Interview: Tatsuyuki Saeki, Nasdaq Japan CEO

He's even grasped how much Japan's packaging of itself tothe world needs a complete rework -- problem is, he isn't quitesure how that can be done. -- Tanya Clark

So you have a lot of problems and challengers -- what are you going to do?
Destroy them. Obviously "destroy" is not the right word. Theright word could be "compete." And I hope I win. And throughthe competition I think we are going to come up with somestrategy. We're going to come up with a lot of ideas -- newideas -- and our competition will come up with some in thesame way. Their ideas -- how to defend, how to beat me back... that's a very important process to improve our capability.

So I want to come up with some Nasdaq Japan differentiationstrategy. I want to create more liquidity in our market comparedto the Tokyo Stock Exchange (TSE). And as a result our marketwill be viewed as a more stable, more active, very fair, attractivemarket.

There are two elements to Nasdaq Japan's differentiationstrategy: phase one and phase two. Phase one I'm going tostart in June, when we open Nasdaq Japan formally with theOsaka Stock Exchange (OSE). We are going to use the Osakasystem as a plain vanilla one, from the beginning. Howeverwe are going to introduce our Nasdaq global standard regulatorythings, like listing standards, like governance, and manyother things, quantitatively and qualitatively, that are asclose as possible to global standards. But I have to use theOsaka system. That means we have to run our trading transactionsthrough an order-driven system.

As you may know, US Nasdaq [uses a] market-making system.Unfortunately, we cannot use such a system from the beginningbecause we have to depend on the OSE. But as I said, I wantto keep [these] differentiation points. And global standardsare one ingredient I want to keep as a differentiation strategy.

Number two, I want to introduce the US Nasdaq top 100 atthe announcement of Nasdaq Japan this June, so Japanese investorscan invest in Nasdaq 100 products.

Butaren't these available now in the US, even through brokers online?
Oh yes. But we are the owner of the brand. Therefore, we couldtheoretically [have] the best way to introduce those products.So that's one other way we want to differentiate our marketwhen we open phase one.

I also want us to work like hell to solicit the top 20 or 30 Nasdaq brands listed in the US -- Microsoft, Intel, Cisco, Dell -- that have subsidiaries in Japan. And of course, I know the presidents of those subsidiaries because I've been working for IBM for 35 years. Do you know why they haven't yet successfully taken their companies public? Because the owners think they may lose control. If you look at Oracle, it's a good example. One -- they listed the [Japanese subsidiary] and they made a fortune, the company as well as individual employees. They had never ever thought about the kind of value they could have put out. Look at their market values now -- big! But when Oracle tried to convince the management team in the United States, everyone was opposed. "We do not want to lose control." Which is a bullshit reason. It's never going to happen, because they only released 15 percent of the stock to the market. They hold the majority. How will they lose control?

OK, now coming back to my original point. If we want to ask these subsidiary companies in Japan to do an IPO, how many owners or boards of those parent companies will agree? Big question. Because they are not familiar with what's going to happen. They overestimate the minuses sometimes. As a matter of fact, I want to get IBM Japan listed through Nasdaq.

And what about Mothers, the new exchange for startups, launched by the TSE? Isn't there some advantage for companies to list there?
What the hell is the value to list on Mothers? Mothers is just lowering their qualification. If you look at the two companies that listed already ... did you see how the price of their stock is very unstable? I'm ashamed of them. Anyway, I'm not comparing Nasdaq Japan to markets like Mothers or Jasdaq. The comparison is to the TSE, the First and Second sections.

Let me explain phase two. In the first quarter or the beginning of the second quarter next year, we will be completing our Indigo solutions. (I hope we can finish.) Indigo is a model that will allow us to introduce a hybrid (or combination) of market-making and order-driven transactions. Coexisting. Today, we don't have a hybrid model working in the US either, although some transactions through ECNs in the Nasdaq market you could call hybrid.

So the hybrid model is not proven yet in any country. Maybe it's difficult therefore to get Japanese firms to truly understand the value, the advantage of it. We're asking many firms to go through the validations of this model.

We have counted about 1,800 changes that must be made to meet the Japanese environment. I don't think we can make those 1,800 changes happen, so I have to make clear what "must be done" versus what is "nice to have." And we started validating those "must be done" changes with the working group.

There are a lot of debates -- not always positive, some negative. Most Japanese firms say this is not going to work. Some foreign firms, they say the same thing. Truly, I believe this is going to be the 21st-century version of security transaction applications.

But Nasdaq -- we have committed. This is it. OSE people are demanding we think about modifying their system to make those hybrid models happen, but Nasdaq US is reacting negatively to that offer. Osaka says their system is the most advanced, much better than the TSE's, and that they understand what the hybrid model is all about, and therefore it is easier for them to modify their system. My counter opinion to that is, assuming they change it, can we ship it to Europe? No, I don't think so. We have to continue to patiently explain why we believe this is the right solution.

We have to understand the value of this hybrid model. One thing that's clear to me is without that strategy, without something to differentiate ourselves against ECNs and Japanese firms, we cannot continue to grow. After we start introducing market making here, the ECNs could come in and steal some business transactions away from us. This is the way to protect ourselves.

Nasdaq has kept some core customers, which has helped it stay strong. Can Nasdaq Japan do the same thing?
Of course, of course. You will see a lot of those information-processing, high-tech kinds of communications companies. By the way, I started talking to some of those companies that are working with securities companies and underwriters for listing in June, July, or August this year. Naturally they'd been thinking primarily of listing on Mothers or Jasdaq, but [after I talked with them] I got only one company that said let me consider the others -- but they too changed their mind and will come to Nasdaq. I tell you, the brand power of Nasdaq is something.

Can you give us more detail?
I visited one company and spent an hour there. I'm not a professional of the securities industry, but I visited them and started talking about the importance of the introduction of Nasdaq Japan to this country. Talking about the need to change this country's financial infrastructure. To open this country's finance institutions to the world. How we have to change our Japanese interface to a global interface. We have to change our people and mind-set and cultures and everything. We have to try to make us a part, as much as possible, of the world, without losing something important to Japan, all right? Then I start talking about Nasdaq Japan. What Nasdaq Japan is all about. Here is the difference.

I tell you, people start listening. Don't you think thisis the value of brand?

Japan has been talking change for a long time. What's different now?
This is the very best moment. Because we experienced a kind of a bubble, we were very uncomfortable for years, while Asian countries like Korea went into much worse situations. Korea almost went bankrupt as a nation. But you know how quickly they came back? Meanwhile, we're fooling around and making a circle. And look how much money the [Japanese] government is injecting into this country -- billions and billions of dollars. It doesn't work. It's a waste, a very big waste, OK? And who is making those decisions? Old bullshit political people, right?

So now the people, because of the Net, because of satellite communications, because of all kinds of media -- they begin to know something is wrong. We can make our lives better. Why can't we?

A number of Japanese people, particularly older people, are concerned that the Internet is just another bubble. So does Japan have to go through another bubble just to recover?
Many Japanese people do think they learned a lesson from this decade. Maybe, maybe not. But we are diverting a little from our discussion point.

Do you agree that there is probably a shortage of good entrepreneur managers in Japan?
As a matter of fact, when I entered Nasdaq Japan from IBM, I was surprised when I looked at their kind of no-management system: no marketing skills or organized way to run the business. Nothing. Just people running around excusing ourselves that we cannot deliver any kind of listing standard yet.

And we were just serving our Nasdaq Japan Club. We did not talk to securities firms. We did not talk to those non-[Nasdaq Japan Club] companies -- which also have a lot of opportunities. Our market communications people were just focusing on a very limited area, so we didn't have any visibility in newspapers or magazines. I realized that a company like Softbank may now be the third largest in Japan in terms of assets, but if you look at the people who are really holding all this together, well there is really only one: Masayoshi Son. If Son goes wrong, if something should happen to him, I think the result would be very serious.

It is the same thing in the case of other companies. So your question is very valid. I think we have to go all the way back to education. If you look at this financial securities industries, so many people still believe making money out of securities transactions is a sin. So it is something very old, never changed.

Anyway, answering your question: How to make true profit out of the companies' operations? It's all related to how strong we can run the company ... so like Softbank, you cannot tell when this guy is going to be reasonably large, but sometimes, all of a sudden something happens and it grows like hell.

And Nasdaq Japan?
Oh yes. We are fortunate that Nasdaq Japan is getting thismuch attention and that because of the brand so many peoplewant to join. And, as I said, this is the right timing. Somany people are saying: "Hey, Nasdaq, it's going to make somechanges, let's join."

It sounds like a lot of problems and only a few solutionsso far...
I face a lot of challenges: pre-phase one, phase one, phasetwo. That is nothing but the fun part -- without the challengethere is no fun. So I continue to enjoy my life and see whatI can do.

And you are sure about the timing of phase two [the hybridsystem]?
Phase two is next year. It is the middle of next year, ortoward the latter part of next year. But I don't know howwe could shift to that phase two in the kind of way that wedesire.

It may take much longer and, in the worst scenario, we haveto go back and try again. By then, though, we'll know if ourIPO capability or differentiation program is going to work.Everything is going to be tested and proven.

Either it is right or wrong or it is just a dream.

What about the conflict of interest with Softbank?
Not only with Softbank. There is a conflict of interest withthe OSE, with Nasdaq US, with the whole economic establishment-- all kinds of things. Surrounding me is conflict of interest.

As a matter of fact, I was debating the expense line thatI have to run this show with, versus the US opinion that theywant to manage their expense line this way, that way. It'sa conflict of interest.

I came from IBM, which is a global company. But if you lookat Nasdaq, it's a domestic company. They are a strong, gooddomestic American firm. They want to be global, but they don'tknow how. So you can imagine the conflict of interest betweensubsidiary and parent.

Now coming back to your question: Softbank. I think NasdaqJapan is a market, so the most important thing is neutralityand fairness. To maintain our market value as a fair market,I've got to make it the least connected with Softbank or MasayoshiSon as possible. To reduce the connection, I have to reducehis stock participation through placement -- publicly or privately.That's one.

Number two, a lot of occasions he shows up in the media [talkingabout] Nasdaq. I already told him, "Stay out of it." He understands,OK? He understands it. I don't know whether he likes it, butif he truly expects me to run this company successfully, thenhe has to understand.

Will Softbank list on Nasdaq Japan?
Oh yes, and I hope it's going to happen within two or threeyears.

Building a global Nasdaq is really the only logical reasonfor what you are doing, isn't it?
I want to see that kind of 24-hour global system, but I don'tknow when it's going to happen. To do all this, really, youhave to build a market attractive to American investors, withtransparent fair market operations that overseas investorscan trust.

We have to change. Japanese should change. Most importantly,we have to change ourselves to be compatible -- speaking, communicatingto the world so they understand. They may not agree, but atleast they understand. I'm coming from my IBM experience,and I'm telling you that in my 35 years there I learned thatJapanese are very capable, creative, and hard-working people,but we are not understood. So we have to change.

I want to change certain areas of this country. Maybe somefinancial infrastructure or security transactions area ormanaging some small venture businesses through Nasdaq Japan'sestablishment. That is my desire, my challenge.

And that is why I jumped into this company when Son startedknocking on my door: "Ted, we've got to change this country.This is our opportunity. You can do it." He just touched myheart, my stomach. I tell you, every day he started to callme (in March last year).

"Oh, I'll do it. But I cannot come this year." But I startedworking, to tell the truth, in December. Very limited, butI started doing it, and I jumped into this company. And asI told you, I was so surprised: this is not organized, I thought.

But now it's coming together a little bit. I'm beginningto feel we can make an impact on this industry and on thiscountry. Maybe not as successfully as I want to see in thetime frame, but I think we are going to get there.

So stay close.