Model
Entrepre- Market- Clearing/ Fin’l
Listing
neurship Making Settling Mgmt
Market Makers
Issuers Investors
Issuer Support
NASDAQ Investor
Support
Service
Service
Providers
Providers
Regu- Nasdaq Japan
Settlement
9
Agents
lators
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
Nasdaq Japan 10
A Bit of Chronology
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
Nasdaq Japan 11
A New Market Model
Improvements in Phase 2 over Phase 1
Change of Market Model
Indigo market
Network
Implementation of ATM (Asynchronous Transfer
Mode) in addition to TCP/IP (Real time)
Nasdaq Japan 12
Technology Architecture
Regulatory
System
Trading Engine
J-Net
Member
Clearance Network
Disclosure Market Data Firm
Settlement
Data Center
Website Corporate
Nasdaq Japan 13
Technology Changes
Changes in Phase 2 from Phase 1
Data center
Moved from Osaka to Tokyo
Managed by NJI (was managed by OSE)
Trading Engine & Regulatory Systems
Operated by NJI (was operated by OSE)
Networks
Managed by NJI (was managed by OSE)
Nasdaq Japan 14
Analysis-1
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.
Nasdaq Japan 15
Analysis-2
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
Nasdaq Japan 16
Question 1
How did market structure and relationships change with the
introduction of the NASDAQ Japan Market in June
2000?
Nasdaq Japan 17
Question 2
What impact will the launch of the NJM hybrid market model
have on market structure and relationships in Japan?
Nasdaq Japan 18
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?
Nasdaq Japan 19
Question 4
What challenges do NASDAQ Japan executives face in the
summer of 2001? What advice would you give?
Nasdaq Japan 20
Prescription
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.
Nasdaq Japan 21
Outcome
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
Nasdaq Japan 22