Japan Securities Summit 2016
Tokyo as a Global Financial Center
March 2016 Yusuke Kawamura Deputy Chairman of the Institute Daiwa Institute of Research Ltd. This handout is not intended as a solicitation for investment. Content herein is based on reliable information available at the time the handout was prepared and may be amended or otherwise changed in the future without notice. We make no representations as to accuracy or completeness. Daiwa Securities Group is the parent of Daiwa Institute of Research Holdings (parent of Daiwa Institute of Research) and Daiwa Securities. Daiwa Institute of Research retains all rights related to the content of this handout, which may not be redistributed or otherwise transmitted without prior consent.
Tokyo’s Ranking as a Global Financial Center
1
(rank)
Global Financial Centers—Changes in the rankings of five key cities
"The Global Financial Centres Index" - Industry Sector Sub-Indices Ranking
2 3 4 5
6
Rank
Investment Management
Banking
Government & regulatory
Insurance
Professional services
1
London
London
London
New York
London
2
New York
New York
New York
London
New York
3
Hong Kong
Hong Kong
Hong Kong
Singapore
Singapore
4
Singapore
Singapore
Singapore
Busan
Hong Kong
5
Toronto
Tokyo
Tokyo
Hong Kong
Washington DC
6
Tokyo
Chicago
Seoul
Chicago
San Francisco
7
Chicago
Zurich
Chicago
Seoul
Chicago
8
San Francisco
Shanghai
Sydney
Washington DC
Boston
9
Boston
Seoul
Toronto
San Francisco
Tokyo
10
Zurich
San Francisco
Zurich
Tokyo
Zurich
Source: Z/Yen Group "The Global Financial Centres Index 18", September 2015
7
"Global Power City Index" - Function-Specific Ranking Rank
8
9 (15)
10 Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
Mar-
2007 2008 2009 2010 2011 2012 2013 2014 2015 London Hong Kong Tokyo
New York Singapore
Source: Z/Yen Group "The Global Financial Centres Index"
Cultural Interaction
Economy
R&D
Livability
Environment
Accessibility
1
Tokyo
New York
London
Paris
Geneva
Paris
2
London
Tokyo
New York
Berlin
Frankfurt
London
3
New York
London
Paris
Vancouver
Stockholm
Amsterdam
4
Beijing
Los Angels
Singapore
Vienna
Zurich
Singapore
5
Hong Kong
Paris
Tokyo
Barcelona
Vienna
Hong Kong
6
Singapore
Seoul
Beijing
Geneva
Singapore
Frankfurt
7
Zurich
Boston
Berlin
Toronto
Vancouver
Shanghai New York
8
Seoul
Singapore
Sydney
Zurich
London
9
Shanghai
San Francisco
Vienna
Amsterdam
Berlin
Seoul
10
Stockholm
Chicago
Los Angels
Madrid
Copenhagen
Istanbul
11
Geneva
Hong Kong
Istanbul
Copenhagen
Amsterdam
Tokyo
12
Copenhagen
Osaka
Brussels
Milan
Washington, D.C.
Kuala Lumpur
13
Paris
Berlin
Barcelona
Stockholm
Tokyo
Brussels
14
Sydney
Sydney
Seoul
Frankfurt
Madrid
Barcelona
Amsterdam
Tokyo
Sydney
Milan
15
Washington, D.C. Washington, D.C.
Source: The Mori Memorial Foundation's Institute for Urban Strategies "Global Power City Index 2015"
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
1
Equity Markets: Major Presence in Domestic Markets Foreign investor shareholding ratios by country
Value of Share Trading in Major Stock Exchanges (Domestic & Foreign) ($ trillion)
（％）
35
60
55.0
UK
NYSE Euronext (US)
30
50
Japan Exchange Group Shanghai SE
25
London SE Group
40
Hong Kong Exchanges
20
31.7
Japan
Singapore Exchange
30
15 20
16.2
10 10
5
US
0
0 1990
1993
1996
1999
2002
2005
2008
2011
Source: World Federation of Exchanges, London Stock Exchange Group
2014 (Year)
1997
1999
2001
2003
2005
2007
2009
2011
2013
（Year） Sources: Tokyo Stock Exchange (Japan), Federal Reserve Board (US), Office for National Statistics (UK) Note: Japanese ratio relates to listed companies; US and UK ratios include unlisted companies.
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
2
Equity Markets: Steep Decline in Foreign Company Listings
（Companies）
Total corporate listings on TSE and foreign companies listed on TSE
（Companies）
140
4,000 127
Foreign company listing
120
3,500
Total company listing (right scale)
100
3,000
80 2,500 60
2,000
40
1,500
20
9
0
1,000 1980
1985
1990
1995
2000
Source: Tokyo Stock Exchange Note: Osaka Stock Exchange included as of 2013. Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
2005
2010
2015 (Year-end)
3
Bond Markets: Problems with Diversification Debt securities outstanding by sector of issuer (as of end-June 2015, in billions of US dollars) Japan (total 10,985)
United States (total 36,278)
2,143 (19%)
14,976
15,694
615
(42%)
(43%)
(6%) 8,227 (75%)
5,389 (15%)
Financial corporations
Non-financial corporations
China (total 6,776)
1,980
2,720
(29%)
(40%)
2,075 (31%)
General government
United Kingdom (total 6,263)
2,725 2,964
(44%)
(47%)
571 (9%)
Source: Bank for International Settlements
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
4
Comparison between Tokyo, New York, London, Hong Kong and Singapore as Global Financial Centers ① Tokyo • Corporation tax: 23.9％ • Individual income tax: Tax system 45.95％ (top rate) • VAT: 8％ (consumption tax)
New York • Corporate tax: 39％ (top rate) • Individual income tax: 39.6％(top rate) • VAT: 8.875％
London • Corporate tax: 20％ • Individual income tax: 45％(top rate) • VAT: 20％
Hong Kong • Corporation tax: 16.5％ • Individual income tax: 17％ (top rate) • VAT: 0％
• Development of the • Deregulation of the • Offshore RMB business • The aim of plans to financial market in light financial market as a promotion in light of establish Tokyo as a global of economic growth & result of The Big bang internationalization of financial center is to make status of USD mother in the 1980s. RMB. Securing position market (Abolishment Approach to fund raising easier for both as world’s biggest • Deregulation of the of restriction on establishme domestic and overseas offshore RMB market. investors and companies. financial sector and non-member nt as global connection of finance investment in stock • Company start-ups: financial • Company start-ups: Oneusing IT exchange members) Internet-based one-stop center stop administration service company/business • Company start-ups: • Company start-ups: as of April 2015. Six registration service consultation languages partly introduced partly introduced available from 2011 available. Internet based company Internet based company (English / Chinese) registration service registration service
Equity market capitalizatio n (end-2014)
bonds outstanding (end-2014)
Banks’ assets (end2014)
Singapore • Corporation tax: 17％ • Individual income tax: 20％ (top rate) • VAT: 7％
• Income and other financial sector tax incentives introduced to attract overseas financial institutions. • Company start-ups: Internet-based one-stop administration service available since 1990s. (English)
$4.4 trillion (% of GDP: 95％)
$19.4 trillion (% of GDP: 112％)
$4.0 trillion (% of GDP: 134％)
$3.2 trillion (% of GDP: 1111％)
$0.8 trillion ($ of GDP: 245％)
$11.0 trillion (% of GDP: 240％)
$35.8 trillion (% of GDP: 206％)
$6.2 trillion (% of GDP: 206％)
$0.4 trillion (% of GDP: 122％)
$0.3 trillion (% of GDP: 114％)
$15.2 trillion (% of GDP: 330％)
$21.2 trillion (% of GDP: 122％)
$16.8 trillion (% of GDP: 561％)
$2.4 trillion ($ of GDP: 817％)
$1.8 trillion (% of GDP: 582％)
Source: DIR (based on World Federation of Exchanges, Bank for international Settlements, JETRO, and Haver Analytics data) Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
5
Comparison between Tokyo, New York, London, Hong Kong and Singapore as Global Financial Centers ② GDP of Countries by Sector (2014)
100% 4.4%
9.6% 7.9%
20.8%
7.1%
18.9%
16.6% 12.5% Agriculture, fisheries, mining
80%
Finance 60%
69.6% 79.1%
79.0%
71.6% 69.7%
40%
63.9% 72.2%
Services (excl. finance)
77.8%
Manufacturing 20% 5.5% Singapore
7.3%
Hong Kong
23.5%
London
9.2% UK, All
US, All
Japan, All
0%
20.3% New York
11.2%
15.8%
Tokyo
24.8%
Source: DIR (based on Tokyo Metropolitan Government, U.S. Bureau of Economic Analysis, The Office for National Statics, Haver Analytics data) Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
6
Features and Problems of Tokyo’s Markets as a Financial Center Equity market
Bond market
Derivative market
High liquidity a strength; highly visible foreign investor presence a key feature. Very few foreign company listings compared with overseas markets. PTS trading in doldrums; domestic inter-market competition limited. HFT and algorithmic trading provide high levels of liquidity.
Huge government bond issuance, 95% held by domestic Japanese investors. Corporate bond issuance limited compared with US; issues for the most part by companies thought particularly creditworthy. Corporate bonds held mostly by Japanese banks rather than foreign investors, thereby effectively limiting secondary market liquidity.
Listed derivative trading smallscale by comparison with equity market. Around 70% of investors foreign; domestic investors play only a very minor role. Tendency for actively traded products to be equity indexoriented. Commodity-related and financerelated markets separate.
Asset management business
Business, living environment, other considerations
Japan the main center for Japanese share trading; Asian shares traded primarily in Hong Kong and Singapore. Following the financial crisis, however, Japanese share trading has also started to gravitate overseas. There are also investment companies that the Japan office is positioned as a sales office. Top-flight fund managers trading Japanese and/or Asian shares tend to move out of Japan.
Corporation and income tax high compared with other cities (Hong Kong, Singapore). English language business environment less favorable than other cities. Foreigner-friendly life-style infrastructure (schools, maids, nannies, English-language medical services) lacking compared with other cities Tokyo’s systems and infrastructure are domestic marketoriented and settlement infrastructure and the like are not in conformity with global specifications.
Source: Compiled by DIR (based on publications such as the Japan Securities Dealers’ Association “Report of the Council for Tokyo Global Financial Center Promotional Activities) Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
7
Derivative Markets – Largest Exchanges Largest Derivatives Exchange Rank
Futures and options volume traded and/or cleared.
Exchange
Country
Number of contracts (2014) in millions
1
CME Group
United States
3,443
2
Intercontinental Exchange
United States
2,276
3
Eurex
Germany
2,098
4
National Stock Exchange of India
India
1,880
5
BM&F Bovespa
Brazil
1,418
6
Moscow Exchange
Russia
1,413
7
CBOE Holdings
United States
1,325
8
Nasdaq OMX
United States
1,127
9
Shanghai Futures Exchange
China
842
10
Dalian Commodity Exchange
China
770
11
BSE
India
726
12
Korea Exchange
Korea
678
13
Zhengzhou Commodity Exchange
China
676
14
Hong Kong Exchanges & Clearing
Hong Kong
320
15
Japan Exchange
Japan
310
Japan
372
Tokyo total
Japan Exchange + Tokyo Financial Exchange + Tokyo Commodity Exchange
Source: Futures Industry Association Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
8
Mezzanine Finance – International Comparisons： Issuance Trends （$ Bil）
Japan
400
UK・France・Germany
US
300 33
200 105
100 112
0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015 （Year）
Source: DIR (based on Bloomberg and Haver Analytics data) Note: SUM of CB and Subordinated Debt Issuance by country of issuance.
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
9
ABS Markets – International Comparisons： Issuance Trends
Japan
US
MBS (Japan Housing Finance Agency)
（$ Bil）
40
（$ Bil）
2,500
MBS (Institutions other than the Japan Housing Finance Agency) Other securitized products
Europe
MBS (Agency securities)
（$ Bil）
MBS (Other issuers)
1,400
MBS
Securitized products other than MBS
Other securitized products
1,200
2,000
30
1,000 1,500
800
1,000
600
20
400
（FY）
（Year）
2015
2014
2013
2012
2011
2010
2009
0
2008
2015
2014
2013
2012
2011
2010
2009
2008
0
200 2007
2014
2013
2012
2011
2010
2009
2008
2007
0
500
2007
10
（Year）
Source: DIR (based on JBA, SIFMA, and Haver Analytics data) Note: US agency bonds include CMO (collateralized mortgage obligations).
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
10
Japan’s Corporate Competitiveness Gross Domestic expenditures on R&D
Return on Equity (ROE)
(%)
Nikkei 225 FTSE100
25 20
（％ of GDP）
S&P500 DAX
5
CANADA ITALY US
4
15
JAPAN FRANCE CHINA
GERMANY UK
3
10 2
5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015
2014
2013
2012
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
2003
-5
2002
1 2001
0
(Year)
(No.)
15.0
1,200 Transaction value Number of transactions
12.5
0.0
0
（FY）
2015
200 2014
2.5 2013
400
2012
5.0
2011
600
2010
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0
7.5
2009
Manufacturing All Industries(excluding financials) Non-Manufacturing
800
2008
20
1,000
10.0
2007
30
2006
40
10
Japan's Outbound M&A
(JPY tril)
2005
50
Capital Adequacy Ratio April-March Business-Term Listed Companies
2004
（％）
（Year）
(Year)
Source: DIR (based on Japan Exchange Group, IMF, Bloomberg) Note: Listed companies are composed of TSE 1st & 2nd sections, Mothers and JASDAQ (FY2014 only) markets. Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
11
Japan Revitalization Strategy (Growth Strategy) 2015 Principal measures Revolution in productivity by investment in the future Encouraging corporate behavior to improve “earning power” ・ Further enhancement of growth-oriented corporate governance ・ Promotion of innovation and venture business ・ International expansion to growing markets including Asia
Accelerating proactive actions to challenge a new era ・ ‟4th Industrial Revolution” caused by the development of IoT, Big data, A.I. ・ Full utilization of ITC, with reinforcement of cyber security measures
Developing personal capabilities and knowledge ・ Improvement of labor quality through addressing long-working hours practices, further promotion of women, elderly persons etc. ・ Development of capabilities of human resources in the era of great transformation of the society
Promotion of Local Abenomics Enhance “earning power” of mid-ranking companies, SMEs and micro enterprises Vitalize services industry and enhance its productivity Transform primary industry/ health care industry/ tourism into key industries Implementation of leading projects for 2020
Automatic travelling vehicles, hydrogen society, advanced robots, tourism, FDI etc. Source: DIR (based on Cabinet secretariat)
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
12
Mezzanine Investor Presence of Public-Private Investment Funds Specific areas
Japan Oil, Gas and Metals National Corporation
[industrial investment finance]
Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development
PFI Promotion Corporation of Japan [industrial investment finance]
[industrial investment finance]
Shoko Chukin Bank [industrial investment finance]
JBIC Overseas Development Aid Investment Facility
Amount of funds and loans (As of end Sept 2015) Public:642.4 bil yen Private:54.3 bil yen Government-guaranteed: 3,216.4 bil yen
[industrial investment finance]
Japan Finance Corporation
Cool Japan Fund
(subordinated loan) [industrial investment finance]
[industrial investment finance]
Agriculture, Forestry and Fisheries Fund Corporation for Innovation, Value-chain and Expansion Japan
＜6th level industrializaion＞
[industrial investment finance and loans]
Company size
ＤＢＪ
(small and medium)
Private sector financial institutions
Early
General areas
Small
Japan Finance Corporation
Senior loans
DBJ Competition Promotion Fund [industrial investment loans]
Japan Finance Corporation (subordinated capital loans) [industrial investment finance and loans]
The Innovation Network Corporation of Japan [industrial investment finance] Venture
Mezzanine (subordinated loans, preferred shares)
Source: Ministry of Finance Japan
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
Early
Equity Large (ordinary shares) Financial method risk
13
Current Situation for RMB Business and Offshore Bonds
Monthly RMB turnover in the Tokyo and London Forex markets （$ Bil ）
（RMB Bil ）
1,000
700
900
864.0
584.9
600
Oct-2014
800 700
Offshore RMB debt security outstanding by country
Apr-2015
500
798.1
600
400
500 400
Share 1.3 ％
300
Share 1.7 ％
200
300 200
Share 0.08 ％
Share 0.16％
100
50.0
100 7.2
12.3
0 London market ($-RMB)
Tokyo market (JPY-RMB)
23.5
21.7
UK 2015/9
Germany 2015/3
0 Hong Kong Singapore 2015/6 2015/3
0.7
Japan 2015/6
Source: DIR (based on Tokyo Foreign Exchange Market Committee, Hong Kong Monetary Authority, Foreign Exchange Joint Standing Committee, Monetary Authority of Singapore, London Stock Exchange, Deutsche Bundesbank data) Note: ‟Share” is the percentage of each market’s forex business accounted for by the RMB. Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
14
What is the “Japan Global Asset Management Center”? Tokyo’s Kabuto-cho will be redefined as a global asset management center boasting state of the art connectivity and infrastructure, necessary in todays modern markets
Location
• Situated between the Tokyo Stock Exchange, the Japan Securities Clearing Corporation and the Japan Securities Dealers Association • Walking distance to Tokyo metropolitan railway terminal the central business district
Photos courtesy of Japan Exchange Group, Inc.
• Finance professionals and IT service providers
Community • The historical heart of the financial district
Milestones
• 2016~ : Satellite office space for funds & start-ups established • 2016~ : Incentive programs initiated (tbc) • 2017~ : Introductory office & business suite services offered • 2018~ : Special incentive scheme, first phase executed (tbc) • 2020~ : JGAM center launched
Source: Heiwa Real Estate mid-term plan and PwC Analysis Japan Global Asset Management Center (JGAM) - a special economic zone in Kabuto-cho, Tokyo
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
15
Tokyo Financial Street
Otemachi Area
Bank of Japan
Daiwa Securities
Nihombashi Area
Kabutcho Area
Merrill Lynch
Japan Securities Depository Center
Nomura Securities
-1-
Japan Securities Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved. Dealers Association
Tokyo Stock Exchange
16
Overview of the JGAM
Illustrative
Services aligned to your business allow you to focus on what matters; implementation of key components of your value chain are our top priority Investors
JGAM Asset Managers
Commercial Bank
HF PE Real Estate
Insurance Pension / Endowment Sovereign Wealth Fund Family Office High Net Worth / Wealth Managers Mass Retail Investors
Prime Broker
Fund Admin/ Transfer Agent JGAM’s Launch Pad
1
One-Stop Professional Services for Licensing
2
Business Matchmaking
3
Corporate Functions
4
Offices & Conference Rooms
5
ICT Platform
Governmental Agencies
Regulators
Custodian
Business Servicer
IT System Vendor
Japan Global Asset Management Center (JGAM) - a special economic zone in Kabuto-cho, Tokyo
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
17
Market Entry- Challenge and Response
Not Exhaustive
Challenges to entering the Japanese market exist. Government agencies and private sector service providers provide solutions to these challenges Perceived Challenge
Reality
1 One-Stop Professional Services for Licensing
• Expensive professional services (e.g., legal, tax, translation) • Monopoly of back office systems and custody service providers • High rent (office and residential) • High labor cost • High tax rate
• Rent cost cheaper compared to other financial centers • Contenders exist at varying degrees of coverage for back office systems and custodian services
• Concierge service (e.g., housing, visa, office setup) • Reasonable office rent (c. $50 per sqm per month) • Subsidies for business operations
Language
• Insufficient English language environment • Most regulatory documentation in Japanese
• Most understand English (English education starts at age of 7) • English largely accepted by government agencies
• Professional interpreters and translators (available 24/7)
Regulation
• Registration and licensing • Stringent regulatory inspection process • Complex regulatory and reporting obligations
• Straight-forward registration process • Clear interpretations of Japanese regulations available • Global standardization of regulations promoted
• Advice on regulatory compliance Registration support Regulatory advisory Regulatory reporting automation engine
Cost of Doing Business and Living in Japan
Source: Interviews with Japan based foreign asset managers, Japan Financial Services Agency and PwC Analysis Japan Global Asset Management Center (JGAM) - a special economic zone in Kabuto-cho, Tokyo
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
18
Business ImplementationBenefits of being in the JGAM
Not Exhaustive
JGAM will provide promising growth opportunities and risk control Type of Benefit
Examples of JGAM’s benefits
2 Business
Matchmaki ng
Functions
− Outsourcing of operations and/or compliance and other corporate functions to service providers − Sharing of insights & tools for legal, compliance, regulatory matters (e.g., templates / guidelines)
Offices & Conference Rooms
− Complimentary use of temporary office & conference rooms − Organization & coordination of meetings and events by dedicated staff − Low cost media broadcast facilities for investors relation
ICT Platform
− − − − − −
3 Corporate 4
5
− Business matchmaking & networking Physical site (conference rooms) Sponsored events Online services (e.g., search engine / secure & compliant chat system) Japanese governmental agency programs
State-of-the-art front office systems (e.g., OMS / EMS) and secured dealing Analytical tools & reports for decision making Compliant low cost middle / back office systems Co-location and connectivity with major system and market data vendors Regulatory compliant data center Back-up center for business continuity
Cost Business Risk Productiv Growth Control ity
✓
-
-
-
✓
-
✓ ✓ -
✓ ✓ ✓ ✓ ✓ -
✓ ✓ ✓
Japan Global Asset Management Center (JGAM) - a special economic zone in Kabuto-cho, Tokyo
Copyright © 2016 Daiwa Institute of Research Ltd. All rights reserved.
19
THANK YOU VERY MUCH FOR YOUR ATTENTION
