Upgrading the Exchanges – With Arrowhead, Tokyo Stock Exchange takes aim at the traders of the future

By Satoshi Hayakawa

The wait is over. Arrowhead, Tokyo Stock Exchange’s next-generation trading platform, launches in the New Year and promises high-speed performance, accessibility and reliability for local and international investors. Satoshi Hayakawa, from the Tokyo Stock Exchange’s IT department highlights some of Arrowhead’s key features.

January 4, 2010 will usher in the Tokyo Stock Exchange’s renewed stock trading system. This next-generation system, called “Arrowhead,” not only provides high-speed performance at a global level, essential for order execution and data transmission, but also constitutes a world-class stock exchange trading system that brings both fairness and reliability, the fundamental attributes demanded of any market. Arrowhead will transform the Tokyo market into an even more appealing trading environment.

Why Arrowhead?
Tokyo’s long-awaited Arrowhead is due to go “live” on January 4, the first Monday of 2010. The concept is simple: to enhance the speed and reliability of the Tokyo Stock Exchange. The next generation trading environment uses state-of-the-art technology to increase capacity, expand the provision of market information and streamline the trading process. In short, the exchange is aiming to strengthen both the hard and software it provides.

Speed
Perhaps the most striking improvement will be to the speed with which orders are received and confirmed. Arrowhead will move the TSE from the one to two seconds it currently achieves to within 10 milliseconds. Test results show that Arrowhead is, in fact, posting even faster intervals. It’s an essential feature if Arrowhead is to accommodate the algorithm and high-frequency trades that are increasingly common among the global financial community.

High reliability
While speed may be the headline feature of Arrowhead, the reliability of the system is just as important. Gone is the concept that reliability is the trade-off to speed, or vice versa. Arrowhead guarantees the completion of the transaction process via a sophisticated system that holds orders and confirmation on three different servers to prevent deletion of data due to hardware malfunction. It’s a system that been proven to cope well, even with orders that constantly change.

A part of the reliability pledge of Arrowhead is its commitment to enhancing the availability of the system. This involves simplifying the user interface, by using the highest level of technological support behind the scenes. A secondary back-up site has also been newly constructed, in the event of a catastrophic incident in the primary exchange location.

Enhanced market data
Another aspect of availability are the enhancements the exchange has put into its market data feed. With Arrowhead, the exchange claims to have significantly reduced the interval between data creation and transmission, as well as increasing the amount and transparency of data and transactions. In practice, this will see the amount of nominal prices transmitted rising to eight from the current five, using the FLEX standard service. A further enhancement, via Arrowhead, is the new FLEX Full, a system that will transmit all nominal data for every issue. This data will be available to all investors, not only market players at the TSE, including institutional and individual investors in Japan and overseas.

Revisions to Trading Rules
Other changes include upgrades to the trading rules. These include:

  1. Partial reduction of tick size. To correct any disproportion overall and enhance user-friendliness, the tick size for a portion of the price will be reduced to allow more detailed orders.
  2. Introduction of sequential trade quote. To avoid sudden price changes over a short period of time, this function displays continuous confirmed bids and can suspend trading for a short period (e.g. one minute) if market players attempt to place buy or sell bids that greatly diverge from the preceding confirmed prices. For example, doubling the bid renewal margin either above or below the price.

Once Arrowhead is in operation, the TSE says it will continue to maintain all systems necessary for fair pricing to occur. The current system, which allows investors to securely place orders and supports price finding functions that values assets through “itayose” special bids, limit value margins and abnormal order checks, will continue without change.

Higher speed, lower latency and start of Co-llocation service
TSE’s Arrowhead preparation moved into high-gear in June 2009, with the launch of the ‘Arrownet’ network. Arrownet brought together all systems, traders and information vendors to achieve an internal latency among this core network of two milliseconds or lower. This represented a ten-fold decrease in latency, and created a ring-shaped network with 99.99% accessibility and future potential for expanding into international connections.

A few months later, the TSE rolled out its co-location services that allowed for the installation of servers and other devices within the primary site that houses Arrowhead. With this co-location, latency is reduced to a few hundred milliseconds.

The full results of extensive testing are on offer to all from January 2010, with the TSE billing Arrowhead as a “comprehensive, high-reliability, high-speed trading platform designed to provide a more appealing trade environment.”

Creating an exchange for the future
The development of Arrowhead has been seen by many across the industry, as both a technology achievement, and also an example of partnership between the exchange and market players, including traders and technology vendors. The TSE is confident that Arrowhead will send a message to the world about the reliability, latency and quality of its exchange.

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