Price war at online brokerages prompts scrutiny from Japan’s regulator

A fierce price war among Japan’s online brokerages is starting to draw regulatory attention.

The Financial Services Agency plans to ask online securities firms about the effects of recent price reductions as part of ongoing discussions on their business models, an FSA official said.

Competition to retain customers sparked a flurry of fee cuts by the nation’s Internet-based brokerages late last year, fueling concerns over long-term impacts to profit. Moves to eliminate charges on everything from mutual funds sales to certain amounts of share trading followed similar decisions by securities firms in the U.S.

The FSA sees no immediate problems from the reductions, and generally welcomes lower prices as beneficial for consumers, provided they don’t hurt service quality, the official said, asking not to be identified because of the agency’s policy.

Profit is unlikely to dramatically worsen in the short term, partly because firms have been developing other income sources, said Tomohisa Ishikawa, head of the Japan Research Institute Ltd.’s macroeconomic research center. Still, the cuts may weigh on revenue over time, he said.

Brokerage commissions on average accounted for about a third of operating revenue in recent quarters at Japan’s five major online brokerages, including SBI Holdings Inc.’s securities arm, according to an SBI presentation.

In the U.S., Charles Schwab Corp. moved on Oct. 1 to eliminate commissions on stocks and other services, fueling price competition and speculation that online firms might have to consolidate to survive. Schwab later agreed to buy TD Ameritrade Holding Corp. for about $26 billion.

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