TSE faces competition as clearing house supports smaller platforms

The Tokyo Stock Exchange will face greater competition as a marketplace for buying and selling Japanese shares from next year after the country's main clearing house unveiled plans to support smaller alternative trading platforms.

The Japan Securities Clearing Corporation said it would start providing clearing services for the country's alternative share trading platforms from next July, a move that market participants said would help increase liquidity.

Japan's proprietary trading systems (PTS) are similar to the alternative trading platforms in the US and Europe, such as Chi-X Europe. They have won only marginal market share from the TSE in spite of having been around for at least five years.

This is partly because the trades are not cleared by a clearing house, which increases the counterparty risk for each side of the trade. As a result, many institutional investors do not use the platforms. Clearing provides a safeguard in asset trading since a clearing house acts as the buyer to every seller and also seller to every buyer in a transaction, ensuring that a deal is completed if one party defaults.

The JSCC has been discussing the viability of introducing such services since March. SBI Japannext, a PTS operator partly owned by Goldman Sachs, said it was starting preparations to use the clearing services. The JSCC said it was also in talks with other such operators. Tomohiko Hamada, a director for equity execution and programme trading at Credit Suisse in Tokyo, said: "This is good in terms of a reduction in counterparty risk from the users' perspective."

Market participants said the introduction of clearing services should help increase liquidity. It should also contribute to reducing settlement costs for investors using a number of trading venues, one participant said.

The TSE has more than 90 per cent market share, with the remainder held by Japan's regional bourses, such as the Osaka Stock Exchange. PTS platforms have about 1 per cent market share combined. Japan's largest bourse said it did not think any increase in liquidity on PTS platforms would necessarily come at the expense of the TSE.

Source:

          FINANCIAL TIMES UK