Update : Oct. 29, 2010
Tokyo Stock Exchange, Inc. (TSE) solicited public comments on the "Discussion Paper Regarding the Expansion of Trading Hours" (Discussion Paper) from July 26, 2010 to September 10, 2010. It was aimed at assessing market users' needs and practical issues relating to the expansion of trading hours as well as providing reference for deliberations in the future. As a result, TSE received a very large amount of feedback compared with public comments in the past. Specifically, TSE received a total of 128 comments, 88 from individuals and 40 from companies and organizations.
Of the four measures presented as primary issues in the Discussion Paper, "Abolishment or Shortening of Noon Recess" was of the greatest interest to the public. It accounted for 75% or more of the submitted comments.
Most individuals and companies opposed "Abolishment or Shortening of Noon Recess". Specifically, nearly 70% of the respondents commenting on noon recess opposed the measure. Of the comments opposing the abolishment, opinions were almost equally divided on the shortening of noon recess.
Most of the respondents in favor of abolishing noon recess commented, "TSE should keep pace with exchanges in Europe and the US that do not have noon recess in light of global inter-market competition" and "It is hoped that TSE will expand trading opportunities for office workers to invest during noon recess".
On the other hand, TSE received many adverse opinions on the measure from both individuals and companies saying "Abolishing noon recess means losing trading opportunities offered by the Itayose method (a kind of a call auction) conducted before and after noon recess. It could reduce transactions executed by combining a large amount of supply and demand and result in a decrease in convenience and liquidity in the overall market". Many companies also responded, "Abolishing noon recess will deprive investors of off-exchange trading opportunities such as basket trading conducted during noon recess. We are concerned that it could end up decreasing convenience and increasing costs in the overall market".
Comments on the remaining three measures accounted for less than half of the overall comments, suggesting the public has a relatively limited interest in such issues.
For "Introduction of Evening/Night Trading Session for the Cash Equities Market", individuals were equally divided in their opinions while most companies opposed the measure. As a result, more than half of the respondents overall opposed the introduction of the evening/night trading session.
Opinions in favor of the measure were, in addition to similar comments on the abolishment of noon recess, "It will expand trading opportunities for investors in Europe and the US" and "Investors will be able to promptly respond to financial results, economic indicators, etc. announced during the evening"
Meanwhile, those opposing the measure responded, "As the types of participating investors will be limited, it is less likely that sufficient market liquidity will be maintained and problems may arise in price discovery functions". Some companies answered, "Liquidity may be too low to warrant the corresponding costs".
For "Extension of Evening Session Hours for the Derivatives Market", there were comments including "It is reasonable to keep pace with the trading hours for Nikkei 225 Futures of Osaka Securities Exchange Co., Ltd." and "It will not have as great an impact on the derivatives market as on the cash market. The more trading opportunities, the better". In contrast, some respondents answered, "TSE should wait and see the situation after launching the position transfer scheme with NYSE Liffe".
For "Moving Up the Opening of the Morning Auction Session", most of the respondents opposed the measure, saying "We cannot see the benefits of the measure".
TSE will consider specific measures from the viewpoint of ensuring convenience for all market users based on the comments and opinions received.
TSE has been focusing its efforts toward providing a high-speed trading environment equipped with a system infrastructure with world-class processing capabilities. To realize this, TSE migrated options trading to the Tdex+ system (based on LIFFE CONNECT®) in October 2009 and launched arrowhead in January 2010. In addition to these efforts, TSE has decided to migrate futures trading to the Tdex+ system in the autumn of 2011.
With this move, TSE will finish renovation of all trading systems, and all financial instruments listed on the TSE market will be traded on trading systems which achieve world-class latency.
TSE believes that the launch of the new system will significantly enhance convenience for investors. It will facilitate development of a variety of investment strategies combining cash products and derivatives, such as algorithmic trading that takes advantage of benefits of the high-speed trading system.
In connection with such migration, TSE will introduce the market maker scheme, which has already been introduced in options trading, for futures trading. This will provide an environment where investors can also trade low-liquid mini-TOPIX Futures and mini-JGB Futures in addition to TOPIX Futures and JGB Futures at any time, with the continuous submission of quotes by market makers.
Additionally, TSE aims to further improve market liquidity by attracting many different types of investors to its market. To realize this, TSE will introduce trading rules in response to global standards, such as revisions to rules concerning bids/offers and implied functions related to strategy trading. This will create an environment where investors active in foreign markets can also easily participate.
These revisions are scheduled to be implemented in the autumn of 2011 in connection with the migration of the new system. TSE will solicit public comments until October 24, 2010 and make necessary adjustments.
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TOPIX Futures will be listed on NYSE Liffe on October 18, 2010. TSE and NYSE Liffe, the largest derivatives exchange in Europe, have been working together to establish a specific scheme for the listing since signing a Memorandum of Understanding on the listing in November 2009.
Under this scheme, TOPIX Futures trading will be available in London, the base of financial trading in Europe. This will make TOPIX Futures trading easier for investors in Europe and the US, thereby developing a global environment for investment.
TSE will introduce a position transfer scheme in conjunction with the listing of TOPIX Futures. Through this scheme, all positions related to transactions executed on NYSE Liffe will be automatically transferred to TSE and settled at Japan Securities Clearing Corporation. This will allow market participants and investors to enjoy the same sense of confidence and convenience as they do when conducting transactions on TSE's highly liquid market.
As mentioned in "1. Public Comments Regarding the Extension of Trading Hours", TSE will examine trading hours for the TSE derivatives market in conjunction with those for its cash market. For TOPIX Futures, trading will be available on NYSE Liffe from 3:00PM to 6:00AM in Japan. Including the trading hours of TSE, this will provide investors with opportunities to trade for up to 21 hours per day.
TSE decided to begin providing TSE Proximity Service (TSE Prox) in the middle of October, 2010. The outline of the service was publicized in June of this year.
TSE Prox allows trading participants and other market users to set up servers, etc. to receive market information and place orders at the arrownet access point that provides entry to TSE's backbone ring network, "arrownet". The service will facilitate order placement to and information reception from other markets as well as enable various means of access including via the Internet.
TSE Prox is attracting a lot of attention from companies using and considering the use of the Co-location Service, particularly those conducting high-frequency trading and online trading. These companies will be able to utilize the service in a variety of ways, such as placing orders to multiple markets in Japan and Asia, conducting inter-market arbitrage trading, and promoting application by online brokers. TSE aims to position the service as a hub for Asian markets.
TSE Prox will be available for trading participants as well as information vendors and other market-related parties, thus providing increased flexibility and convenience to users. TSE will also offer usage fees that are sufficiently competitive compared with those for other similar services.
TSE will provide the two services, the Co-location Service that minimizes latency to TSE trading systems and "TSE Prox" that places emphasis on connectivity to other Japanese and Asian markets, as "TSE Customer Connectivity Services". Through the provision of these services, TSE aims to diversify access methods to the TSE market for users and further improve the market environment.
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