Published On: Fri, Jan 28th, 2011

Chairman’s Opening Address at Trading Architecture Japan

Trading Architecture JapanDistinguished guests, Ladies and Gentlemen, Good morning. It is my pleasure to join you today here at the Trading Architecture Japan conference. These are exciting times for electronic trading in Japan as well as across Asia. The region has been in the throes of change really since the global financial crisis but perhaps the defining moment and the rebirth, in my view, of electronic trading in Japan was the Tokyo Stock Exchange upgrade we all have come to know as Arrowhead. Since its launch last January we have witnessed increasing volumes and reduced order sizes; the hallmarks of algorithmically driven electronic trading. And the TSE hasn’t looked back either. They have revised trading hours, expanded their colocation service to include proximity, became an authorized ATS provider in Hong Kong, added some new conditional order types only this week and is planning a High-Speed Index Dissemination Service next month. I could continue talking about the Exchange but we’ll hear from Yoshinori-san of the TSE who is giving the opening keynote address right after me.

But the whole story isn’t only the TSE of course. TOCOM has been busy too. They upgraded their exchange 7 months before the TSE and have also been driving change, revitalizing and consolidating the commodity futures business in Japan. TOCOM has taken up Oil as C-Com is due to close this year. The Tokyo Grain Exchange has requested that TOCOM assume responsibility for its agriculture complex. And, in addition, has taken up the TGE’s stake in the Japan Commodity Clearing House (JCCH) raising its ownership to 63.3% and turning the clearing house into a subsidiary of the exchange.

Structural changes in Japan are pushing this consolidation and competitiveness. The Commodity Derivatives Act (CDA) came into force this month. The CDA is intended to improve Japanese commodity derivatives trading competitiveness on domestic exchanges, overseas exchanges and OTC products. We all know that Japan’s futures industry has long been mired in a siloed regulatory environment policed by 3 separate bodies namely the Financial Services Agency, the Ministry of Economy, Trade and Industry and the Ministry of Agriculture, Forestry and Fisheries. Recently, however, these agencies have come together to form a “Joint Team” whose mandate is to make Japan’s capital markets vertical more competitive and create a “universal exchange”. Under the direction of the Prime Ministers Office they have committed to streamlining the industry by 2013.

And structural change can also be found in the equity market too where the Japan Securities Clearing Corp finally started clearing trades for proprietary trading systems. This has reduced the cost of the post trade and venues like SBI Japannext have seen increased volume achieving as much as one percent of the Tokyo Stock Exchange’s daily turnover on more than one occasion. Chi-East the broker to broker darkpool through LCH Clearnet is bringing competitive clearing as well as execution into Japan.

And the future looks just as promising. The Osaka Securities Exchanges new derivatives trading system J-gate is coming on line this February 24 and in the footsteps of Arrowhead and TOCOM will form another sturdy pillar in Japan’s quickly morphing electronic trading industry. Besides speed J-Gate will also bring with it different trading hours to accommodate a global trading community, the introduction of a strategy trading rule enabling simultaneous executions across products. Explicit and implicit costs will be reduced in lowered exchange fees and reduced tick sizes.

Perhaps Japan is late to bring these changes to bare on its financial industry but just over a generation ago the US Auto industry underestimated their Japanese counterparts only to find that now Japan produces the most cars of any country in the world. Will that be true a generation from now in electronic trading?

The common denominator, however, in this complex, dynamic and determined Japanese financial industry is technology and the people who can use it, without which this speech would only be academic. Over the next two days we’ll here from many of the leading Japanese electronic trading industry professionals where they will enlighten us with the change that is going on from collocation and HFT. To market data and high performance trading platforms. And the latest update from the Exchanges and the challenges brought by PTSs

So without further ado it is my great pleasure to invite Yoshinori Suzuki, Executive Vice President and Chief Information Officer, Tokyo Stock Exchange to kick off Trading Architecture Japan.

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