Vanderbilt Journal of Transnational Law


Mitsuru Misawa

First Page



Recently, the Japanese securities market has been plagued by scandals in which brokerages have compensated large customers for their losses from trading. Following a brief historical review of loss compensation, Dr. Misawa describes the mechanics of a loss compensation scheme. The author then details how rising interest rates caused the losses to clients that brokerages were compensating.

Loss compensation is illegal in Japan. The law prohibiting it, however, is ambiguous as to whether it applies to voluntary compensation. The author suggests the law should be clarified also to prohibit voluntary compensation. Dr. Misawa further recommends that brokerage commissions be liberalized to allow the market to set the commission rates and to prevent the incentive to convert artificially high profits into compensation. In addition, the author suggests the creation of a Japanese equivalent of the United States Securities and Exchange Commission because the current regulatory authority, the Ministry of Finance, and self-regulation have not worked well in Japan. Finally, Dr. Misawa concludes that the Japanese Securities Exchange Law needs to be reexamined and reconstructed to allow the Tokyo market to internationalize further.