JPX Boosting Trading Speed to Gain Edge on Competition

Japan Exchange Group Inc. is upgrading its trading systems in the biggest overhaul since 2010 to boost transaction speed and win more business.

The operator of the national bourse plans to replace the Arrowhead cash equity matching engine next September and revamp the derivatives system in 2016, said Hiromi Yamaji, chief executive officer of Osaka Exchange Inc., a unit of Japan Exchange. The project will help attract traders with strategies relying on speed as well as aiding expansion into other operations, such as commodity trading.

If you have strong information technology “for the matching engine, you can be competitive with other exchanges,” Yamaji said yesterday in Hong Kong. These days, “the exchange business is an IT-oriented, IT-driven business.”

Both the speed and capacity of handling stock transactions will be doubled in the upgrade, according to a Sankei newspaper report in September. High-frequency traders account for as much as 50 percent of the value of all transactions at Japan Exchange, which was established in January 2013 through the merger of bourse operators in Tokyo and Osaka.

JPX is now looking for cooperation with other exchanges in offering joint products and infrastructure businesses, such as risk management or financial investor relations, rather than acquiring other bourses, Yamaji said.

“To merge with another exchange is not so easy,” because governments are now encouraging competition in the markets, he said. “The trend is changing.”

Yamaji also said the exchange wants to take part in the planned trading link between Hong Kong and Shanghai that will offer unprecedented access to the mainland’s $4.2 trillion of equities. Japan is Asia’s biggest stock market with a value of $4.5 trillion. JPX opened an office in Hong Kong this month to expand its operations.

Japan Exchange will provide matching engine capacity to Tokyo Commodity Exchange Inc., Japan’s biggest raw materials bourse, from the end of 2016. Tocom needs to reduce costs and replace its about six-year old trading system, Yamaji said. The two exchanges are not in talks about a merger, he reiterated.

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