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The Nomura Institute of Capital Market Research (NICMR) was established in 2004 to conduct neutral, professional, and practical research on financial and capital markets. Based on those three basic policies, we have specialized in surveys and research on the systems, structures, and trends in financial and capital markets and financial institutions and disseminated the results to readers in Japan and around the world. Practice-based studies and policy proposals have been focused mainly on the sound development of financial and capital markets in Japan, and we intend to maintain this approach in the future.

Financial and capital markets, however, cannot be seen in isolation in a single country as funds naturally move across national borders. In 2004, the year NICMR was established, we saw the agreement of the Basel II international framework regulating banks’ capital and shortly after the creation of the United States Securities & Exchange Commission’s Consolidated Supervised Entities (CSE) Program. These institutional changes made it possible to calculate capital requirements using mathematical models and are considered to have triggered fierce competition among financial institutions in Europe and the United States encouraging them to be unsustainably leveraged. The Global Financial Crisis (GFC) that followed is still fresh in our memories.
The GFC led to further strengthening of financial regulations, which have had significant impact on Japan’s financial and capital markets. Some 15 years later, however, we are still waiting for some of the rules drafted at that time to be implemented.

In 2008, the year of the Lehman Brothers’ failure, the Satoshi Nakamoto white paper introducing Bitcoin was posted to the public and trading in the cryptocurrency began. The data structure using a chain of blocks through “mining” procedures as a method to ensure data authenticity has given rise to many new concepts, such as decentralized data management, that could transcend the accepted practice of conventional finance, and new developments continue to emerge. The definition of what constitutes distributed ledger technology (DLT) has yet to be firmly decided, and we are seeing many initiatives that are replicating some DLT technologies and concepts. Automated market-making (AMM), a programmed exchange function that automatically puts together transactions, could be changing the way financial transactions are being accomplished. Meanwhile, central banks are experimenting with central bank digital currencies (CBDCs) that have the potential for changing the concepts of payments and credit that have become entrenched in our traditional banking system.

Some countries’ research into CBDC has been stimulated by major IT companies' use of similar technology and China's advanced effort in the development of a digital currency. Economic developments since 2004 cannot be discussed without mentioning China, but we must also carefully monitor related geopolitical risks and their impact on financial and capital markets.

ESG issues are another area attracting increased interest around the world. Efforts to reduce greenhouse gas (GHG) emissions have the potential to promote various forms of financing and become a new trend in financial and capital markets. One new DLT application now being tested is the issuance of tokenized green bonds that enable the easy verification of GHG reduction data associated with the project being financed by the bond.

Recently emerging financial market systemic risks are prompting concerned parties to rethink the financial regulations that have been in place since the GFC. The collapse of cryptocurrency exchange FTX in November 2022, and subsequent incidents have sparked this review.

As recent events have shown, the world’s financial and capital markets are increasingly interrelated, and the smallest events in one market eventually can have a huge impact globally. I sincerely hope that our consistent efforts here at NICMR to monitor the development of financial regulations and systems, to observe innovations in the financial markets of each country, and to provide survey results, research reports, and policy proposals in a timely manner will contribute to the formation of new system designs and business plans. All of us here at NICMR hope that our activities support the development of financial and capital markets not only in Japan and Asia but also around the world.

April 2023
Toru Otsuka
President & CEO

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