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Country experience: Japan: margins on buying and selling transactions

14.316.        Dealers implicitly charge services by incorporating a spread between their buying and selling prices. Japan estimates margins on debt security transactions by multiplying their transaction volumes by the corresponding spread ratios. Transaction volumes and spread ratios are estimated as follows. 

14.317.        In most cases, a resident dealer exports services through inward investment transactions. Correspondingly, a resident investor imports services through outward investment transactions. 

14.318.        Therefore, Japan assumes that the export of services occurs only in inward investment, and that the import of services occurs only in outward investment. Some inward (outward) investment transactions are conducted with non-resident (resident) dealers, and such transactions are excluded. Volumes (the sum of buying and selling transactions) of inward investment and outward investment by type of security are obtained from direct reports from financial institutions and ITRS. 

14.319.        A spread ratio is the difference (as a ratio) of an ask price and a mid-price, where a mid-price is the average of an ask price and a bid price. The spread ratio varies by every transaction, but there is no perfect data source. Therefore, Japan chooses the most common products and uses their spread ratios for approximation. For inward investment (export of services), spread ratios of Japanese Government Bonds (JGB) are used. For outward investment (import of services), spread ratios of six major countries' government securities, that account for the majority of outward portfolio investment, are used and applied to investment in corresponding countries. As they are significantly different, spread ratios of short-term securities and spread ratios of long-term securities are separately measured. Data are obtained from Bloomberg.