Japan Exchange Aims to Combine Equities Systems by July

Japan Exchange Group, the company to be formed by the merger of the country’s two largest bourses, aims to unify its trading systems for cash equities by July, Tokyo Stock Exchange Group Inc. said in a statement today.

The new bourse, which plans to list on Jan. 4 in Tokyo, will adopt the Arrowhead trading system currently used by the TSE, according to the statement. Osaka Securities Exchange Co.’s J-Gate platform will be used for derivatives trading, which the bourses are aiming to combine by the end of March 2014, it said.

Tokyo and Osaka are merging as part of a government push to revive Japan’s financial markets amid regional competition. The TSE was reprimanded in August by the regulator after computer malfunctions interrupted trading twice this year. Osaka’s J-Gate hasn’t had a major error since it began operations, according to the OSE.

“Our task is to bring the bourses up to global standards,” TSE Chief Executive Officer Atsushi Saito told reporters in Tokyo. “Japan’s exchanges haven’t been able to accommodate the changing needs of their clients.”

Shares of OSE fell 1.9 percent to 304,500 yen today in Osaka after reporting net income fell 35 percent from a year earlier in the six months through September. The Nikkei 225 Stock Average swung between gains and losses.

January 4

The Japan Exchange aims to list Jan. 4 on the TSE first first section and on the Jasdaq Exchange, Saito said. Privately held Tokyo Stock Exchange reported profit gained 44 percent in the first half of the fiscal year.

About 7 billion yen ($88 million) a year could be saved through integrating information technology systems, the Tokyo and Osaka bourses said in their merger document last November. As of June 30. Tokyo was the world’s biggest equity market by value outside the U.S., according to World Federation of Exchanges. Osaka is the only venue in the country where futures on the Nikkei 225 Stock Average change hands.

The TSE adopted the faster Arrowhead platform developed by Fujitsu Ltd. in January 2010 amid growing competition from alternative trading venues such as SBI Japannext, Chi-X Japan Ltd. Both major errors in Tokyo this year have been blamed on the failure of backup systems.

Exchanges and their trading systems globally are under scrutiny amid a series of malfunctions. U.S.-based Knight Capital Group Inc. was taken to the brink of bankruptcy after a system error caused a $440 million trading loss. The initial public offering of Facebook Inc. on the Nasdaq Stock Market in May was marred by delays and malfunctions, while Bats Global Markets Inc. withdrew its own IPO in March after it failed to get shares to trade properly on its own exchange.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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