By Ishi Press
TOKYO - November 29 - Nomura, Daiwa and Nikko Securities will all be forced to close next week, sources in Nihon Bashi say.
All three securities firms have mammoth trading losses resulting from the "parking" of securities. The parking of securities, also known as "wash trading", is a practice which was specifically banned in the US by the Securities Act of 1933 and the Securities Exchange Act of 1934 in the aftermath of the 1929 stock market crash. It has continued to be commonly practiced in Japan.
In this practice, which is known in Japanese as "tobashi" which translates to mean "flying investments", trading loses are hidden when a corporation, holding a trading position at a loss, obtains an agreement from another corporation to hold its securities during the year-end audit period. After the audit time has passed, the parked securities are either returned or else are passed along, always at a price far in excess of the free market price.
For example, if Corporation A has bought stock in XYZ Corp at 180 yen per share, and XYZ Corp is now selling at 120 yen in the open market, Corporation A will sell its entire position to Corporation B for 180 yen, promising to buy it back at 181 yen when the audit period has passed.
Other banned practices are guaranteeing a customer against loss and sharing the profits or losses with a customer. If a securities firm such as Yamaichi Securities recommended to its customers the purchase at 180 yen, it will buy it back at that price and sell the block to Corporation C, with a promise to buy back the position at a later time.
Sources say that all the major securities firms have been engaging in this practice for years, always shifting blocks of securities from place to place at prices far above the free market price in the hope that the Japan stock market will rebound and that all of these hidden losses will be of no moment. However, the Japan stock market has fallen from an all time high of around 39,000 yen in December, 1989 to its present level of around 16,000 yen and there is no longer much hope for a speedy recovery.
The accumulated losses which have been hidden by the practice of parking securities are now believed to amount to more than 100 trillion yen, or more than one million yen for every man, woman and child in Japan.
Although the Government of Japan has assured investors that it will bail out the securities firms and accept the tearful apologies of the executives who have engaged in this illegal practice, sources believe that even the government of Japan does not have enough money to make good on this promise.
Meanwhile, meetings are continuing on a round-the-clock basis between officials of the Japan securities firms and government officials on how to contain and control this crisis.
In a related development, President Clinton warned Prime Minister Hashimoto at a private meeting in Vancouver not to try to solve Japan's internal crisis by flooding the US with cheap Japanese imports.
In Thursday's edition of The New York Times, Kathy Matsui, a market strategist at Goldman, Sachs (Japan) Inc. is quoted as saying, "This market maybe doesn't have two weeks. ... This could be a meltdown."
Japanese officials denied all this and asserted that this is just another financial imbroglio which can and will be contained.