Published On: Tue, Aug 31st, 2010

Fragmentation in Japan is Born

On August 30 SBI Japannext (JNX), a Proprietary Trading System (PTS) captured 1% of the Tokyo Stock Exchange volume valued at 11bn yen (~USD130 million) sending a strong signal to the exchange and its incumbents that the TSE isn’t the only venue in town. “Its a surreal feeling to achieve a major milestone of capturing 1% of TSE’s market share. ” said Chuck Chon, CTO Japannext. He continued “We strongly believe that Japannext have made the pie bigger for the entire Japanese equities market by creating trading opportunities that did not exist before.”

In what has been declining volumes on the main Japanese bourse, JNX has been bucking the trend posting the record turner as the rise of fragmentation of Japan is born.

Supporting the PTS industry recently was that the Japan Securities Clearing Corporation (JSCC) began clearing trades for PTS operators late in July. The bilateral clearing model was onerous, presented risk not found on the TSE and was necessarily costly disincentivizing trading on this platform. CCP clearing has now removed these problems and reduced clearing costs to the industry.

Internally as well, JNX has been refining and building its business by reducing brokerage fees, adding third party ISVs like Fidessa and is expected to rollout a low latency FIX gateway in the coming months. SBI Japannext is FIX 4.2 complaint.

When asked if the PTS business had a place in Japan Mr. Chon said “We offer a mechanism where our market participants can create an opportunities by narrowing the spreads. So, in a sense PTS venues are creating
new set of liquidities which can be arbitraged with TSE liquidity. This in turn creates more volume for PTSs and TSE alike.”

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