'Abenomics' sparks record Japan equity volumes

Proprietary trading system SBI Japannext has seen record volumes since prime minister Shinzo Abe returned to power in December, with domestic equities benefiting from general positive sentiment.

The recent improved investor feeling about Japan’s economic outlook – thanks to growth-spurring and monetary-easing reforms announced by Abe, dubbed ‘Abenomics’ – has bolstered equities trading on both the incumbent exchange, and PTSs.

On Tuesday, Japan’s cabinet approved Abe’s ¥92.6 trillion ($1.02 trillion) budget for fiscal 2013 (which starts April 1), with the Liberal Democratic Party leader promising that economic growth will rise to 2.5% in the next fiscal year, up from 1% this year.

“Notional value traded on SBI Japannext doubled [in 2012], and we are breaking our own record every week,” says Chuck Chon (pictured left), co-founder of SBI Japannext, the country’s biggest lit venue. He hopes trading value will reach ¥22 trillion in 2013, doubling the ¥11 trillion last year.

For the week of January 21, average daily turnover was ¥67.7 billion ($747 million). Meanwhile, the second biggest PTS, Chi-X Japan, also set a new record for a day’s volume on January 8, when ¥60 billion was traded.

Meanwhile, JPX – formed this year by the combination of the Tokyo Stock Exchange (TSE) and Osaka Stock Exchange – saw average daily volume returned to the $20-25 billion range. The 10-year daily average volume on the TSE is $20 billion, but last year that figure dropped to $12 billion.

The jury is still out on whether Abe will deliver on his aim of reining in Japan’s public debt (nearly 300% of GDP) and getting the fiscal deficit (10% of its GDP) under control. But for now, Chon says feel-good sentiment has even overshadowed the positive impact from the abolition of the 5% takeover bid rule announced in July by the Financial Services Agency. The rule had required investors who accumulate more than a 5% stake of a firm over a two-month period via a PTS to launch a compulsory takeover bid on that company – this was viewed as a big impediment to trading on such venues.

Meanwhile, SBI Japannext earlier this month chose MarketPrizm as its primary low-latency market data vendor, which provides data feeds from JPX. Chon says the new service will enable the PTS to deliver better service to their 20 existing members, comprising both Japanese and international broker-dealers.

Last year, SBI Japannext upgraded its trading system to Nasdaq OMX Group’s low-latency, multi-asset trading system, X-stream. The company is due another upgrade of the existing Fix messaging protocol to Nasdaq OMX’s OUCH, a global standard used by brokers trading on alternative venues in the US and parts of Europe for trading in low-latency.

With the introduction of OUCH, SBI Japannext will be able to cut latency from 400 microseconds to below 40 microseconds. (A microsecond is 1,000th of a millisecond, and the blink of an eye normally takes about 300 milliseconds.) OUCH will be launched on February 12 to selective traders.

Trading on SBI Japannext accounted for close to a 5% share of trading volume on the Topix index, which comprises about 1,700 constituents; while Chi-X Japan accounts for about 3%.

Chi-X Japan and SBI Japannext between them account for 5% of the cash equities market across all venues, dark and lit, while the TSE sees 90% of volume. The figure is still dwarfed by lit venues in the US – or electronic communication networks – which account for 35% of the US cash equities market, according to data from Fidessa cited by SBI Japannext.