Today marks a transformational moment for the Monex Group. Due to some legal concerns, I have not been able to discuss the future of our group until the completion of the friendly tender offer to TradeStation Group, Inc. Thanks to all of your support, the tender offer has successfully completed as of yesterday, so I would like to share my thoughts on the future of the Monex Group comprehensively with our colleagues around the world.
Mission and Values
Since we started as a venture company in 1999, we have valued progressive ideas, respected cutting-edge technology, and built an entirely new financial services company based on a strong belief that our activities contribute to the capital market and the society at large. This, I believe, is a mutual principal we share both in the United States and Hong Kong.
You all know of the episode of the “three sticks” in Aesop’s fables. This is the time for all three regions in Japan, the United States, and China to unite. With this unity, we will further accelerate what we have aspired to create, and make it even newer, stronger, and bigger.
First I’d like to explain the meaning of MONEX and its mission. This can also be found on Monex Group, Inc.(MG)’s website.
"MONEX" stands for the future of finance, one step advanced from "MONEY"
The Monex Group is aspiring to empower traders and investors worldwide with best of breed technology, education, service, and financial professionalism to provide access to top financial markets globally.
To achieve this we are committed to:
- Celebrating the diversity of each and every one of our customers and employees
- Driving the future of technology and first class financial professionalism that empowers traders and investors
- Creating new value to contribute to all stakeholders
The Monex Group
The Monex Group consists of a diverse range of companies. MG is the holding company and head quarter of all companies under its umbrella. The online brokerage firm and FX firm in Japan, Monex, Inc. and Monex FX, Inc. represent 65% of the group revenue. TradeStation Group, Inc., which holds TradeStation Securities, Inc., TradeStation Europe Limited, TradeStation Forex, Inc. and TradeStation Technologies, Inc. under its umbrella, represents 33% of all group revenue. In Hong Kong, we have Monex International Limited that holds the BOOM Group, which includes a local online brokerage firm. The Monex Group also has Monex Alternative Investments, Inc. which develops and manages alternative investment funds, Trade Science Corporation which conducts R&D and manages the Kabu-Robo (Stock Robot) funds, Monex University, Inc. which provides investment education, and Monex Hambrecht, Inc. which is a boutique investment bank specializing in M&As and OpenIPOs. Monex, Inc. also has a representative office in Beijing, which is the only office among other online brokerage firms to have a representative in Mainland China. Here, I would like to talk about our Japanese base that centers around Monex, Inc., the United States base that operates TradeStation Group, and our Hong Kong base that operates the BOOM Group.
In Japan, Monex, Inc. is an online brokerage firm with a client base of 1.2 million. There are only 8 online brokerage firms around the world that have a client base of over 1 million: TDAmeritrade, Charles Schwab, E*TRADE, and Fidelity in the United States, Cortal Consors in Europe, and SBI Securities, Rakuten Securities, and Monex, Inc. in Japan. Monex Inc.’s strength in Japan is its rich product and service lineup from mutual funds and bonds to alternative investments. In the future, we may be able to provide our Japanese client base with TradeStation’s state-of-the-art technology and service and improve customer satisfaction, thus increasing profitability for the Group. We may also be able to introduce our Japanese clients to BOOM Securities, or we could also provide mainstream clients in the United States with access to Monex’s wide array of products and asset building capabilities.
In the United States, TradeStation has been ranked as the No.1 online brokerage firm in both 2008 and 2011 by Barron’s in overall ranking and in categories including “active trading,” “trading technology,” and “customer service and education”. Being crowned No.1 by the most prestigious financial journal in the most developed capital market is a compelling fact. TradeStation is at the forefront of the online brokerage industry with the most advanced trading technologies. This powerful brand, technology, tools, and dedication to customer service, if applied to our big Japanese client base, could lead to improved service and profitability for the Monex Group in Japan. It could also act as a vehicle to attract active traders away from our competitors. Or rather, it must. We could also use this brand to establish and accelerate business in Mainland China. We could explore the possibility of monetizing TradeStation’s technology by creating a B2B2C business model rather than pursuing the long and difficult path of trying to obtain a securities brokerage license in China. This may be the faster and practical way to develop a business there. Furthermore, TradeStation possesses EasyLanguage, an effective and economic intellectual programming technology that is broadly used. This “network externality effect” is a huge competitive advantage. The possibilities are unlimited. I believe that utilizing TradeStation’s robust brand and technology will bear much fruit in both Japan and China.
In Hong Kong, BOOM securities is the first online brokerage firm established in Asia. BOOM has enabled clients to invest in 12 countries and 17 markets around the globe, and has created many progressive services that resonate deeply with the Internet. Their tagline, “TRADE LOCALLY, INVEST GLOBALLY” represents their splendid foresight of the future in the Internet era. We may be able to provide our clients in both Japan and the United States with the connectivity BOOM possesses worldwide.
In all regions, we can also utilize the technology and expertise we have in the retail arena to expand our business towards existing and potential institutional clients on a global scale.
The opportunities that can be created by the three companies are infinite. By cooperating with each other, the three companies can pursue and realize dreams and aspirations they could not alone. We can have existing and potential clients around the world use the best technology and first-class products and services originated by our colleagues in each region.
However, there are challenges to overcome. First of all, the profitability in all three companies is in decline. We must address this as a common issue and work to tackle it. At Monex, Inc., low profitability and high fixed costs are salient compared to other major competitors, and we must work to improve operational efficiency. We must also strengthen our mutual fund and fixed income business. TradeStation’s compelling technology and recognition has room for a bigger client base. We must work on marketing discretionary active traders and expand the client base. BOOM must also work on expanding its client base as well as renovating its system for further growth.
Objectives of the Acquisition
As a result of MG’s acquisition of TradeStation Group, Inc., the Monex Group has become a truly global company with 400 employees in the United States, 300 employees in Japan, and 50 employees in Hong Kong and Beijing. I imagine all of you may be feeling some anxiety wherever you may be.
Our colleagues in America may be worried about their future, having been bought by a Japanese company. Our colleagues in Japan may be worried about what will happen having used up much of the profit it has pooled over the past decade. Our colleagues in Hong Kong may be worried that, due to their size, their weight in the Group might dwindle over time.
All these concerns are unnecessary.
In my opinion, a merger or acquisition of Company B by Company A does not necessarily imply A controls B. Rather, I believe it to be a process by which A, by risking its shareholders’ capital, is able to form a new group of companies. For example, in the process of this acquisition, MG’s shareholders took the risk to create an entirely new financial group, unparalleled in innovation and global thought. This does not imply a hierarchy in the Group—we are united as equals in our mission to establish a new global business enterprise.
The Global Vision
What is the image of this new enterprise we are trying to create? This can be explained through our Global Vision.
So let’s take a look at the Global Vision through the prism of the new marketplace. In an environment where the Internet is borderless to begin with, and financial products are inherently international (take FOREX, for example), and the markets continue to progress towards a 24-hour, round-the-clock trading schema, online brokerages should not attempt to become the largest they can be in a single market, but rather expand globally. By cooperating internationally we can gain a competitive advantage on a worldwide scale, thus growing even larger and more efficient and profitable. This is the fundamental idea of the Global Vision.
I feel I should take this opportunity to make clear that our Global Vision is not simply an effort to diversify our revenue internationally. Rather, pursuing the Global Vision heightens the possibility to improve the balance of return and risk for our shareholders as a result of the diversified revenue source. Furthermore, the Global Vision is not some magic spell that will create competitive strength and profitability automatically. I expect each company to improve its bottom-line by creating cost synergies, and share excellent products and services catered towards its home market while being sensitive to cost to ensure we run an efficient organization. Only then can we bolster the Group’s competitive advantage on a global scale.
The Environment and Background of the Global Vision
We live in a world where we have access to all sorts of information from all over the world, thanks to the Internet. Our clients’ tastes are becoming more global. Clients in all of our regions are demanding financial services and information from across the globe. This is readily apparent in Japan and Hong Kong. As China continues to grow and the dynamics of the world economy changes, we believe customers in the United States who have not necessarily been interested in investing outside the dollar will become more receptive to international products. However, even if local brokerages were to serve these global needs, there exists a “home market bias”, where clients trade primarily within their own currencies and local markets. Furthermore, expending great resources in developing and providing access to markets outside national boundaries does not guarantee the ability to create competitive products. The danger therefore exists that demand could remain low while high costs are incurred in developing what amounts only to an inferior product.
Were each company to develop globally, however, each region could work within its home market, providing quality products to both its customer base as well as the Monex Group as a whole.
All financial products, not just FOREX, are steadily on their way to being traded 24-hours a day. Derivatives are already being traded on a 24-hour basis. FOREX was originally traded over-the-counter, and derivative markets are naturally inclined to operate over extended periods of time. It is possible for index derivatives to be traded this way because the role of trade monitoring agencies is limited and relatively unimportant. Individual stocks, on the other hand, are bought and sold alongside monitoring mechanisms, which make it impractical for them to be traded around the clock.
It is my belief, however, that stock exchanges will eventually cooperate with one another in order to construct a system in which equities are fungible among several markets and clearance is passed along from time zone to time zone. Once that becomes a reality, it would be infeasible for a domestically based brokerage firms to operate on shifts around the clock. Rather, companies such as ours can relay our operations on a global scale, like the stock exchanges themselves. Brokerage firms unable to do so will likely lose their competitive edge.
Meanwhile, financial trading systems are becoming more universal day by day. Take PCs for example. Personal computers in Japan used to be developed in Japanese both hardware (NEC is a good example), and by using special software such as DOS/V in order to “translate” a pre-existing operating system. Today, hardware is universal, and font and language is handled by each individual application. In the financial world, the Tokyo Stock Exchange (TSE) has been using NYSE Technologies’ Tdex+ for about a year now, and the Osaka Exchange is using a product designed by Nasdaq OMX. TSE is even planning on using Tdex+ to handle in-market after-hours trading. At the same time, exchanges all over the world are looking for ways to cut costs, and in so doing are beginning to develop common standards on their trading systems. Investment banks and hedge funds have already been using universal platforms for their systems, and I believe it will soon become a common practice in the financial retail business as well. As these standards develop, products and services developed in one region will be able to be sold in different areas with little additional cost, thereby improving overall profitability and efficiency.
The Sphere of the Global Vision
I have used the word “global” many times thus far—to be clear, by “global” I mean not the world as a whole, but in this context specifically Japan, the United States, and China. Of course the current European business through TradeStation Europe will continue to be a strategically important business region, and we will expand and operate on a truly global scale as our long-term goal. However, as the initial focus of the Global Vision, I believe we should focus our strengths in these three nations. The three nations represent nearly 50% of the world’s GDP, 80% of the world’s financial markets, and most likely 70% of the world’s wealth. What’s more, these three nations have very high rates of Internet/broadband coverage. In that sense, by simply negotiating with just three regulators, by using just three languages, and by marketing towards just three cultures, we could capture half the world, perhaps more, as our business arena. This is a very efficient, attractive proposition, and for the time being I would like to focus our resources on these three regions. This is our chance to appeal the technology we take pride in, the products we create, and the services we devise to our client base in half of the world.
The True Objective of the Global Vision
I’ve explained a lot about the Global Vision. However, the most essential part of the vision is leveraging the talent of our people and bringing in new talent. Our new global organization will hire talent from all across the globe. We will hire skilled individuals, some of whom may only speak one language, while we also provide an attractive opportunity for those who have worked to obtain multiple languages. In any case, all members of the organization will go on to form the core of our work force on all levels of the organization, from administration to marketing, from system engineers to financial experts, and management level professionals, including top executives. After accumulating this group of unique, skilled individuals, we can place them where they work best in a global context. This does not mean plain relocation. This means placing those with superior resource and motivation in areas where they may best realize their potential on a global scale.
With this Global Vision in mind, we have progressed with this tender offer, and have prepared to develop a clear roadmap. It has been a rather slow process since there were many things we could not move forward until the tender offer was completed, but now that it has, we will accelerate discussions on these questions: What are the areas of cooperation? What are we aspiring to be? What are the specific goals? In what timeline can we achieve this? What do we do to get there?
We have briefly touched upon the outline of the new roadmap on p.14 of the presentation material of the financial results of fiscal year ended March 31, 2011. Our current revenue breakdown is: 65% Japan, 33% US and Europe, and 2% China including Hong Kong. In 3 to 4 years, we aspire to make this ratio 40:35:25. Our current profit margin ratio is approximately 20%, but we are aiming to make this figure 40% in the same timeframe.
Our current consolidated group revenue is approximately 400 million USD, and cost is approximately 300 million USD. We aim for more than twice as much as our current group revenue, and become one of the top 5 players in the online financial industry in the world in terms of revenue, profit, and number of clients.
We are forming the Global Management Committee (GMC) and GMC Office right now and the constituents will be announced early next week. The GMC is a vehicle to discuss and decide the Group’s direction, to analyze and select areas of cooperation, and conduct orders to implement these decisions. In terms of Corporate Governance, the GMC will exercise the rights delegated to the committee by the board or CEO of MG, or alternatively, offer opinions to the board or CEO of MG. In the future, we intend to adopt the general U.S. approach in which the GMC becomes the executive office and the board acts as a check-and- balance to protect shareholder value.
One of the missions of the GMC will be to analyze, pursue, and realize synergies within the group. In order to execute on this mission, we are setting up the GMC Office as of tomorrow. The GMC Office will support, realize, and take necessary measures to make alignments for decisions made in the GMC. The members of GMC office will consist of our colleagues from Japan, the United States and Hong Kong.
Day-to-day operations will be governed by the Asia Steering Committee for Japan and China, replacing the current Group Steering Committee (The members will remain unchanged). The board of TradeStation Group Inc. will manage operations in the U.S. and Europe.
The GMC and the GMC Office is not intended to operate for a specific region or company. They will search for and act upon what is best for the entire Monex Group. We want to find a way to cooperate globally as soon as possible, so we ask for your cooperation. Remember, “My money is your money. Your money is my money.” Please do understand that this is a new challenge for us, and we will see what is best on a trial-and-error basis.
Please rest assured basic employee treatment will not change in all regions. We do not intend to apply the Japanese way in other parts of the world, and we will respect how it has been done in each region. However, this does not mean that nothing will change. If we believe there is room for improvement in personnel policies, it is only natural that we make amendments. I believe that our people are the driving force in realizing our goals, and we are committed to continuously enhancing the evaluation process by giving proper feedback and appropriate rewards commensurate with performance. In the long run, we want to consider bonuses that link to MG’s share value and financial performance as incentives for employees across the globe to pursue our Global Vision. It may be appropriate to test this by starting with senior levels at an early stage. Either way, we understand employee treatment is a sensitive issue culturally and individually. We will do our best to discuss and communicate prudently, so please be reassured that no drastic measures will occur immediately.
The Global Vision is not a magic trick. As a premise to the Global Vision, please do not forget that there is much to be done on a local level. It will be our basic principle to resolve and improve issues locally. All offices must endeavor to increase their bottom-line and profitability.
The society changes, and the marketchanges with it. As a result, our customers change. In this chain of change, we must also change. Change only comes from within ourselves. We need to keep taking preemptive measures, and we need to keep igniting change. Standing still is the path of greatest risk. I’ve mentioned in the beginning that MONEX stands for the future of MONEY. This future is not a future we see from one point in time, it is a rolling future, an ever-changing future in an ever-changing environment. Let’s make this change happen. Let’s take advantage of change so that we are always prepared for the next wave of changes.
Last but not least, I’d like to introduce myself just a little bit. When I was 22, right out of college, I couldn’t speak English at all. I joined a U.S. investment bank called Salomon Brothers mainly because I wanted to learn how to speak English. I thought if I joined an American company, I would be able to speak English, and that my world would broaden. I moved to Goldman Sachs after a few years and did some trading. Well, lots of trading. Day in and day out. And I loved it. I also loved to take risk and cultivate new frontiers. I made new trading and investment businesses from scratch one after another. It excited me, and I excelled in it. When I left Goldman Sachs as partner of the firm right before the IPO to start Monex, people called me insane. People didn’t believe the online brokerage business model. Naysayers had their say. Some may say this Global Vision is impossible to accomplish, just as the people who called me insane did back some 10 years ago. However, I am here today addressing to almost 800 people around the globe of our new business. I am feeling a rush of excitement and enthusiasm, just like I did when I started Monex.
Everyday, it’s becoming more clear: what we can accomplish together as a team is greater than what we can accomplish alone.
I have a dream. One day, I want to retire and become one of the best and biggest clients of The Monex Group, and trade all day long. That is my dream.
Thank you and I look forward to working with you all.