Why alternative trading venues might be on the rise in Japan.
Just back from an interesting week in Japan where I was
presenting at the annual GMAC conference, Japan International
Banking & Securities Systems Forum. The impact of
Japan’s alternative venues (known as PTSs) was a
particular area of discussion, especially now that Chi-X has
set up in Australia and with Korea looking to introduce a
multi-market structure too.
It’s been a hard slog for the alternative
trading community in Japan, however, as they have had to battle
without the assistance of a formal concept of best execution as
enshrined by America’s trade through rule or
Mifid's principles based approach.
On top of this, the PTS community also has to negotiate some
tricky Financial Services Agency regulation. The first is known
as the 5% TOB rule which basically states that any investor
that amasses 5% of a firm’s stock through OTC
trading must then mount a full takeover bid for that
On the face of it, this is a sensible attempt to ensure that
corporate takeovers are undertaken in the full light of day.
The problem is that when the PTS concept was originally
formulated, the new venues were designated as OTC venues. The
net effect of this is that many Japanese investment firms are
reluctant to buy stock on PTSs just in case they might trigger
the takeover rule. On top of this, any PTS that amasses 10%
market share must automatically apply for full exchange
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