ONE of the largest public pension funds in the United States will soon put its weight behind calls for major regulatory changes in the Japanese securities industry.Officers of the $63 billion California Public Employees Retirement System (CALPERS) are dispatching a letter to Japan's Ministry of Finance this week, expressing deep concern about "the lack of oversight and regulations" in the Japanese financial markets, according to Basil Schwan, assistant executive officer of CALPERS. CALPERS is active in the Japanese market through a $400 million portfolio managed by Normura Investment Management Company, a subsidiary of the giant Nomura Securities. Normura Securities, together with other top Japanese investment companies, is at the heart of a stock market scandal currently rocking the Japanese financial community. The companies have admitted compensating several hundred of their largest clients for their stock market losses. The payments confirmed the suspicions of many experts that the combination of a lax regulatory system and cozy ties among Japan's largest business interests tilts the financial markets against small and foreign investors. The scandal has embarrassed the government of Prime Minister Toshiki Kaifu, as whispers have spread in Tokyo that top politicians may also have received payments. It has also tarnished the image of Tokyo as a center of international finance. The revelations seem certain to fuel calls from the Bush administration for regulatory changes in Japan. Through the US-Japan Structural Impediments Initiative (SII), the administration has repeatedly cited the extensive cross share-holding among Japanese firms, and inadequate shareholder rights, as major clogs for foreign companies anxious to operate in Japan. In an effort to stem the bad publicity, Mr. Kaifu recently called for tougher regulation of the securities industry, including the possible creation of a regulatory agency separate from the Ministry of Finance. Meanwhile, CALPERS has placed Nomura Investment Management Company on probation, pending the outcome of consultations. "We are asking for reports and explanations from Nomura about how the situation in Japan might affect our business and how they propose to prevent these problems from arising," Mr. Schwan says. Nomura officials will address the CALPERS investment committee on Aug. 19. Both CALPERS and Normura sought to downplay the significance of the probation. "We have not terminated our business with Nomura, nor have we threatened to do so," says Schwan. "We just feel we have an obligation to ask the questions and get the answers." CALPERS officials say that prior to the scandal they were happy with Nomura's performance. In the 12 months ending March 31, CALPERS received a 12.3 percent return on the $400 million managed by Nomura.