TSE Reaches Out for Trading System Specs

TOKYO—Tokyo Stock Exchange (TSE) officials are reaching out to their customers to help the exchange define IT capabilities for a new transaction system, slated for launch in 2009.

The exchange selected 11 brokerage firms, which are exchange participants, to brainstorm for the creation of the TSE’s next generation trading system. The exchange expects the new trading platform to be designed by the beginning of 2007 with development and testing starting later next year and throughout 2008. The system is scheduled to go live in 2009.

The discussions started in April 2006, says Mitsuo Miwa, who is in charge of media relations and corporate planning for the TSE. CIOs from the 11 firms met with exchange officials, and proposed four "key elements for the development of the next-generation trading system," Miwa says. "These are scalability, speediness, flexibility, robustness."

The TSE will "secure adequate capacity and scalability of the trading systems to ensure smooth trading by constantly maintaining processing capacity of more than twice the number of orders received per minute during peak time," according to a TSE report released last week.

"Capacity levels will be maintained in a very flexible manner considering the number of orders," Miwa says. "However, approximately 30 million orders per day will be the initial capacity level when the system is implemented."

When it comes to speed, the exchange is targeting response times to less than 10 milliseconds for an order acceptance message and "several 10 milliseconds for a trade execution message," according to the report.

The exchange will also be designed to ensure easy integration of new products and instruments, as well as modifications of trading rules and restrictions if needed. Furthermore, the TSE will extend trading hours "significantly," the exchange says.

Finally, the exchange will build a back-up site, which the TSE currently lacks. "It goes without saying that our participants acknowledge the importance of the back-up site," Miwa says.

The 11 brokerage firms also recommended the gradual adoption of the FIX protocol for trading. "At the moment, there are few demands for adopting FIX protocol to our trading system," Miwa says. In the meantime, the TSE will use its original access protocol.

TSE officials will also have to consider adding functions to the new platform that will better retrieve errors, which JPMorgan Securities Japan proved last week will continue. The firm acknowledged that it mistakenly placed a sell order for a basket of stocks linked to the Topix index instead of the Nikkei index. The sell order was manually placed and the firm bought back the basket of securities after realizing its error. The botched transaction caused a short dip in the market.

In a similar situation late last year, a trader at Mizuho Securities mistakenly submitted a sell order for 610,000 shares at ¥1 ($0.009) apiece rather than a sell order for a single share at ¥610,000 ($5,230). The trader attempted to stop the trade, but a flaw in the TSE’s dealing system prevented the cancellation of the order. Mizuho subsequently demanded compensation from the TSE, which has refused to pay (DWT, Sept. 4).