Chi-X Japan has been granted a proprietary trading system (PTS) licence by the Japan Financial Services Agency (FSA). Trading on its Japanese equities platform is expected to begin 29 July. Meanwhile the hard launch of Chi-X Asia-Pacific’s joint venture with the Singapore Exchange, Chi-East, has been pushed back to late Q3 2010.
Although no performance targets have been announced, Ron Gould, CEO for Chi-X Asia-Pacific, says he believes Chi-X Japan will see success similar to that of Chi-X Europe and Chi-X Canada.
PTSs in Japan have so far failed to take significant market share from the Tokyo Stock Exchange (TSE), but Gould believes that Chi-X Japan has developed a model that will overcome existing barriers. “There are many theories as to why the PTSs have failed to take market share,” says Gould. “The one I favour personally is that they were perceived as broker-based platforms and therefore they were not broker-neutral. That was intensified by the fact that they were not eligible to clear through the Japan Securities Clearing Corporation (JSCC).”
Chi-X Japan and the other established PTSs will be able to clear via JSCC from 20 July.
Chi-X Japan's launch has been facilitated to an extent by the introduction of the TSE's Arrowhead electronic trading platform in January. Gould says high-frequency trading firms require two viable liquidity providers to operate effectively. Chi-X Japan will operate its market exclusively for the use of registered broker-dealer participants in Japan.
At the end of this month, Chi-X Japan is scheduled to commence a controlled launch period with a small group of participants and a limited number of liquid stocks. Trading will expand to include the entire group of Nikkei 225 names, plus other selected stocks shortly thereafter, with further additions based on participants' trading needs. Chi-X Japan will operate from 08.00 to 16.00 JST using a continuous matching model and maker-taker pricing that is intended to attract liquidity providers.
Mark Howarth, chief operations officer at Chi-X Global, was part of the team that launched the original Instinet PTS in the late 1990s. According to Howarth, the initial PTS regime attempted to mirror competition among US electronic communications networks. “The Instinet PTS had a long gestation period because the details of the new regulations had not trickled down. Low-level rules often contradicting the model of competition, e.g. being unable to print a ticket on two venues, meant that it was difficult to get started,” he said.
Chi-X Asia-Pacific also plans an official launch of Chi-East, a non-displayed trading platform, in late summer.
Gould says a “technology crunch” resulting from the convergence of platform launches in the region meant Chi-X Global was happy to let the Chi-East timeline slip from early Q3 to later in the quarter to ease the burden on clients.
Joseph Meyer, representative director for Chi-X Japan, added, “Chi-X Japan's data centres are equipped with the high-speed, low-latency trading system, as well as complete redundancy and backup. As we will likely be one of the first PTSs to use JSCC's clearing system, Chi-X Japan will be able to provide to its participants and their end-investors an efficient end-to-end trading infrastructure. With Chi-X Japan and Arrowhead, Japan will offer one of the world's most sophisticated investment environments. Many brokers have already signalled their intention to participate as soon as possible, and we are receiving tremendous interest from both major brokers and end-investors who intend to trade on Chi-X Japan through broker links.”
Chi-X Asia-Pacific is a business unit of Chi-X Global, a subsidiary Instinet, which is wholly-owned by Nomura Holdings.