Revving Up HFT in Tokyo

Over the past five days, I have been completely immersed in the Japanese financial markets due to my attendance at the Financial Information Summit in Tokyo, hosted by sibling publications Inside Market Data and Inside Reference Data. If you have read the various Nippon Dispatches this week, you will realize the Japanese market is in a state of flux, as it tries to harmonize with other global capital markets while maintaining the historical protection for the retail investors. Although the local market sees growth in algorithmic and program trading, it is definitely less than the North American and European markets. According to Tokyo Commodity Exchange (Tocom) officials, approximately five to six members are currently doing program trading. However, exchange officials say their investment in the Nasdaq OMX Click XT matching platform, which they deployed in 2009, provides the necessary low-latency performance that will draw more electronic traders to the Japanese commodity markets. For the Tokyo Stock Exchange (TSE), the deployment of its arrowhead matching platform has moved the exchange’s trading performance close to its international peers. While speaking with Yoshinori Suzuki, senior managing director and CIO of the TSE, he mentions that one of the main goals with arrowhead was to build a bulletproof trading platform that would not stop operating during the regular trading hours. Since its launch in early 2010, trading has never stopped due to technical issues—a claim that other exchange operators cannot make. This robustness reminds me of the old New York Stock Exchange (NYSE) technology philosophy before its acquisition of Archipelago and merger with Euronext. It’s a strategy that can be used when you’re the only game in town, which the TSE is. Looking overseas, exchange operators have met their clients' performance demands for providing faster matching engines that might not be 99.999 percent stable but have tens of microseconds response time. I have no idea how the Japanese markets will respond to these issues. Will they change their domestic market? Will they forgo foreign investment, or will they come up with some bifurcated market? No matter what, it will be an interesting time and we’ll be sure to keep you apprised of the developing situations.