SBI Japannext stokes PTS rivalry with retail push

SBI Japannext, a proprietary trading system (PTS), has upped the stakes in its battle to become the largest alternative market in Japan with a series of changes to lure retail liquidity back to its platform.
By None

SBI Japannext, a proprietary trading system, has upped the stakes in its battle to become the largest alternative market in Japan with a series of changes to lure retail liquidity back to its platform.

Among the modifications to be introduced by the PTS is the reintroduction of a nighttime trading session and a new pricing model for market data.

SBI Japannext’s nighttime trading session was halted following a request from the Japanese government for companies to reduce their use of electricity after the massive earthquake and tsunami which struck the country in March last year. It will now be restarted on 30 January as electricity power supply improves in the country.

The late trading session will run from 19.00 until 23.59 Japan time and the market will use the same tick sizes for securities as those used during daytime trading.

SBI Japannext CEO Chuck Chon told the reintroduction of evening trading was due in part to the implementation of a new Nasdaq OMX-supplied trading engine, which allowed the platform to consolidate its two trading sessions onto one system.

“We had to take a lot of heat from major online brokers in Japan after we took the decision to close the nighttime trading session. But this enabled us to reduce our power consumption by 30%,” said Chon. “There seems to be meaningful pent-up demand from retail investors to actively participate in the nighttime market, partly due to increased volatility in the US and Europe markets overnight.”

Evening trading sessions are considered to be more convenient for retail traders that may not have access to online markets during the day, while also allowing them to react to significant market moves outside normal Japanese trading hours.

SBI Securities, one of the shareholders in the PTS, is currently the only dedicated retail broker operating on SBI Japannext’s daytime market and accounts for between 45-50% of the entire Japanese retail market, according to Chon.

“We feel that we are the only PTS in Japan with an aptitude and significant retail investor base from SBI Securities to sustain a viable nighttime market operation,” said Chon. “All other nighttime PTSs, such as those run by Daiwa and Monex, have unfortunately decided to exit last year due to their inability to sustain the PTS operations.”

By channeling retail flows back onto SBI Japannext, Chon believes the PTS will be able to grow its market share and streak ahead of Chi-X Japan, the rival PTS launched by market operator Chi-X Global in July 2010.

For some months now, SBI Japannext has been locked into battle with Chi-X Japan to become the main challenger to the Tokyo Stock Exchange for equity trading. In December 2011, SBI Japannext and Chi-X Japan had 2.88% and 2.22% market share of Japanese stocks respectively, according to data from Thomson Reuters Equity Market Share Reporter.

“We started off the year at 3.6% and our market share has stabilised at 3% of TSE market share,” said Chon. “We are confident this will continue to grow as retail trading activity begins to grow again.”

Earlier this week, SBI Japannext also revised its market data fee structure so that investors can gain more visibility on the liquidity available on the platform.

From 4 January, level one best bid and offer data was made available at no charge, while level two data was charged at ¥1,000 per terminal. Previously all market data was subject to the ¥1,000 fee.

In terms of institutional members, Chon said a further five firms would likely join the PTS in the coming months, adding to its existing member base of 16.