Fed to Decide Japanese Role In Treasurys
NEW YORK -- The Federal Reserve will decide today whether to disqualify four big Japanese securities firms as major players in the U.S. Treasury bond market.</br></br>The betting on this politically explosive issue is that the Fed will permit the four -- U.S. units of Nomura Securities Co., Daiwa Securities Co., Nikko Securities Co. and Yamaichi Securities Co. -- to remain primary dealers in Treasury bonds, but will urge Japan to open its securities markets further to foreign firms.</br></br>Primary dealers are an elite group of 42 firms that deal directly with the Federal Reserve Bank of New York when it buys and sells Treasury securities as part of its open-market operations. Thirteen are controlled by foreign institutions: seven Japanese, three British, and one each from Canada, Hong Kong and Australia.</br></br>A provision in the 1988 trade law requires the New York Fed and the Federal Reserve Board in Washington to deny primary-dealer status to foreign financial institutions based in countries that deny similar competitive opportunities to U.S. firms. The provision in the law, passed in August 1988, gave countries one year to make sure those opportunities were accorded.</br></br>Fed staff members have studied government securities markets in Britain, West Germany, Japan and Switzerland. But the provision in the trade law is primarily aimed at Japan. Three Japanese commercial banks, Industrial Bank of Japan Ltd., Long-Term Credit Bank of Japan Ltd. and Sanwa Bank Ltd., each controls a U.S. primary dealer, but are unaffected by the legislation.