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Trading and exchanges: Instinet challenges TSE

Revenues at Instinet’s Asian business grew by an impressive 50% last year, double the growth in regional trading volumes. The electronic broker has ambitious plans to expand throughout the region this year, opening an office in Singapore, becoming the first remote member of the Australian Stock Exchange, and establishing a partnership in India to offer electronic direct market access. However, it is in its new adopted home of Japan that the broker is making its boldest moves.

Instinet’s JapanCrossing crossing network and CBX dark liquidity pool are at present the only active alternative trading venues to the Tokyo Stock Exchange. JapanCrossing runs scheduled matches several times a day, while CBX is a continuous matching system that runs on the same platform as Chi-X, the pan-European ATS launched by Instinet last year.

Although neither has yet posed a serious threat to the TSE, increasing frustration with the exchange’s technology, which last year suffered embarrassing glitches, has acted as a catalyst, helping to quadruple volumes on JapanCrossing to 2% of the TSE total.

"JapanCrossing has been running since 2001," says John Fay, co-CEO of Instinet, "but it has taken a long time to sell the message of better execution to domestic firms because there is no history or experience of alternative trading venues.

Real liquidity

"We started by making inroads with foreign firms but the real liquidity in Japan is with the domestic brokers. That has finally started to take off now largely because of the inefficiencies of the Tokyo Stock Exchange, which is suffering from severe capacity constraints and high latency, leading to a very slow market.

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