JSDA clarifies security suspension policy

The watchdog which oversees alternative venues in Japan has set out new guidelines for the circumstances in which it will halt the trading of securities on alternative venues.

The watchdog which oversees alternative venues in Japan has set out new guidelines for the circumstances in which it will halt the trading of securities on alternative venues.

After a month-long consultation with market participants and proprietary trading system (PTS) operators, effective from this week the Japan Securities Dealers Association (JSDA) has pledged in principle to no longer suspend PTSs from trading when system errors or outages cause trade suspension on the Tokyo Stock Exchange (TSE).

In February, investors were in uproar when the JSDA halted trading at PTSs after an IT failure shut down the trading of 241 stocks on the TSE. The 2 February outage lasted around four hours but the technical difficulties would not have affected the ability of PTSs, such as SBI Japannext and Chi-X Japan to trade. The country’s other bourse – the Osaka Securities Exchange (OSE) – continued trading.

Under the new guidelines, the JSDA retains the power to suspend off-exchange trades if the TSE halts a stock because of unexpected or disruptive market shocks which may significantly effect market price. Such halt-triggering events would include sudden disclosure of uncertain material information regarding a listed company – like newspaper articles revealing mergers, bankruptcies or scandals.

But when an exchange’s trading system or trading facilities fail and the bourse deems it impossible for it to continue trading, in principle the JDSA will not suspend off-exchange trades.

Similarly, if system errors or outages effect the country’s clearing systems, the JDSA will not suspend off-exchange trades unless uncertainty exists for settlement of off-exchange trades.

“Today’s announcement demonstrates a changing environment,” said Yasuo Hamakake, representative director of Chi-X Japan. “We are pleased that the JSDA recognises that PTSs can provide Japan’s equity markets with greater reliability.”

A merger between the TSE and the Osaka Securities Exchange (OSE) was announced 22 November and is currently slated for January 2013.

In March, PTS Japannext said for the second month in a row it had experienced record monthly daytime turnover. Volumes on the PTS increased slightly to ¥798 billion (US$9.7 billion), up from ¥792.5 billion in February. The venue also saw night-time monthly turnover almost double to ¥2.9 billion (US$35 million), up 43% from last month.

“We will continue our market operation even if the primary market halts some stocks or even the entire market due to system problem,” said SBI Japannext in a note to its members. “If we have our own system problem affecting a majority of our market participants, we will halt our market.”

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