Sumitomo Capital Will Use FSJ's FOX To Route Orders To Tokyo Exchange

TOKYO--Sumitomo Capital Securities, the Tokyo-based subsidiary of Sumitomo Bank, has licensed FSJ's Fusion Order Execution (FOX) software for routing bond futures and options orders to the Tokyo Stock Exchange (TSE). Sumitomo Capital Securities plans to deploy the FOX routing service in September.

The securities house also plans to develop a new fixed-income trading system, using the underlying database of the FOX system, as well as open a new trading floor in November, says Yoshinori Yamanaka, Sumitomo Capital's deputy general manager for the IT department. While he confirms that a new trading floor will be ready by November, he declines to comment further on the details.

Sumitomo Capital has targeted September because that is when the TSE will begin allowing financial services organizations to connect to it via TCP/IP, says Yamanaka. The TSE has announced it will start this process on September 17.

As for the hardware supporting the FOX system, Sumitomo Capital has not decided which platforms to use. But, because the trading house is familiar with Microsoft Windows NT, it will most likely use NT instead of Unix for the server and client halves of their architecture, says Yamanaka. Sumitomo Capital is collaborating with FSJ on how best to configure the system. Yamanaka says he has few specifics about the implementation plans because they are changing as the trading environment in Japan changes.

As an example, he says that when Sumitomo Capital sent out its request for proposal (RFP) for an order routing system last year, the Tokyo Stock Exchange did not allow a subsidiary company of a bank to connect to the TSE for trading directly with the exchange. Now, the TSE is relaxing that rule and others. The uncertainty will remain until it is known what the new rules at the TSE will bring.

The vendors other than FSJ who replied to the RFP included Tibco, Nippon Steel, Toshiba Engineering and Midas-Kapiti, says Yamanaka. He adds that Nippon Steel has a system under development.

During the evaluation period, officials from Sumitomo Capital visited some of FSJ's clients, including Morgan Stanley, to see FOX in action. Morgan Stanley's Tokyo site replaced a homegrown system with the FSJ software last year (Dealing & Investment Systems, October 20, 1997). Barclays Capital Markets recently became another FOX user when it implemented the system at its Tokyo offices earlier this year (TTW, March 2).

FOX was originally developed in 1995 by Fusion Systems Japan along with Jardine Fleming Securities, for use at Jardine Fleming's Tokyo office (D&IS, August 14, 1995). FSJ was formerly known as Fusion Systems Japan.

In addition to deploying the FOX system for order routing, Sumitomo Capital has also decided to use the FOX data to feed what will be an internally developed fixed-income trading system to support its approximately 18 debt traders. Initial plans call for the new trading system to be a 32-bit application with full Year 2000 compliance, says Yamanaka. He declines to say when the system will be ready for implementation.

Sumitomo Capital's debt traders developed the incumbent bond trading system in 1994, using a Microsoft Excel spreadsheet that runs under the Windows NT platform. Yamanaka says the in-house system currently operates under Windows NT 3.51 and Excel version 4.0, which is a 16-bit application. The traders access the system on their desktop PCs, which are a mix of major PC brands, says Yamanaka.

He says the new bond trading system will be better from a risk management standpoint because it will be developed by Sumitomo Capital's IT staff following standard software development methods. The current fixed income trading system is "dangerous from a risk management point of view," because it was designed by traders, and is a non-standard application, he says.