Dealing with high volume
Jay Kagawa, Head of Radianz Services, BT, Japan
Since Arrowhead — the next generation trading systems introduced by the Tokyo Stock Exchange (TSE) — launched in January 2010, the volume for electronic trading has steadfastly increased in the region, particularly since last November. Trading volumes for proprietary trading systems also indicates a significant uptrend along with it.
Regardless of this market trend, key factors to contributing to trading volumes are low cost execution fees high liquidity, low clearing fees and tax. Other costs are connectivity, colocation facility costs, hardware, market data feed and software for trading. All those factors needs to reach a reasonable level for the market participants to decide whether they ever come to Tokyo to trade.
Since the merger of TSE and Osaka Stock Exchange (OSE), Japan Exchange Group (JPX) completed system integration on the cash equity side this July and derivatives are to be consolidated to J-Gate next year. It is true that we see some operational synergies out of this merger. However, one of my concerns is that although at the new JPX colocation site, both cash equities and derivatives are allowed to be traded, the OSE still operates their own colocation service where quite a few market participants are still there by connecting to other trading venues in the fastest possible way, including connecting overseas trading venues.
Also interesting is that the OSE colocation site has less limitation in connecting to other trading venues such as PTSs and overseas by skipping Arrownet provided by Tokyo System Service (TSS). JPX surely will tackle this matter in coming years but it is going to be a very tough decision to make, I believe.