Tokyo Bourse Cuts Tick Sizes for Some of Biggest Stocks

Tokyo’s stock exchange allowed smaller price increments on shares of about 80 of Japan’s biggest companies from today as the bourse seeks to win back business from private trading venues.

Topix 100 Index (TPX100) members with shares that cost between 1,000 yen and 5,000 yen now trade in 0.5 yen price movements, down from 1 yen. This includes Honda Motor Co. and Japan Tobacco Inc. Shares priced at less than 1,000 yen, such as Mizuho Financial Group Inc., now move in 0.1 yen bands, 1/10 of the previous size. Investors in Japan are already able to trade in smaller increments using the country’s two alternative platforms that display prices, SBI Japannext and Chi-X Japan Ltd.

“This would be the way the exchange looks at fighting back,” Mikey Hsia, a sales trader at Sunrise Brokers LLP, said on July 17. “Naturally this will add to the question whether it benefits one type of market participant over another. But in the long run, if overall liquidity is boosted in the underlying assets we are trading, the net beneficiary will be everyone trading in that arena.”

Electronic Trading

Market makers, the professional traders who facilitate buying and selling shares, lost profits when the U.S. narrowed tick sizes to pennies from sixteenths of a dollar more than a decade ago. The change, known as decimalization, was one of the changes that fueled the rise of electronic trading in the world’s largest market. Today, firms known as high-frequency traders are under scrutiny amid allegations they’ve rigged trading in U.S. equities.

The Topix 100 gained 0.6 percent to 836.98 at the close of trading in Tokyo today. Mizuho Financial Group, the company with the lowest share price on the gauge, closed little changed at 200 yen amid above-average volume. Honda added 0.5 percent to 3,585.5 yen while Japan Tobacco rose 1 percent to 3,741 yen.

“I’m relieved to see that today’s move happened without a glitch,” said Nobuyuki Fujimoto, senior market analyst at SBI Securities Co., Japan’s largest online brokerage. “Mizuho’s trading volume was the second-biggest among Tokyo Stock Exchange first section stocks today. It looks like it’s going as the exchange envisaged in regards to boosting volume.”

Today’s changes are the second in a three-part plan by the Tokyo bourse to offer better liquidity and shorten waiting times to process orders. The exchange reduced tick sizes on some shares in January, while keeping the smallest increment at 1 yen. In mid-2015, the exchange will analyze the impact of the smaller ticks and decide whether to do more.

U.S. Test

Supporters of the U.S. testing bigger tick sizes say it will encourage market makers to buy and sell more shares and create conditions that will encourage more companies to go public. Opponents of the change, including Fidelity Investments, say it will cause investors to pay more when they buy the shares of small-cap companies. The trial, announced last month by the Securities and Exchange Commission, will last a year.

High-speed trading’s impact on financial markets was viewed negatively by 50 percent of those surveyed in a Bloomberg Global Poll this month, compared with 27 percent who see it positively. Dark pools, which are private venues often owned by brokers that don’t publish bid and ask prices, received negative marks from 53 percent of respondents as opposed to 23 percent positive.

High Frequency

High-frequency traders are valuable because they add liquidity and the TSE hasn’t received any complaints about their practices, Isao Hasegawa, then-director of the exchange’s equity department, said in April. Japan doesn’t have the excessive market fragmentation seen in the U.S., he said.

Lit trades through the Tokyo exchange accounted for an 81 percent share of Nikkei 225 Stock Average transactions last week, according to data from Fidessa Group Plc’s website. SBI Japannext had 4.6 percent and Chi-X Japan, known as proprietary trading systems, had 2.4 percent, the data show.

“We also expect liquidity to be more concentrated on the TSE following the tick size changes with the PTS’s losing market share,” Daiwa Securities Group Inc. quantitative analyst Mainak Sarkar wrote in a report in June.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Yuko Takeo in Tokyo at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net Jim Powell

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