Published On: Sun, Jan 10th, 2010

The Tokyo Stock Exchange Joins the Club

Tokyo Stock Exchange UpgradeIf you are trading Japan I am sure you must be aware that the Tokyo Stock Exchange (TSE) finally upgraded their moribund technology and matching engine on January 4, 2010. Code name Arrowhead, the highly anticipated and long overdue leap into modern trading services has been rolled out successfully. A spokesperson from the TSE asserted that the transition was “smooth” and “no significant problems have been raised by market participants”. That claim was supported by one of Asia’s leading derivative ISV’s Patsystems. “The TSE Arrowhead project went off without a hitch on our customer side” proclaimed Barry White the Regional Director of Asia Pacific “…we have been very pleased with the results and the roll out process here.” he continued.

The Tokyo Stock Exchange is renowned for its slow and archaic systems. Perhaps you recall that in 2005 a trader from Mizuho sold 610,000 J-Com shares down to ¥1 when in fact the order should have been 1 share at ¥610,000. While the onus was on Mizuho to have prevented this kind of error in the beginning the fact that the TSE didn’t reject the order, or halt the shares when the name moved so much at one time is testament to its inability to deliver an effective trading environment for its members and their clients. Before the upgrade order confirmations took at least 4 seconds to come back and even longer during peak times such as the open or close.

But those days are now past and the industry can now enjoy 5 millisecond order response times and 3 millisecond latency for price feed. Admittedly still slow by western standards but a giant leap for Japan. High frequency participants have purposely avoided trading the TSE in part due to its legacy latencies but that should now change in turn increasing liquidity, tightening spreads and reducing execution costs. Also, brokers will be able to offer best execution as algo’s sniff out liquidity at a highly responsive exchange matching engine further fueling efficiency at the TSE.

The TSE claims that the exchange has the capacity to process 4.68 million order per day. I am sure that in light of the improvements the exchange has made that number will be surely be put to the test.

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