Data Management

12:31 PM
Steve Grob
Steve Grob
Commentary
50%
50%

Alternative Venues Play Waiting Game in Japan

Just back from an interesting week in Japan where I was presenting at the annual GMAC conference, Japan International Banking & Securities Systems Forum. The impact of Japan's alternative venues (known as PTSs) was a particular area of discussion, especially now that Chi-X has set up in Australia and with Korea looking to introduce a multi-market structure too.

It's been a hard slog for the alternative trading community in Japan, however, as they have had to battle without the assistance of a formal concept of best execution as enshrined by America's trade through rule or MiFID's principles based approach. On top of this, the PTS community also has to negotiate some tricky Financial Services Agency regulation. The first is known as the 5 percent TOB rule which basically states that any investor that amasses 5 percent of a firm's stock through OTC trading must then mount a full takeover bid for that firm. On the face of it, this is a sensible attempt to ensure that corporate takeovers are undertaken in the full light of day. The problem is that when the PTS concept was originally formulated, the new venues were designated as OTC venues. The net effect of this is that many Japanese investment firms are reluctant to buy stock on PTSs just in case they might trigger the takeover rule. On top of this, any PTS that amasses 10 percent market share must automatically apply for full exchange status.

Despite this, the combined share of Chi-X Japan and SBI Japannext in the Nikkei 225 hovers around 6 to 7 percent.

This is usually enough to ignite the fragmentation touchpaper, as a critical mass of brokers then invests in the appropriate smart-routing technology. A further stamp on their growing legitimacy is the fact that the JSDA has rescinded earlier restrictions that prohibited participants from using PTS venues in the event of the primary market failing.

If they are to really grow, however, Chi-X Japan and SBI Japannext still have some politicking to do. They should be helped in this by the fact that the OSE/TSE deal looks (almost) certain to go ahead and so the market will be even more wary of the monopoly power of the combined Japan Exchange Group.

So maybe, at long last, things are really changing and Japan will become the land of the rising sun for alternative venues.

Bio: Steve Grob blogs for Fidessa.

Comment  | 
Print  | 
More Insights
More Commentary
Chief Data Officers: Organization Strategy & Cultural Change
Chief data officers are new to the financial services C-suite, but they are facing a number of challenges, including the need for new data governance and execution strategies, staffing, and new organizational structures to enable cultural change.
New York FinTech Innovation Lab Calls for New Entrepreneurial Applicants
Wells Fargo joins 14 other major financial institutions providing mentoring and guidance to the six chosen startups.
Micro Data Challenges in an Era of Macroprudential Regulation
Research and statistical analysis experts at central banks are tasked with developing sophisticated forecasts and models to identify systemic risk. Yet they are spending most of their time acting as data entry clerks, rather than developing these models.
The Perks of 'SmartSourcing' Shared Services in Financial Industry
A breadth of vital but undifferentiated business processes are still being replicated across the industry. They are all candidates for centralization.
Managing Social Media Risk Strategy: Technology Can Only Go So Far
Advanced analytical technologies are an important part of a social media risk management strategy, an Accenture report says, but the technology must be balanced with training and procedures.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8, October 2014
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
5 Things to Look For Before Accepting Terms & Conditions
5 Things to Look For Before Accepting Terms & Conditions
Is your corporate data at risk? Before uploading sensitive information to cloud services be sure to review these terms.