The October stock market crash provided dramatic proof that the world's exchanges are now intimately - and some say dangerously - interlinked. This week senior officials of securities regulatory authorities in the United States and Japan met in Tokyo and agreed to tighten their coordination in an attempt to avoid a repeat of ``Black Monday,'' when markets around the world plunged in response to one another.
``As US, Japanese, and other world markets become increasingly interrelated, market volatility, as experienced in October 1987, becomes even more a global concern,'' said David Ruder, chairman of the US Securities and Exchange Commission in a Tokyo news conference. Both the SEC and Japan's Finance Ministry, Mr. Ruder explained, ``recognize the importance of efficient channels to ensure effective direct access to and communication with each other during periods of volatility.''
The two sides agreed to exchange ``financial surveillance and investigatory information,'' to detect fraudulent activities. Tsuneo Fujita, director general of the Finance Ministry's securities bureau, said he discussed with the SEC chairman new Japanese plans to control insider trading, a practice American officials say is now virtually uncontrolled in Japanese exchanges.
As the globalization of stock markets progresses, Ruder reportedly told his Japanese counterparts, there is an urgent need to operate each market under the same rules. Despite the worldwide trend to eliminate unfair trading, insider trading is still a widely accepted practice in Japan's traditional securities world. But the increasing presence of foreign investors in the Tokyo market has made it necessary for the Japanese exchange to give up some of its traditional practices.
On Wednesday, the Japanese Finance Ministry disclosed a draft revision of the current Securities Exchange Act, which would strictly enforce controls on insider trading. If approved in the Diet, Japan's parliament, it would outline criminal charges on participants in insider trading and define insider information. Ruder expressed general satisfaction with the draft. ``I think it will cover 98 percent of what we cover in the US of illegal trading,'' he said.
There is, however, widely shared skepticism about the bill among Japanese market-watchers. In Japan, both investors and brokers lack a clear concept of what insider trading is. As a result, insider information often functions as a key element to determine share prices.
A broker at one of the largest brokerage houses in Japan said, under the condition of anonymity, that he feels such a law is essentially meaningless. ``Insider trading?'' he said cynically. ``Every broker uses insider information. I do not even bother to pay attention to information which is already made public. Without using insider information, I don't think I can function as a broker. I doubt if a law can cover people's mouths.''
Kazuo Kitada, an investment consultant in Tokyo, agrees that it will be difficult to legislate morality in securities trading in Japan. But he adds that the traditional environment surrounding securities markets has to change sooner or later. ``Tokyo is now the leading market of the world,'' he said. ``Unless the Japanese change their isolated attitude, it is going to cause lots of conflicts with foreign investors in the future.''