The Tokyo Stock Exchange (TSE) hopes that its new Arrowhead platform for equity and corporate bond trading, which launched successfully at the beginning of this week, will attract substantially greater liquidity to Japan’s leading exchange in the coming months.
“Hopefully the trade volume will increase by two to three times,” Tomoyoshi Uranishi, senior executive officer at the TSE, told theTRADEnews.com. “That might be optimistic, but we have installed enough capacity to cope with such levels of trading.”
The new system has boosted trading capacity to 46 million orders a day from the previous 28 million orders a day. “Currently the order volume is 7 million so 46 million is a very large capacity, but we expect order volume to increase dramatically if more algorithmic trading takes place on our trading system.” He added that capacity can be increased further at a week’s notice if required.
Attributing the absence of a surge in trading volumes in Arrowhead’s first week to a required period of familiarisation with the new system, Uranishi expects a steep increase in the next three to six months. “Foreign investors and information vendors have told us that global investors appreciate the new trading system and have been aggressively preparing to participate,” he said.
NYSE Technologies, the commercial technology division of global exchange group NYSE Euronext, launched a series of low-latency data feed handlers for Arrowhead.
Based on prior test results, Arrowhead’s order response time is 5 milliseconds and its data distribution time 3 milliseconds. Uranishi added that Arrowhead’s co-location service can reduce trading latencies to below 1 millisecond. “This speed is equivalent to global exchanges,” he said.
As well as attracting large global institutional investors, Uranishi said TSE hopes its new faster trading system will create arbitrage opportunities for high-frequency traders between the various different market segments, such as equities and derivatives, which will also boost trading volumes.
The new trading platform will also help the TSE stay ahead of the growing number of rival trading platforms, known as proprietary trading systems (PTSs) in Japan, such as Kabu.com and SBI Japannext. TSE currently has a market share of roughly 90% of Japanese equities trading, while PTSs’ collective market share remains small. “We are making our best effort to attract global investors and avoid fragmentation in the market,” said Uranishi. “We always try to enhance and strengthen the attractiveness of the Tokyo Stock Exchange – the most attractive market will survive.”
The launch of Arrowhead is a culmination of an upgrade project that began in 2006 following a series of outages. The new system was originally intended to launch in the second half of 2009, but was delayed to allow six months for interface testing and time for checks over the year-end and new-year holiday period.