Capital Market Trends in Japan, Part 2: Drivers of Innovation and a Market in Transition

by Eiichiro Yanagawa, May 9, 2013
Industry Trends
Asia-Pacific

Abstract

Japan’s market has yet to experience “big bang” structural reforms on par with the European and North American markets and the accompanying across-the-board tsunami of technological innovation. At the same time, deregulation of proprietary trading systems (PTS) operators and margin trading have rippled through the market and will significantly impact the new Japan Exchange and Japan’s capital markets.

In the report Capital Market Trends in Japan, Part 2: Drivers of Innovation and a Market in Transition, Celent examines the state of Japan’s markets and offers an outlook for the future in light of the tumultuous changes seen in Europe and North America.

We have reached a point where PTS are necessary for buy side entities to be sufficiently accountable to sponsors,” says Eiichiro Yanagawa, Senior Analyst with Celent’s Asian Financial Services Group and author of the report. “Faced with a market environment that offers little volatility, institutional investors are demanding from buy side entities provisions to optimize performance and risk. In response, buy side players are adopting more advanced investment strategies.”

Branching out from the report Capital Market Trends in Japan, Part 1: The Birth of a New Exchange, Part 2 examines best execution-related systems innovation and changes in market structure as well as the current state of trading technology innovation. This report features the results of interviews with multiple market participants. It analyzes capital markets trends in Japan and addresses perceived challenges and initiatives implemented by the firms interviewed.

This is the second in a two-part series examining Japan’s capital markets. This 40-page report contains 21 figures and 10 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

Best Execution: Innovation and Changing Market Landscape

3

 

Trading Costs and Best Execution

3

 

Best Execution and the Regulatory Situation

4

 

Change in the Market Landscape

7

Trading Technology Innovation

10

 

Technologies to Control Best Execution Costs and Secure Liquidity

10

 

Alternative Trading Venues: Proliferation and Connectivity

11

 

Changes in Key Areas of Competition and the Innovation Pyramid

12

Japan Market Trends

14

 

Extreme Concentration of Trading on Established Stock Exchanges

14

 

Market Participants

22

Signs Portending Major Change

30

 

Deregulation of PTS

31

 

Deregulation of Margin Trading

33

Conclusions

36

Leveraging Celent’s Expertise

37

 

Support for Financial Institutions

37

 

Support for Vendors

37

Related Celent Research

38

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