TSE’s Arrowhead starts to make mark in Japan equities

Early indications are that Arrowhead, the new equities trading system implemented by the Tokyo Stock Exchange (TSE) on 4 January, is positively influencing equity trading volumes, but it may take longer for its effects to be fully evident.
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Early indications are that Arrowhead, the new equities trading system implemented by the Tokyo Stock Exchange (TSE) on 4 January, is positively influencing equity trading volumes, but it may take longer for its effects to be fully evident.

The TSE reported that daily average trading value was ¥1.69 trillion (US$18.7 billion) in January 2010, putting it back at the ¥1.6 trillion level for the first time in seven months. Average daily trading value on the TSE was ¥1.43 trillion in December 2009 and ¥1.53 trillion for the full year of 2009.

Monthly trading volume increased to 49.4 billion shares in January 2009 from 47.6 billion in December 2009. Full-year 2009 trading volume was 563.8 billion shares, putting the monthly average for the year at just under 47 billion shares.

Arrowhead cut TSE’s order response time to five milliseconds and market data distribution to three milliseconds as well as boosting capacity to 46 million trades from 28 million. TSE hopes the new system will attract more high-frequency and algorithmic flow, boosting volumes.

TSE’s data is supported by independent sources. According to figures from data vendor Thomson Reuters’ new Asian Market Share Reporter (AMSR) service, launched towards the end of last year, the TSE’s trade count rocketed to 16.8 million in January 2010 from 11.7 million in December 2009.

However, it may take some time before the effects of Arrowhead can be separated from market trends in trading values and share volumes.

According to the Thomson Reuters data, volumes and turnover had already begun to increase in December after a dip in November. TSE share volumes increased to 47.1 billion in January from 43.8 billion in December and 40.4 billion in November. Turnover followed a similar trend, growing to ¥30.4 trillion in January from ¥28.1 trillion in December and ¥25.9 trillion in November.

Some have predicted that Arrowhead’s implementation will boost volumes on Japan’s alternative venues, called proprietary trading systems (PTSs) as inter-venue arbitrage becomes more viable thanks to TSE’s speedier execution and data delivery.

However, it appears Arrowhead has done little to help TSE’s new rivals in terms of trade count. SBI Japannext’s trade count dropped to 182,365 in January from 237,901 in December, Kabu.com’s fell to 30,967 from 47,490 and Instinet’s Japan’s PTS activity, which comprise CBX Asia and JapanCrossing, saw trade count decline to 9,627 in January from 16,701 in December.

TSE’s market share of Japanese equity trading has remained static at 95% for the eight months currently covered by Thomson Reuters’ AMSR.

AMSR is currently being used by several brokers and trading venues, according to Thomson Reuters, for market share analysis and promotion purposes. The data vendor has also added Asian market data to its global Best Execution service, which allows firms to run reports to monitor trade execution quality and fine-tune execution policies.

AMSR covers 30 venues across Asia and allows users to view daily and monthly equity market share of trading venues across the total market or by index or individual stock.

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