By Japan FIX Trading Community Regional Committee co-chair, Hiroshi Matsubara, Marketing Director, Japan, Fidessa
A couple of key factors have contributed to the global market turmoil (i.e. oil prices, a slowdown in the Chinese economy and US interest rate hike), and these factors have certainly made a very challenging year for trading the Japanese market. As Abenomics and the QE (Quantitative Easing) policy by Bank of Japan are perceived to have recently stumbled a little, Japanese equities have been suffering from shrinking market liquidity and the market is getting quite behind with market performance compared to major markets in the rest of the world.
Wider moves towards changing the market structure of Japanese equities trading seems to have somewhat stabilised over the last couple of years. The FFI (Fidessa Fragmentation Index) for Nikkei 225 constituents shows a figure of around 1.1, recently whereas it used to show over 1.2 a couple of years ago, meaning trading is becoming more concentrated. The introduction of smaller tick sizes for the TOPIX 100 universe by JPX in 2014 shifted the liquidity of large caps from PTS, the alternative execution venues, into the primary market (PTS share is now 3- 4% for the Nikkei 225 universe). In the meantime, the broker dark pool execution percentage of Japanese equities is estimated to remain roughly constant (around 7 % for Nikkei 225) over the past couple of years.
The smaller tick size program by JPX also affected HFT trading with market-making strategies and saw some tendency by these participants to stay away from trading Japanese equities. However, the universe of HFT trading has been expanding into mid and small cap shares and the presence of HFT in Japanese equities trading remains well established (the majority of institutional orders are now coming through the co-location service offered by JPX).
The use of low touch electronic trading (DMA and DSA), along with access to broker SOR and dark pools, has penetrated into almost all domestic asset management firms in Tokyo. Electronic trading of OTC fixed income instruments is making progress and ETP (Electronic Trading Platforms), the Japanese version of SEF in the US, for trading Yen IRS (Interest Rates Swap) started operation last autumn.
In the meantime, by following the ongoing direction of the regulatory review by the SEC and CFTC in the US and MiFID II in Europe, the discussion of a regulatory framework on market structure issues (e.g. HFT, algos and dark liquidity) is now taking place, led by the Japanese regulatory authority. We anticipate some conclusions towards the year end.
In order to provide Tokyo market professionals with the opportunity to share updated information on the latest market developments and peer-to-peer networking opportunities, the Japan Regional Committee is currently preparing to host another biennial Japan Electronic Trading Conference in the autumn. Our previous trading summits hosted by the Japan Committee always attract a large number of delegates, and this year we expect between 500-600 to attend. The event is widely recognized as the main event focused on institutional trading in the country. The Committee’s volunteer team (which consists of 13 brokers, a buy-side and four vendor firms) have been spending a lot of time and effort to prepare for the event.
The agenda is in the process of being finalised, but we are planning to invite keynote speakers from the JFSA (the Japanese Financial Services Agency), JPX (Japan Exchange Group) and university professors (on the issues of HFT and corporate governance) and feature panel sessions to discuss key issues of electronic trading that both buy- and sell-sides are facing today (e.g. “Best executions and TCA”, “The latest trading platforms”, “The latest equities electronic trading”). We also intend to catch up with some of the latest discussions related to FinTech by featuring sessions on “AI usage on algorithmic trading”, “The future of Blockchain technology” and “FinTech for retail markets (e.g. Robo Advisors)”.
We look forward to seeing many of the readers of GlobalTrading at the event venue in Tokyo in October.
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Looking Towards The Japan Electronic Trading Conference On 5th October In Tokyo
