1284 Intelirel’s Transition to E-Business ness channels and not be viewed as a means of cannibalizing them. ,QWHOLUHO¶V%HQH¿WV Intelirel has been able to gain as much from it as other successful e-business adopters in this LQGXVWU\7KHFRPSDQ\¶V³GRLWULJKWRUGRQ¶WGRLW at all” (Rif kin & Kurtzman, 2002, p. 93) approach entailed a number of strategic measures such as regular testing of its Web sites for security, us- ability, and performance; devising a performance metrics system for its Web site; development of a strategic partnership with major providers of media, technology and services, and digital colors. 7KHEHQH¿WVRIWKHVHPHDVXUHVWR,QWHOLUHOKDYH been both internal and external. $VDQLQGLFDWRURIH[WHUQDOEHQH¿WVWKHFRP- pany gained 10 to 15% of market share in 1999 because of its successful full blown assimilation RI H E X VL Q H V V W H F K Q R OR J L H V % H Q H ¿ W V D Q G , Q F H QW L Y H V provided by Intelirel attracted a large number of its customers to transact with the company on the Internet. According to an e-business manager at Intelirel, the increase in market share could be at- tributed to the increase in visibility of the products for the distributors and retailers as well as other incentives provided by the company. As we noted in the previous section, the company’s e-business implementation can be GHVFULEHG DV ³EXVLQHVV PRYHV´DQG QRWVLPSO\ ³WHFKQRORJ\SOD\V´5LINLQ.XUW]PDQ p. 96). According to an e-business manager at Intelirel, e-business assimilation of the company HYROYHGIURPD³UHYHUVHLPSDFWFKDLQ´WKDWLVWKH company went to its customers with the e-business ideas and implemented it only after it got a positive response from them. This is unlike strategies in OHVVVXFFHVVIXOFRPSDQLHVWKDWDUHPHUHO\³WHFK- nology plays” and customer response is often the last step in the implementation process. Many companies face problems in disposing of their slow moving items or an inevitable product cannibalization. In this regard, Intelirel has been DEOHWROHYHUDJHPD[LPXPEHQH¿WE\SXEOLVKLQJ its closeout prices on the e-business domains. This makes the retailers and distributors to bid for the highest price, as the information is available to all the buyers. Before the e-business revolution at Intelirel, closeout prices were only offered to Intelirel’s distributors who then sold them to WKHUHWDLOHUVIRUDSUR¿W7KHSULFHRIIHUHGE\WKH distributors couldn’t be negotiated because of the lack of customer response. ,QWHOLUHOKDVLGHQWL¿HGRYHUWKH\HDUVWKDW:HE has a 70% more reach 11 than the usual in-store marketing making this a very vital part of its business. As 90% of the company’s order process is automated, Intelirel is able to leverage internal EHQH¿WV E\ UHGXFLQJ PDQXDO HQWU\ HUURUV DQG allocate its excess human resources in the order processing areas to other operations in the com- pany. The company has already converted 50% of its non-EDI customers to use the e-business medium. The cut in its order processing staff has allowed the company to pass on the savings to its customers in the form of promotions and discounts. This is especially important given the fact that the company’s products are priced higher than most of its competitors (see Table 1). CURRENT CHALLENGES/ PROBLEMS FACING THE ORGANIZATION /L N H D O O ¿ U P V L Q W K L V E X V L Q H V V , Q W H O L U H O L V I D F L Q J W K H special demands made on information technology by the rapidly globalizing apparel industry. The current e-business model is disintegrated making it inconvenient for customers to make bundled orders. Each division of Intelirel maintains its own e-business site to process the orders and provide support. The customer needs to log into the appropriate division to make purchases rather than order all products under one business. Also, 1285 Intelirel’s Transition to E-Business the existing e-business model makes it very com- plicated to organize all their business processes under one banner. Intelirel also suffers from a lack of product awareness among its target segments. Many of its business customers are not aware of the vari- ous products offered by Intelirel, which is very crucial to Intelirel’s growth in the long run. Many customers complained to the company that they did not know about a sale on a brand of apparel or did not have any marketing information related to Intelirel’s new lines of products. Being a leader in the middle-income group of the population, the company can focus in attracting the high-end customers. E-business plays a very important role in developing the opportunities DQGUHGH¿QLQJFXVWRPHUH[SHFWDWLRQV7KHPDU- ket is dominated by upscale brands, thus making it convenient for Intelirel to penetrate into this segment of few players. As the upscale brands enter the low-end segments, Intelirel’s business territories might be encroached. E-business chal- lenges are areas of focus at Intelirel, as the busi- ness customers are pushing these manufacturers to provide them with complete order and product information. Intelirel will have a much tougher job on their hands with their e-business portals being decentralized. The growth of technology has also added to Intelirel’s problems. Having already set the stage for being the leader of providing e-solutions to their customers, Intelirel has increased its cus- tomer expectations. Maintaining that stronghold ZLOOGH¿QLWHO\EHDWRXJKWDVNWRDFFRPSOLVKDV technology develops by leaps and bounds. Some retailers have begun their transition LQWR WKH UDGLR IUHTXHQF\ LGHQWL¿FDWLRQ 5),' world. This phenomenon is likely to trigger a drastic change in the way suppliers/manufactur- ers would interact with their customers. RFID implementation has already started off in a rapid pace at Intelirel complicating things even more as the companies tried to improve its services in all dimensions of its e-business methodologies. How can the company accomplish the tasks mentioned previously and maintain its position in its market? Would it succumb to the pressures of its customer expectations? Would its competi- tors take advantage of the fact that Intelirel might WDNHDZKLOHLQ¿[LQJLWVGHFHQWUDOL]DWLRQLVVXHV" These are a few questions that cross one’s mind while analyzing the challenges ahead for the company. REFERENCES Attaran, M. (2004). Nurturing the supply chain. Industrial Management, 46(5), 16-20. Benjamin, R. & Wigand, R. (1995, Winter). Elec- tronic markets and virtual value chains on the information superhighway. Sloan Management Review, 36(2), 62-72. Bobbin. (2001). E-color offers color consistency solution, 42(6), 10-11. Carr, R. (1999, February 8). Going public has hurt the industry. Sporting Goods Business, 32(3), 15. Carroll, B. (2003). Speakers: B2B link saves time, money. Furniture Today, 27(49), 6. Dan, A., Dias, D. M., Kearney, R., & Lau, T. C. (2001). Business-to-business integration with tpaML and a business-to-business protocol frame- work. IBM Systems Journal, 40(1), 68-90. DiMartino, C. (2000). E-wiz! Computer color is changing everything! Apparel Industry Magazine, 61(12), 38-41. Electronic Commerce News. (2002). Using XML to move data and dollars together. Electronic Commerce News, l7(8), 1. Emmelhainz, M. A. (1990). Electronic data inter- change: A total management guide. New York: Van Nostrand Reinhold. 1286 Intelirel’s Transition to E-Business Ford, D., Gadde, L. E., Hakansson, H., Lundgren, A., Snehota, I., Turnbull, P. & Wilson, D. (1998). How companies relate to each other. In Managing business relationships (pp. 17-40). Chichester, England: John Wiley & Sons. Foster, T. A. (2000). Collaborative planning, fore- casting and replenishment — Made for the Web. Retrieved February 11, 2005, from http://www. supplychainbrain.com/archives/10.31.00.Plan- ning.htm?adcode=10 Franklin, D. (2001, Summer). Beyond the e-busi- ness revolution. The OECD Observer, (226/227), 48-49. Ghosh, S. (1998). Making the business sense of the Internet. Harvard Business Review, 76(2), 126-35. Green, M., Garrity, J., Gumbus, A., & Lyons, B. (2002). Pitney Bowes calls for new metrics. Strategic Finance, 83(11), 30-35. Haar, J. & Reyes, S. (2002). Trade liberalization and market competitiveness of the Colombian apparel industry. Multinational Business Review, 10(2), 11-22. Hamel, G. (2001). Is this all you can build with the Net? Think bigger. Fortune, 143(9), 134-137. Hill, S. (1999). E-tailing: The Internet meets SCM. Apparel Industry Magazine, 60(10), 66-68. Kaufman, R. (1997). Nobody wins until the FRQVXPHU VD\V ³,¶OOWDNHLW´ Apparel Industry Magazine, 58(3), 14-15. Kelly, K. & Andersen, A. (2000). Apparel e-com- merce: Online and kicking. Apparel Industry Magazine, 61(3), 48-50. Kuntz, J. (2000, March 27). Age and income play key roles in online sales. Daily News Record, 19. /OR\G0(-XO\7H[WLOH¿UPVERRVWLQJ sales from overseas — Bedding and towel makers cite fashion and costs for foreign production. Wall Street Journal, 1. Malone, T., Yates, J., & Benjamin, R. (1987). Electronic markets and electronic hierarchies. Communications of the ACM, 30(6), 484-497. McAtee, L. F., Jr. (1999). Customers service skills for survival. Hospital Materiel Management Quarterly, 21(2), 18-25. McIvor, R. P. H. (2004). The implications of elec- tronic B2B intermediaries for the buyer-supplier interface. International Journal of Operations & Production Management, 24(3/4), 241. Merrick, A. (2003, September 26). Sears to sell clothing on its Web site. Wall Street Journal, B2. Newbery, M. (2004, November). Trends in online apparel retailing, forecasts to 2010 — Manage- PHQWEULH¿QJ+RZIDUFDQRQOLQHJR"Just-Style, 22-24. Power, D. J. & Sohal, A. S. (2002). Implementation and usage of electronic commerce in managing the supply chain. Benchmarking, 9(2), 190-208. Radosevich, L. (1997). Electronic data inter- change: The once and future EDI. CIO Magazine. Retrieved February 11, 2004, from http://www. cio.com/archive/ec_future_edi.html Rifkin, G. & Kurtzman, J. (2002). Is your e-busi- ness plan radical enough? MIT Sloan Manage- ment Review, 43(3), 91-97. Scannell, T. V., Vickery, S. K., & Droge, C. L. (2000). Upstream supply chain management and competitive performance in the automotive supply industry. Journal of Business Logistics, 21(1), 23-48. 6HGODN36&RQTXHUWKHHIXO¿OOPHQW challenge. Apparel Industry Magazine, 61(9), 81. 1287 Intelirel’s Transition to E-Business Smailes, J., Sapienza, C., Bullock, G. R., Kehoe, A. M., & Lewis, M. (1998). Kmart’s new apparel vision. Discount Store News, 37(11), A7. Spralls, S. A., III. (2001). Internet migration: The construct, research propositions, and implications. In American Marketing Association Conference Proceedings, Vol. 12 (pp. 370-371). Swaminathan, J. M. & Tayur, S. R. (2003). Mod- els for supply chains in e-business. Management Science, 49(10), 1387-1406. Tedeschi, B. (2004, December 27). Last-minute VKRSSHUVÀRFNHGWRWKH,QWHUQHWOHDGLQJRQOLQH retail sales to surpass estimates for the holiday season. New York Times, C5. Vickery, L. & Agins, T. (2001, June 25). Retail- HUV ¿QG :HE DSSDUHO XQSUR¿WDEOH Wall Street Journal, B6. Vigoroso, M. W. (2001). The bottom line in Web design: Know your customer. EcommerceTimes. com. Retrieved November 14, from http://www. macnewsworld.com/story/14738.html Williamson, R. (2004, March 16). Eshakti gets the power online. WWD, 12. ENDNOTES * This case, prepared by Nir Kshetri and Satya Jayadev of the University of North Carolina at Greensboro, is based on a real company. Company and Web site names as well as some data used in the case have been disguised. The authors wish to thank an IJCEC associate editor and three reviewers for insightful comments on an earlier version of this case. 1 (', LV GH¿QHG DV WKH LQWHURUJDQL]DWLRQDO exchange of business documentation in a form that is structured and can be processed by a machine (Emmelhainz, 1990, p. 4). EDI is used for incoming sales orders, advanced shipment notices (ASN), electronic funds transfer (EFT), transmission of point of sale (POS) data, and so on (Power & Sohal, 2002). 2 6HH³,QGXVWU\3HUVSHFWLYH(',LQWKH$S- parel Industry” at http://www.ebridgesoft. com/downloads/apparel.pdf (Accessed March 24, 2005). 3 This is based on online retail ranking from business2.0. 4 7KH ,QWHUQHW¶V JHQHUDOEHQH¿WV KDYHEHHQ examined widely in the literature. We focus RQDSSDUHOVSHFL¿FEHQH¿WVLQWKLVVHFWLRQ 5 For instance, Lands’ End introduced the concept of a virtual model in October 2000. The simulation of a dressing room experi- HQFHVLJQL¿FDQWO\LQFUHDVHGWKHFRPSDQ\¶V rates of converting an online visitor into a buyer (see Vigoroso 2001). 6 The non-EDI customers transact through phone or fax. Intelirel’s customer service representatives (CSR) take those orders and process them. Intelirel plans to reduce the number of CSRs and pass on that savings to the customers. The company already has an established e-business portal. Increasing e-business customers will help the company standardize their modes of advertising and marketing since there would be fewer chan- nels to focus their efforts. 7 For instance, according to 1992 census of retail sectors, women’s, juniors’ and misses’ wear ranked Number 6 and men’s wear ranked Number 8. 8 For an illustration of similar uses in another company, see Green, Garrity, Gumbus, and Lyons (2002). 9 ,Q 90, WKH ³UHSOHQLVKPHQW GHFLVLRQ IRU all retailers is centralized at the upstream distributor or manufacturer” (Attaran, 2004, p. 18). 10 See Foster (2000). 1288 Intelirel’s Transition to E-Business 11 The company found that there were 70% more customers visiting their online show- room than the brick and mortar stores. This work was previously published in the International Journal of Cases on Electronic Commerce, edited by M. Khosrow-Pour, Volume 2, Issue 1, pp. 46-60, copyright 2006 by IGI Publishing (an imprint of IGI Global). 1289 Copyright © 2009, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited. Chapter 4.19 Laws and Regulations on Proprietary Trading System (PTS) in Japan: Japanese Alternative Trading System (ATS) Motoaki Tazawa Meijo University, Japan ABSTRACT In order to improve convenience for investors through competition among stock exchanges, op- eration of Proprietary Trading Systems (PTS) was authorized as a form of securities business under the Securities and Exchange Act. The Japanese PTS is equivalent to ATS (Alternative Trading System), ECN (Electronic Communications Net- work) in the United States and MTF (Multilateral Trading Facilities) under MiFID in the EU. In 1998, ATS and ECN had already started in the United States and Japan’s PTS followed the U.S. model. Telecommunication and information technologies and computer technologies made PTS possible, and PTS makes the border between the market and brokers ambiguous. Traditional regulations on broker-dealers and stock exchanges will inevitably be reviewed and regulations on securities markets will have to be reformed. INTRODUCTION Under the Financial System Reform of 1998, the no off-exchange trade rule which had been imposed on the sales of securities listed on such stock exchanges as the Tokyo Stock Exchange and the Osaka Securities Exchange was abolished. As a result, it became possible for securities companies which are the members of stock exchanges to trade the listed stocks through off-exchange trades. In connection with this, in order to improve the convenience of investors through competition among stock exchanges, operation of Proprietary Trading System (PTS) was authorized as one of the securities businesses under the Securities and Exchange Act. The Japanese PTS is equal to Alternative Trading System (ATS) and Electronic Communications Network (ECN) of the United States and MTF (Multilateral Trading Facilities) 1 of MiFID of the EU (Shimizu, 1997; Shimizu, 1290 Laws and Regulations on Proprietary Trading System (PTS) in Japan 2000; Osaki, 1999; Konishi, 2000; Yanaga, 2006 2 ). In 1998, ATS or ECN had already begun operating in the United States and PTS of Japan followed the U.S. model (Kawashima, 2001) 3 . In June 2006, the Securities and Exchange Act was revised and in 2007, the Securities and Exchange Act will be revised to the Financial Instruments and Exchange Act and regulatory IUDPHZRUNZLOOEHPRGL¿HGWRWKDWRI¿QDQFLDO service law or investment service law. 4 The secu- ULWLHVEXVLQHVVZLOOEHPRGL¿HGWRWKH³¿QDQFLDO LQVWUXPHQWVEXVLQHVV´DQGWKHVDPHGH¿QLWLRQRI the PTS will be provided in the Financial Instru- PHQWVDQG([FKDQJH$FWDVRQHRIWKH¿QDQFLDO instruments businesses (Art. 2(8) (X)). Current regulations on the PTS will gener- ally be succeeded after being transferred to the Financial Instruments and Exchange Act. BACKGROUND OF INTRODUCING PTS Abolition of No Off-Exchange Trade Rule The Financial System Reform Act (Act No. 107 of 1998) shaped the concepts and recommendations RIWKH¿QDOUHSRUWRIWKH6HFXULWLHVDQG([FKDQJH &RXQFLO³&RPSUHKHQVLYH5HIRUPRI6HFXULWLHV Market—Towards the Realization of a Prosper- ous and Diverse 21 st Century” (June 13, 1997) 5 , HWFDQGVRIRUWK7KH¿QDOUHSRUWUHFRPPHQGHG abolition of the no off-exchange trade rule and authorization of the off-exchange trading of listed securities from the viewpoint of meeting diversi- ¿HGQHHGVRILQYHVWRUV Conventionally in Japan, trading of securi- ties listed on stock exchanges was required to be executed on the market for exchange-listed securities established by the stock exchange not only for trades by securities companies, the mem- bers of the stock exchange, but also for trades by non-member securities companies. That is, securities companies, the members of the stock exchange were prohibited from trad- ing of securities listed on the stock exchange off the market for exchange-listed securities by the articles of association of the stock exchange. 6 Non-member securities companies of the stock exchange were supposed to execute trading of listed securities on the market for exchange-listed securities through consignment to member secu- rities companies pursuant to the regulations of EXVLQHVVDQGVHUYLFHVE\WKHPLQLVWHURI¿QDQFH Therefore, with respect to the listed securities of the stock exchange, there was no room for execu- tion of trading off the market for exchange-listed securities (Kanzaki, 2000). Abolition of the no off-exchange trade rule and introduction of the PTS are generally stated as IROORZVLQ³)UDPHZRUNIRU5HOLDEOHDQG(I¿FLHQW Transaction” (May 16, 1997) 7 , the report of Market Working Party, which was established under the Securities and Exchange Council. 7KHUROHVRIVHFXULWLHVPDUNHWVDUHWR³HI¿FLHQW- O\DQGIDLUO\´SHUIRUPPDQDJHPHQWRI¿QDQFLDO assets and distribution of funds to capital needs and securities market reform must ensure that VH F X U LW LH VP D UNHW V F D QSOD\V X FKU ROH V VX I ¿F LH QWO\ and appropriately. In order for asset management DQGIXQGLQJWREHPDGH³HI¿FLHQWO\´LWLVHVVHQWLDO to introduce the principle of competition and it is also necessary to review how the regulated mar- ket should be in connection with this. The prime reason for abolition of the no off-exchange trade rule was (1) the promotion of competition among stock exchanges, and secondarily, there were the IROORZLQJUHDVRQVUHVSRQVHWRGLYHUVL¿HGQHHGV of investors, 8 (3) development of information and telecommunications technologies, 9 (4) response to globalization of stock exchanges. 10 The no off-exchange trade rule has been estab- lished to give volume to the regulated market as well as to contribute to fair price discovery. Stock exchanges are granted a special position in securi- ties market, to which the antitrust law was not ap- plied and as a Self Regulatory Organization (SRO) 1291 Laws and Regulations on Proprietary Trading System (PTS) in Japan under the Securities and Exchange Act, it was authorized to impose certain restrictions on the actions of member securities companies. Among the regulations of stock exchanges, however, it has been pointed out that the no off-exchange trade rule under the articles of association restricted competition. In terms of promoting competition among stock exchanges, it was considered to be necessary to drastically review the regulations restricting execution of customer’s order by securities companies, including their abolition (Osaki, 2000; Fuchita, 1999 11 ). Trade as Off-Exchange and in Regulated Market In the report of the Market Working Party, if an off-exchange trade was authorized to securities companies by abolishing the no off-exchange trade rule, it was an issue whether (a) a National Market System was to be formulated or (b) the system in which stock exchanges still occupied the main market status was to be formulated. a. The National Market System is based on the following concept. If it authorizes securities companies to execute not only in a regulated market but also off-exchange, as the method for enabling to work competitive principles in execution of purchase and sale orders, secure fair price discovery and obtain the best execution of the customer’s orders, it is necessary to enable securities companies to execute purchase and sale orders based on such a quote information system as fol- lowing: the quote information system which covers all quote information not only in stock exchanges but also off-exchange and publishes it in real time. It apparently seems that fragmentation of the market arises under this scheme, however, as any quote information is intensively published and securities companies can execute purchase and sale orders based on it, it is functionally conceiv- able that price discovery is made as trades in one comprehensive market. However, it requires an enormous cost and considerable time for preparation to arrange such infrastructures. There is also concern that dispersion of supply and demand to off-exchange trading will reduce the liquidity of exchanges, major markets, and fair price discovery would also be hindered. Therefore, while it is one of the options to have a market with such a system as to how the Japanese securities market should be in the future, judging from the current condi- tions of Japan, it was considered that it would EHPRUHHI¿FLHQWDQGSUHIHUDEOHWRIRUPXODWHD framework which would make the most of the price discovery function of stock exchanges and the adoption of this National Market System was thus passed over. b. The system in which stock exchanges still occupy a main market status takes a position that the price discovery function by auction method in the market for exchange-listed securities as a main market is maintained and that trading off the market for exchange- listed securities shall be conducted using the above function. Under this system, execution of purchase and sale orders from customers on listed securities will be made on the mar- ket instructed by the customers, they shall be executed on the market for exchange-listed securities if the instructions of customers DUHQRWVSHFL¿FDOO\JLYHQWRRIIWKHPDUNHW for exchange-listed securities. Trading off the market for exchange-listed securities shall be executed within a certain scope of the price based on the price discovered on the market for exchange-listed securities. In order for customers to make a reasonable choice and give instructions on whether to execute their orders on the market for exchange-listed securities or off the market for exchange-listed securities, it is important 1292 Laws and Regulations on Proprietary Trading System (PTS) in Japan for them to precisely know the outline of the trading off the market for exchange-listed securities and the price information of listed securities. Therefore, after abolition of the no off-exchange trade rule, as a part of trade regulations, securities companies shall explain to customers the outline of trading off the market for exchange-listed securities and provide customers with the price information of the listed securities. The report of the Market Working Party sup- ported such a concept (b) mentioned. Therefore, when the Financial System Reform Act of 1999 introduced the PTS, the priority rule of markets for exchange-listed securities in execution of customer’s orders by securities companies was simultaneously embodied in the Securities and Exchange Act as following. Except cases that FXVWRPHUVVSHFL¿FDOO\LQVWUXFWHGWKHLURUGHUVWREH executed off the market for exchange-listed securi- ties, execution of purchase and sale orders from customers on listed securities shall be executed on the market for exchange-listed securities. 12 And arrangements for price discovery and execution of the PTS were limited to price-importing reference market method and negotiation method in 1998. In 2000, limit order matching method and market maker method were added. As a result, this legal framework provided for protection of market for exchange-listed securities and did not promote competition among stock exchanges including PTS. This situation was inconsistent with the REMHFWLYHRIWKH¿QDQFLDOV\VWHPUHIRUP.LQ\X Ho Iinkai, 2002 13 ). Considering, the Securities and Exchange Act was revised in 2005 (Yukizawa, 2005; Nakanishi & Ogura, 2005) 14 . The priority rule of markets for exchange-listed securities was abolished 15 and duty of best execution, which means securities companies are obliged to execute orders on terms most favorable to customers, was introduced. Auction method was added to arrangements for price discovery and execution of the PTS, how- ever, volume regulations were imposed on auction method. The PTS still does not enjoy an equal status of stock exchanges in securities trading. Details of these will be discussed later. PTS According to the report of the Market Working Party, it has been pointed out that if the no off- exchange trade rule is abolished, as establishment of a Proprietary Trading System (PTS) is expected, it is also necessary to take legal measures for ensuring fairness of trading for a new form of trading. In such an event, if the new trade system has a similar high price discovery function as stock exchanges, such a system must naturally be regu- lated as the stock exchange. As it is expected that under such a system for the time being, however, the price discovery function of a stock exchange will be utilized and a similar high level of the price discovery function will not work, it is appropriate to position it as a securities business not a stock exchange; provided, however, that minimum rules must be imposed in terms of prevention of unfair trading depending on the nature of the forum of trading in addition to regulations on securities companies. The concepts reported by Market Working Party are now considered not to be consistent with the policy to promote competition among stock exchanges. This is the prime reason for abolition of the no off-exchange trade rule. This recogni- tion explains the addition of auction method to one of the arrangements for price discovery and execution of the PTS in 2005, which details are in the following. PTS AS THE SYSTEM UNDER THE SECURITIES AND EXCHANGE ACT By the Financial System Reform Act (Act No. 107 of 1998) in 1998, the Securities and Exchange 1293 Laws and Regulations on Proprietary Trading System (PTS) in Japan Act (Act No. 25 of 1948) was revised and the PTS was added to securities businesses (Art. 2(8) (vii)). Thereafter, as stated, with respect to the arrangements for price discovery and execution, DGGLWLRQZDVPDGHWZRWLPHV7KH¿UVWDGGLWLRQ was made by revision and implementation of the Ordinance of the General Administrative Agency of the Cabinet in 2000. 16 The second addition was made by the Revising Act (Act No. 97 of 2004) of the Securities and Exchange Act, which came into force in April 2005. 17 As in effect in 2006, the following provisions are enacted for the PTS in the laws and regulations. 'H¿QLWLRQRI376 Art. 2(8) of the Securities and Exchange Act KHUHLQDIWHUUHIHUUHGWRDV³6($´SURYLGHVIRU WKHGH¿QLWLRQRIZKDWNLQGRIEXVLQHVVVHFXULWLHV business performs and provides for the contents of business which securities companies may perform (Nikko Shoken Homubu, 1999 18 ). PTS LVGH¿QHGLQ6($$UWYLLDVRQHRIWKH VHFXULWLHVEXVLQHVVHV7KDWLV376LVGH¿QHGDV ³SXUFKDVHDQGVDOHRIVHFXULWLHVRULWVLQWHUPHGLD- tion, brokerage, or agency which is carried out by the method for determining the execution price of an order set forth below or similar methods, simultaneously setting multiple parties as either party or both parties through the use of electronic information processing system.” Criteria for Regulatory Authorization of PTS Securities companies are business corporations which are registered as securities business with the Prime Minister (SEA, Art. 2(9) and Art. 28). In order for securities companies to perform PTS, however, registration for the securities business is LQVXI¿FLHQWEHFDXVHSHUIRUPDQFHRI376E\VH- curities companies requires expertise in business and a high level of risk management and securities companies must receive regulatory authorization from the Prime Minister for performance of PTS (SEA, Art. 29(1) (iii)). Criteria for regulatory authorization are as follows (SEA, Art. 28-4): 1. It has arranged appropriate systems and r u les conce r n i ng r isk ma nage ment of lo sse s related to businesses for which it intends to receive regulatory authorization. 2. Minimum capital requirement for securi - ties companies which perform ordinary purchase and sale, and so forth, of securities is JPY50 million, but the minimum capital requirement for securities companies which perform PTS is JPY300 million. 3. Amount of net assets is over the amount set forth in item 2, JPY300 million. 4. Capital adequacy regulation ratio is over 120%. 5. The method for determining the execution price of an order, the method of delivery and other settlement, standards for start of trade with customers and method of cus- tomer management, method of operation of electronic information processing system, method of preparation, and retention of trade records are necessary and appropriate for public interest and investor protection. Difference between Regulated Securities Market and PTS— Degree of Price Discovery Function It is provided that on the stock exchange to es- tablish a securities market, the permission of the Prime Minister is required (SEA, Art. 80(1)). In a securities company starting PTS, the regulatory authorization of the Prime Minister is required (SEA, Art. 29(1)(iii)). For the market for Over-The- Counter traded Securities (OTC market), as it is provided that the Securities Dealers Association itself, which establishes the market, requires the regulatory authorization of the Prime Minister (SEA, Art. 80 (1) and Art. 68 (2)). . overseas — Bedding and towel makers cite fashion and costs for foreign production. Wall Street Journal, 1. Malone, T., Yates, J., & Benjamin, R. (1987). Electronic markets and electronic hierarchies ATS and ECN had already started in the United States and Japan’s PTS followed the U.S. model. Telecommunication and information technologies and computer technologies made PTS possible, and. June 2006, the Securities and Exchange Act was revised and in 2007, the Securities and Exchange Act will be revised to the Financial Instruments and Exchange Act and regulatory IUDPHZRUNZLOOEHPRGL¿HGWRWKDWRI¿QDQFLDO service