As one indicator of the health of Japan's equity market, the top five online brokers (SBI Securities, Rakuten Securities, Matsui Securities, Kabu.com Securities and Monex Securities) have seen their combined trading values implode from nearly JPY200 trillion in the March '06 fiscal year back to JPY50 trillion or so in the first half of FY09.

In FY03 (to March 2004), the five online majors had combined trading values of a "modest" JPY50 trillion-plus. As Japan emerged from the Heisei Malaise with the Nikkei 225 bottoming in Q2 2003 and the reformist cabinets led by Junichiro Koizumi had evidently ended the financial crisis and was on its way toward re-invigorating Japan, individual investors returned to the Japanese equity market in droves, and migrated to the online brokers. As trading values for the major five were hitting nearly JPY200 trillion in FY05, a trading commission war broke out, with the online majors scrambling to provide the lowest trading commissions.

At the same time, the FSA (financial services agency) moved to force these brokers to greatly increase their investment in systems to accomodate the surge in trading volumes, while the Tokyo Stock Exchange upped their membership fees because online trading was beginning to effect the TSE's capacity to handle trades as well.

Things however went downhill from there. In January 2006, the Livedoor scandal hit the JASDAQ and emerging markets hard as investors began to question just how good the accounting was at these firms. On closer inspection, other emerging companies also had loose accounting, and a succession of bankruptcies scared individual investors away from wheeling and dealing in newly listed venture companies.

The combination of falling volumes and falling commissions per trade, increased fixed costs with mandated system investments was deadly. Online brokers have coped by offering forex trading as well as foreign securities, but the financial crisis post the Lehman Brothers failure has sent individual Japanese investors scurrying for safety.

Monex Group (8698:J) saw its revenues drop 37% between the March 2006 and March 2009 fiscal years, while ordinary profit imploded 79% and net income slipped into the red by JPY2.1 billion. The Company, a start-up began by an ex-Goldman Sachs partner, first tried to find solace in merging with Nikko's retail broker arm, Nikko Beans, but the Company has recently announced a merger with Orix Securities to get even larger scale merits. After the merger next May, the combined new entity will be second only to SBI Securities. SBI Securities is not impressed, claiming that the merger of two online brokers with very different commission schedules will only lead to a loss of customers.

At the very least, the merger of the two will mean more restructuring in Japan's broker industry, the headcount of which has continued to shrink. Retail giant Nomura Securities tried to hold back the tide of the online brokers by establishing its own online subsidiary Joinvest Securities, but the venture has been an absolute flop, so Nomura is merging the operation. Industry veterans such as Matsui Securities' president see more consolidation, including the possiblity that Monex will eventually merge with Rakuten Securities.