The Japan Securities Clearing Corporation (JSCC), the central counterparty for Japan’s stock exchanges, will be able to clear trades from the country’s alternative trading platforms, known as proprietary trading systems (PTSs), from July next year.
Rather than developing a separate clearing function for PTSs, JSCC will adapt the interface to its current clearing processing system to allow it to receive transaction data from the PTSs’ matching engines. Work to adapt the system is already underway and testing will begin in the second quarter of next year. The clearer also needs to revise its rules and obtain approval from Japan’s Financial Services Agency.
The system will be able to accept PTS trade data from July, but exact the time-frame for JSCC assuming the obligation for transactions submitted to it will be determined after coordination with the first PTS to use the service.
SBI Japannext, a PTS established as a joint venture between SBI Holdings and Goldman Sachs, has already indicated its intention to use the system.
Japan’s PTSs currently lack a central counterparty (CCP). Some platforms employ the clearing services of founder or member banks – clearing, settlement and custody for Kabu.com, for example, is provided by Bank of Tokyo Mitsubishi UFJ, a member of the founding consortium. However, the initial protection offered by JSCC assuming counterparty risk and guaranteeing settlement could make PTSs a more attractive venue to trade on.
PTSs currently account for less than 1% of Japanese equities trading, and a limiting factor to their further development is thought to be the lack of CCP clearing.
In addition, PTS trades cleared through the JSCC will be netted with exchange trades, which the clearer expects will improve the efficiency, convenience and safety of post-trade processing.
The service will be largely similar to that used by Japan’s incumbent bourses, which include the Tokyo, Osaka and Jasdaq stock exchanges. For example the clearer will use the same method to calculate the amount that needs to be held in its clearing fund and the JSCC’s existing clearing fee schedule for exchanges will apply to PTSs.
However, there will be some differences. For example, JSCC will expand its clearing service to cover the after-hours trading conducted by some PTSs.
JSCC was founded as a cross-market clearing organisation in 2002 by the Tokyo Stock Exchange, Osaka Securities Exchange, Nagoya Stock Exchange Sapporo Securities Exchange and the Japan Securities Dealers Association. It started operating in January 2003.