Among increasing interest in trading at the close, the Tokyo Stock Exchange (TSE) is the latest to offer a closing auction to investors. The launch comes alongside the introduction of extended trading hours and changes to the exchange’s cash equity trading system, set to go live on 5 November.
Soaring trading volumes in Japanese equities and recent volatility have prompted the TSE to make changes to its cash equities trading platform and structure. After 5 November, afternoon session trading hours will be extended by 30 minutes, closing at 3:30 pm, and a closing auction will be implemented.
Across the Japan Exchange Group, appetite for equities is on the rise. Closing 2019 with 640 million yen in trading value, end-of-year figures for 2023 reached more than one billion. Projected figures show that value will rise further in 2024, ending the year at more than 1.3 billion yen.
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Extending trading hours will allow for order book information to be disseminated, new orders to be placed and existing orders to be modified or cancelled before closing, the TSE explained. Zaraba, continuous trading, will end at 3:25 pm, followed by a five minute order acceptance pre-closing period. Itayose, a price-setting clearing method, will then be conducted at 3:30 pm, and the executable price range will be identical to the current price range.
The closing auction is taking an increasingly large proportion of daily volume across exchanges globally, particularly during market events such as index rebalances. Traders use the auctions to achieve lower price impact, and the TSE’s introduction of the system aims to improve closing price formation transparency. Under the new conditions, trades that are not executed under Itayose conditions will be executed within the upper and lower limit of the executable price range based on time priority, TSE explained.
Following a 3 November dress rehearsal, and providing no issues emerge, the Japan Exchange Group (JPX) has confirmed that the introduction of the new trading system will take place as planned on 5 November. This fourth iteration of the arrowhead system (arrowhead4.0), which was originally launched in January 2010, has been in development since 2021.
Further functions being added to arrowhead include the ability for orders to be cancelled in bulk and the replacement of FLEX Standard and FLEX Full market information services with a more detailed “market by order” structure. TSE has also shared its plans to enhance resilience and ensure that trading is possible through system failures, and that these incidents can be recovered from more efficiently.
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