More than half of Japanese equity trading volume will be executed as either electronic trades or portfolio trades by 2010, according to projections made by institutional investors in Japan and throughout Asia in a new study by Greenwich Associates.
The results of Greenwich Associates’ 2008 Japanese Equity Investors Study reveal that electronic and portfolio trades now account for almost 40% of Japanese equity trading volume among institutions in Japan and elsewhere in Asia. That share is projected to grow to nearly 55% in the next three years.
“Institutions expect to double the share of their total Japanese equity trading volume executed via self-directed electronic trades to 28% by 2010, while keeping the share of business conducted in portfolios or baskets steady at the current 26%,” says Greenwich Associates consultant John Feng.
Over the 12-month period covered in Greenwich Associates’ 2007 Japanese Equity Investors Study, institutions redirected a significant portion of their “high-touch” equity trading volume to electronic trading platforms, increasing the average percentage of their business executed electronically from just 8% in 2006 to 13% in 2007. The growing use of electronic trading is consistent across larger institutions and smaller funds, domestic as well as foreign trading desks, hedge funds and 'long-only' investors, according to Greenwich Associates.
“The growth trend in electronic trading in Japan is consistent with the broader trend across the U.S., Europe and Asia, though the level of usage differs by region,” notes Feng. “The fact that traditional single-stock, broker-assisted trades are projected to decline to less than half of total volume by 2010 points to an important milestone in the development of alternative trading in Japan.”
Several trends are contributing to the rapid growth of electronic trading in the Japanese equity market, according to Greenwich Associates. These include the growing technological sophistication of both buy- and sell-side firms and an increasing focus on best execution, as manifested in investors’ new emphasis on lowering commission payments, and demands for minimising information leakage and market impact.