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Capital Markets

Trading: Japan takes the lead in algorithmic trading

Tech upgrades bearing fruit; Regional competition for liquidity among exchanges

Upgrades to the Tokyo Stock Exchange and a more conducive regulatory environment have enabled Japan to take the lead as a venue for high-frequency trading in Asia, according to leading industry professionals. A new study conducted by Tora, a Japan-based provider of trading technology services, aimed to perform transaction performance analysis that measured in basis points the "slippage" between the intended price of a trade and the actual result. The survey, released on August 24 and conducted over the first six months of 2010, found that the average slippage among 120,000 algorithm orders was 15.1bp in Singapore, 9.5bp in Hong Kong and 4.5bp in Japan. That means that executing such high-frequency trading strategies is much cheaper in Japan.

The breakthrough for Japan, market participants say, came with the introduction of the new Arrowhead technology on the Tokyo Stock Exchange on January 4 this year. Before then the exchange had a mixed reputation among investors, blighted as it was by relatively slow trading speeds and software errors that led to incidents such as the notorious J-Com episode in December 2005 when a trader at Mizuho Securities caused market mayhem by successfully placing an order to sell 610,000 shares in the telecoms operator at ¥1 each, instead of the intended trade of one share at ¥610,000.

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