II

103D CONGRESS

1ST SESSION S. 163

To require the Secretary of the Treasury to perform a study of the structure,

operation, practice and regulation of Japan’s capital and securities markets, and their implications for the United States.

IN THE SENATE OF THE UNITED STATES

JANUARY 21 (legislative day, JANUARY 5), 1993

Mr. DASCHLE introduced the following bill; which was read twice and referred

to the Committee on Banking, Housing, and Urban Affairs

A BILL

To require the Secretary of the Treasury to perform a study

of the structure, operation, practice and regulation of

Japan’s capital and securities markets, and their implications for the United States.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Foreign Capital and

5 Securities Markets Study Act of 1993’’.

6 SEC. 2. FINDINGS.

7 The Congress finds that—
2

•S 163 IS

1 (1) Japan’s capital and securities markets have

2 assumed a global significance;

3 (2) growing interaction between the capital and

4 securities markets of the United States and Japan

5 can affect national policies on exchange rates, in6 vestment, fiscal policy, and public debt;

7 (3) Japan’s capital and securities markets have

8 different structures, operations, practices, and regu9 latory regimes than United States markets;

10 (4) the different structures, operations, prac11 tices, and regulatory regimes of Japan’s capital and

12 securities markets could cause significant economic

13 effects in the United States; and

14 (5) a study by the Secretary of the Treasury

15 therefore is required to gain a fuller understanding

16 of the structure, operation, practice, and regulation

17 of Japan’s capital and securities markets and their

18 implications for the United States.

19 SEC. 3. STUDY OF CAPITAL AND SECURITIES MARKETS.

20 (a) IN GENERAL.—The Secretary of the Treasury

21 (hereafter referred to as the ‘‘Secretary’’) shall conduct

22 a study of the capital and securities markets of Japan in

23 accordance with subsection (b). Not later than 1 year after

24 the date of the enactment of this Act, the Secretary shall

25 submit a report to the Congress on the structure, oper-
3

•S 163 IS

1 ation, practice, and regulation of Japan’s capital and secu2 rities markets, and their implications for the United

3 States.

4 (b) STUDY TOPICS.—In conducting the study re5 quired by subsection (a), the Secretary shall consider—

6 (1) with regard to Japan’s capital and securi7 ties markets—

8 (A) methods used by Japanese companies

9 to raise capital, and the cost of such capital, at

10 present and historically;

11 (B) Japanese methods of corporate govern12 ance, particularly with regard to the effective13 ness of shareholder meetings, proxy solicita14 tions, and other methods of shareholder partici15 pation, the strength of the consumer movement

16 in Japan and its implications for shareholder

17 rights, techniques used by corporate manage18 ment regarding shareholder participation in cor19 porate governance, and the general effectiveness

20 of shareholder rights in the supervision of cor21 porate managers;

22 (C) practices and techniques used by Japa23 nese securities brokers and dealers;

24 (D) the prevalence of loss guarantees and

25 similar practices in securities dealing;
4

•S 163 IS

1 (E) the prevalence of companies having

2 common directors, especially directors common

3 to financial institutions and client industrial

4 companies;

5 (F) the practice known as ‘‘stable

6 shareholding’’ and other reciprocal shareholding

7 relationships, especially between vendors and

8 customers;

9 (G) the role played by banks and other fi10 nancial institutions in capital and securities

11 markets, particularly with regard to equity par12 ticipation, participation in corporate govern13 ance, investment practices, and adequacy of col14 lateral;

15 (H) the financial strength of Japanese

16 banks, including the adequacy of capital and

17 loan loss reserves, the impact of current trends

18 in securities values on bank capital, and the im19 pact of current trends in real estate values on

20 bank profitability, loan defaults, and the ade21 quacy of collateral;

22 (I) trends in Japanese real estate and se23 curities values, particularly in relation to sav24 ings rates, the adequacy of collateral, loan de25 falcations, bankruptcies, investment in the
5

•S 163 IS

1 United States, and capital repatriation from the

2 United States;

3 (J) the adequacy of disclosure require4 ments imposed on industrial corporations,

5 banks, securities houses, and other financial in6 stitutions and the extent of compliance by such

7 organizations, including disclosure of primary

8 bank and reciprocal or similar shareholding

9 relationships;

10 (K) the use of securities and real estate

11 holdings as collateral, and the implications of

12 any decline in value of such collateral; and

13 (L) the adequacy of judicial relief available

14 to foreign investors claiming injury under Japa15 nese law, including the availability of adminis16 trative remedies, the sufficiency and effective17 ness of discovery procedures and the timeliness

18 of relief; and

19 (2) with regard to the economic effects of such

20 markets on the United States—

21 (A) the magnitude of United States invest22 ment in Japanese securities, particularly by

23 United States pension funds, and the implica24 tions for United States investors of the struc25 tures, operations, practices, and regulations of
6

•S 163 IS

1 Japan’s capital and securities markets, includ2 ing the safety of securities investments, the va3 lidity of price and volume signals on Japanese

4 exchanges, the ability to participate in cor5 porate governance, and other protections of

6 shareholders’ rights;

7 (B) the implications for United States se8 curities markets, particularly the risk that de9 velopments in Japan could have consequences

10 for the United States;

11 (C) the implications for United States cap12 ital markets, including international liquidity,

13 United States interest rates, Japanese invest14 ment in the United States, capital repatriation

15 to Japan, and domestic capital supply;

16 (D) the effect on United States macro17 economic policies, including interest rate policy,

18 exchange rate policy, fiscal policy, monetary

19 policy, and public debt policy;

20 (E) the implications for the competitive21 ness of United States enterprises, including the

22 comparative cost of capital, duties to sharehold23 ers, research and development expenditures,

24 and investments in plant and equipment; and
7

•S 163 IS

1 (F) the effectiveness of remedies available

2 to United States investors in Japanese securi3 ties, and the amount of dealing in Japanese se4 curities in the United States, whether directly

5 or indirectly.

6 (c) CONSULTATIONS.—The Secretary shall consult

7 with the Chairman of the Securities and Exchange Com8 mission, the United States Trade Representative, and

9 such other agencies or persons as the Secretary may deem

10 necessary to complete the study and report required under

11 this Act. The Secretary may consult with agencies of the

12 Government of Japan, Japanese exchanges, and such

13 other Japanese persons or organizations as the Secretary

14 may deem appropriate.

15 SEC. 4. DEFINITIONS.

16 For purposes of this Act the term ‘‘security’’ has the

17 same meaning as in section 3(a)(10) of the Securities Ex18 change Act of 1934 (15 U.S.C. 78c(a)(10)).

Æ