A Japanese regulator is
reassessing its policies for halting trading on proprietary trading systems (PTSs)
when there are problems with the country’s primary exchanges.
The Japan Securities Dealers
Association (JSDA), a self regulatory organisation for the country's securities markets, came under fire recently for suspending PTSs SBI Japannext
and Chi-X Japan from trading in 241 stocks which were halted on the Tokyo Stock
The 2 February outage lasted almost
four hours and was due to market data/market information distribution issues.
But the technical difficulties would not have affected the PTSs’ ability to trade,
and the Osaka Stock Exchange (OSE) did continue trading.
Under the watchdog’s self-regulatory rules, when a Japanese
exchange suspends the trading of listed shares and instruments, the JSDA is
empowered to ban off-exchange trading at PTSs.
Yet the decision to close down PTSs and leave market
participants only one alternative venue on which to trade called into question market
participants’ ability to choose their own venue and the fairness of competition
in the marketplace.
“JSDA is aware that PTSs are recently increasing their
importance, along with the expansion of their trading volume,” a spokesperson
for the JSDA told TheTRADEnews.com. “JSDA has acknowledged market participants’
views that such off-exchange trading, which is expected to function as
alternative trading means, should not be suspended in an occasion of system
outage at exchanges like [that experienced on 2 February].”
Last week, representatives of Japannext and Chi-X Japan met
with the JSDA to request the watchdog reconsider its policy on halting trading
“Taking into consideration these circumstances, JSDA intends
to re-examine its policy for off-exchange trading suspension in the case of an exchange
system outage,” said the JSDA spokesperson.
The regulator said it was ready to “further deliberate” on
the issue with its member firms, including PTS operators.
“We are encouraged by JSDA’s response and we will continue
to support great co-operation between venues, market participants and
regulators,” said Yasuo Hamakake, representative director of Chi-X Japan. “Globally,
we have seen alternative venues tighten spreads, increase liquidity and provide
great resiliency to the market as a whole.”
Hamakake said in Japan, PTS market share had sometimes reached
as high as 9%, accounting for more than 20% market share in certain names.
“Participants are looking to trade on the venue that offers
the best price and unique order types, making trading more efficient,” Hamakake
said. “Chi-X is committed to further innovation and passing the benefits of
competition to our trading participants.”
The breakdown at the TSE occurred at one of the busiest
times in Japan’s results season. The night before the interruption, electronics
giant Sony posted a US$1.2 billion quarterly loss and rival Hitachi announced a 45% fall in Q3 net
"It's an encouraging sign that JSDA officials do care about levelling the playing field in response to feedback from market participants and venue operators," said Masami Hatakeyama, co-chief executive of SBI Japannext.
A merger between TSE and OSE was
announced 22 November and is currently slated for January 2013.
TSE’s Arrowhead trading platform, introduced early 2010, was
not the cause of the failure, a spokesperson for the bourse said.