NRI Papers
No.101 February 1, 2006
  Evolution of the US Retail Securities Market (Volume 2)
--Regulatory Reforms for Banking and Securities Markets--
 
Akira YASUOKA
      In the United States, the Financial Services Modernization Act of 1999 removed a boundary between banking and securities services that had existed since 1933. Under the interim rules announced by the Securities and Exchange Commission (SEC), banks are exempt from broker-dealer registration requirements with certain conditions, and banks' securities services are to be provided by affiliated securities firms, etc.
      In 1999, Merrill Lynch, the largest securities firm, announced a fee-based account service in which fees are charged at a prescribed rate based on the balance of assets in the account instead of brokerage commissions. The start of such fee-based account services gave rise to the question of whether Merrill Lynch's registered representatives are required to register as investment advisors under the Investment Advisors Act of 1940. However, in the same year, the SEC permitted the provision of such services under certain conditions.
      In December 2002, settlement was reached between the nation's top securities firms against which allegations were made regarding undue influence of investment banking departments on research departments that deceived investors and regulators such as the SEC. For the five years following July 2004, these securities firms were required to distribute research reports made by independent research firms to investors.
      In Japan, the methods to provide financial services are significantly changing through the participation of banks in the securities brokerage business and the emergence of the agency business for banks, which is planned for April 2006. It is of urgent necessity for financial institutions to develop products that go beyond simple banking, securities or insurance products and that fully meet the needs of aging savers, and to re-establish a service structure to support such new products.
Contents
III Emergence of New Registered Representatives
  1 Registered Representatives in the United States
  2 Two Requirements of Registered Representatives
  3 Financial Services Modernization Act and Full-Scale Participation of Banks
  4 Networking Regulations on Banks
IV Arguments over Fee-Based Securities Accounts
  1 The Merrill Lynch Exemption
  2 1999 Proposal and the SEC
  3 NASD Notification
V Fraudulent Research Reports and the Retail Securities Business
  1 Cases of Fraudulent Research Reports Issued by the Top Securities Firms
  2 Impact on the Retail Securities Business
  3 Improved Research Reports
  4 Research Reports in Short Supply
VI Lessons for Japan's Securities Markets
  1 Banks' Retail Securities Services and Sales of Investment Trusts
  2 Recovery of the Stock Market and Popularization of Online Trades
  3 Securities Services by Banks
  4 Financial Institutions in an Aging Society

PDF GO to PDF

Copyright(c) Nomura Research Institute, Ltd. All rights reserved.