In contrast, institutional investors dominate trading in stock index options. But industry analysts warned that it will take some time before equity options become popular because the government may change taxation policies and many lower-tier securities houses are inexperienced in financial derivatives transactions. Tokyo and Osaka exchanges began trading in options on 20 stock issues. Exchange officials said they selected internationally known, heavily traded corporations that also have large numbers of shares and shareholders. The two exchanges plan to add issues in the coming years.
Options allow investors to hedge stock holdings or leverage a small investment into a large bet.
If stock prices fail to rise or fall as they expected, investors have only to not exercise options and forfeit trading fees, called premiums. The Japanese Big Bang financial-market deregulation is fueling competition among stock exchanges in Japan and abroad. In April, the government will liberalize foreign-exchange transactions, a move expected to encourage investors to seek better returns in overseas markets. Japan is also planning to allow stock transactions outside exchanges in fiscal 1998. Stakes are particularly high for the Osaka Securities Exchange, which is trying to become the nation's leading exchange for trading in options, futures and other financial derivatives.