1. Nasdaq Japan 1 Case 1-2 NASDAQ Japan

2. Nasdaq Japan2 The Players l NASDAQ l Softbank Corporation l Osaka Stock Exchange (OSE) l Three limited partners l 10 strategic investors l Indigo Markets

3. Nasdaq Japan3 The Business Goal l Japanese stock market planned to become the link to allow 24-hour trading in combination with NASDAQs around the world l Global standards to be applied l Do the benefits outweigh the costs?

4. Nasdaq Japan4 The Plan l To shift the financial assets of Japanese investors from safe low growth categories (80% is in cash, savings, insurance) to more high risk and high growth equity markets (currently only 5%). l An efficient, transparent global market would enable Japanese investors to move more of their personal wealth outside the country– much riskier

5. Nasdaq Japan5 The Environment l Existing Japanese stock exchanges use an Auction securities model that does not perform efficiently enough to network with other country’s stock exchange systems. l A hybrid market model is proposed to ease the change

6. Nasdaq Japan6 The Issues l What kind of market is this? l What role does culture play? l How should the business be structured? l Technology: build or buy? l Support systems: own, rent, outsource? l Can the US model work in Japan?

7. Nasdaq Japan7 Basic Market Model Buyer SellerBuyer Seller Market Intermediation services arise as needed; fees arise from services

8. Nasdaq Japan8 Auction Market Model Buyer Seller Market conducts auction Fees arise from auction services Can be completely automated

9. Nasdaq Japan9 NASDAQ US Model Entrepre- neurship Listing Market- Making Clearing/ Settling Fin’l Mgmt NASDAQ Issuers Issuer Support Service Providers Investors Investor Support Service Providers Market Makers Regu- lators Settlement Agents

10. Nasdaq Japan10 Hybrid Market Model Buyer Seller Market maker buys and sells as principal Profit is made on difference between buy and sell prices; fees may also be earned for services

11. Nasdaq Japan11 A Bit of Chronology l June 1999-JV signed between NASDAQ and Softbank Corp l October 1999- NASDAQ Japan Club l April 2000-Agreement signed with OSE l June 19, 2000-Initial launch of NJI l June 19, 2001-Beta version of hybrid model running on NJ servers

12. Nasdaq Japan12 A New Market Model l Improvements in Phase 2 over Phase 1 l Change of Market Model l Indigo market l Network l Implementation of ATM (Asynchronous Transfer Mode) in addition to TCP/IP (Real time)

13. Nasdaq Japan13 Technology Architecture Network Data Center Trading Engine Regulatory System J-Net Disclosure Clearance Settlement Market Data Website Corporate Member Firm

14. Nasdaq Japan14 Technology Changes l Changes in Phase 2 from Phase 1 l Data center l Moved from Osaka to Tokyo l Managed by NJI (was managed by OSE) l Trading Engine & Regulatory Systems l Operated by NJI (was operated by OSE) l Networks l Managed by NJI (was managed by OSE)

15. Nasdaq Japan15 Analysis-1 l NASDAQ and NJI tried create a market that would totally transform the Japanese way of thinking. l Because they wanted to do this quickly they worked with established Japanese Corporations l For example Softbank and OSE. l Most other corporations acted as limited partners or strategic investors.

16. Nasdaq Japan16 Analysis-2 l The end result was an extremely complicated entity and this complexity could have contributed to their demise. l Another issue was the decline in the economy in both Japan and the U.S. that started in early 2001 l The company is running out of cash

17. Nasdaq Japan17 Question 1 How did market structure and relationships change with the introduction of the NASDAQ Japan Market in June 2000?

18. Nasdaq Japan18 Question 2 What impact will the launch of the NJM hybrid market model have on market structure and relationships in Japan?

19. Nasdaq Japan19 Question 3 What are the strengths and weaknesses of the approach that has been taken to building a global securities market? Would you have done anything differently?

20. Nasdaq Japan20 Question 4 What challenges do NASDAQ Japan executives face in the summer of 2001? What advice would you give?

21. Nasdaq Japan21 Prescription l The goals of NJI were too aggressive for the conservative Japanese market; technology might not be so portable after all. l Plan to introduce the Phase II model gradually over a period of time instead of having to compromise with two tiered system l Raise awareness of technology.

22. Nasdaq Japan22 Outcome l Announced end of joint venture August 16, 2002. l Alliance ended on October 15, 2002. l NASDAQ wrote off 20 million dollars. Lost money for two years and U.S. exchange did not predict that would change. l Softbank had to add 1.7 billion dollars to its growing list of failed investments