TOB ceiling to be lifted for Japanese alternate venues
The Japanese financial regulator looks
set to relax a rule which has inhibited the growth of proprietary trading
systems (PTSs) in the country.
On Tuesday, the Japanese Financial Services Agency (FSA) drafted revisions
to the Financial Instruments and Exchange Law, which forces investors that
approached a 5% stake in any firm to launch a tender offer. Such a rule has
made it difficult for some participants to trade easily on PTSs for fear of
accidentally breaching the rule.
The FSA is looking to remove the limitation for purchases
made via PTSs as long as certain conditions are met.
The new rule is set to come into effect in October. Under
the proposed amendments, for PTS participants to be exempted from the 5% tender
offer bid (TOB) rule, PTSs will be required to: disseminate real-time market data, ensure fair and equal access and use limit-order continuous matching order types.
PTSs hope that the lifting of the 5% TOB rule will trigger
conservative buy-side participants to start accessing PTS venues.
“For this [rule change] to happen, we have put in a
tremendous amount of energy along with our members and participants for the
last few years,” Hiroshi Sensaki, chief operating officer of PTS SBI Japannext, wrote to members regarding the proposed rule change. “We are stepping into the
next stage of market share competition with a much wider range of participants
trading on PTSs going forward.”
The 5% TOB relaxation is the second friendly regulatory
change alternative venues in the country have seen this year. In April, the regulator
relaxed the circumstances in
which it would halt the trading of securities on alternative venues following a technology glitch that halted trading for nearly four hours on the Tokyo Stock Exchange (TSE).
Japannext broke the 5% market share barrier in trading
volumes on 18 May, the first time a PTS has ever taken that much share of the
trading on the TSE, and accounted for 3.43% Japanese market share for the
whole month. Rival PTS Chi-X Japan held 2.46%, while the TSE had 89.86%,
according to figures provided by Thomson Reuters.