Capital Market Trends in Japan, Part 1: Birth of a New Exchange

by Eiichiro Yanagawa, March 28, 2013
Industry Trends
Asia-Pacific

Abstract

After years of exchange consolidation in the US, Europe and elsewhere in Asia, Japan is finally seeing a major merger of its capital markets exchanges. How will exchange consolidation impact Japan’s capital markets?

In this report, Capital Market Trends in Japan, Part 1: The Birth of a New Exchange, Celent examines Japan’s market in the context of the dramatic changes in Europe and North America.

Source: TSE, Celent

“Japan’s capital market has yet to experience a big bang structural reform such as those seen in Europe and North America. Nor has Japan experienced a tidal wave of technological innovation. Furthermore, the integration of Japan’s exchanges has differed from the mergers that took place in in Europe and North America,” says Eiichiro Yanagawa, author of this report and a Senior Analyst in the Asian Financial Services group at Celent.

In its review of the merger to create the Japan Exchange Group, the Japan Fair Trade Commission laid out three conditions for approval:

  1. Involving outside experts in determining fees.
  2. Ensuring the continued existence of proprietary trading systems.
  3. Securing internationally licensed operators in derivative-related businesses.

“These three points were taken up to ensure diversity and competitiveness on the coming global exchange,” Yanagawa adds.

This report, the first of two, reviews the changing environment of the world’s securities exchanges, business opportunities, and strategic choices. It delves into the history and current state of Tokyo Stock Exchange’s arrowhead initiative, and concludes with a recap of events leading to the upcoming Japan Exchange Group merger.

Part 2 discusses best execution-related system innovation and changes in market structure, as well as the current state of trading technology innovation, before addressing these in terms of Japan’s market.

This 30-page report has 6 figures and 11 tables.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

2

Opportunities and Options in a Changing Environment

3

Exchange Characteristics

8

 

The Maturation of Trading Technology

8

 

The Rise of Systems-Related Revenue

8

 

Changing Capital Market Structure Needs

10

 

Technologies to Accommodate the Evolving Market

10

Japan Exchange

12

 

arrowhead

12

 

TSE-Offered Systems and Services

15

 

Combating Systems Failures

16

 

Creation of the Japan Exchange Group

17

Toward Part 2

24

Leveraging Celent’s Expertise

26

 

Support for Financial Institutions

26

 

Support for Vendors

26

Related Celent Research

27

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