Just over three years ago, Japan’s equity and financial derivatives markets made a bold move to consolidate in an effort to leverage their strengths and create a cash equity and derivatives powerhouse through the merger of the Tokyo Stock Exchange and Osaka Exchange.

As the two exchanges moved ahead, cash equities were consolidated in Tokyo, while the Osaka Exchange took on financial derivatives.

“We changed the perception of our market, as we integrated very strong cash equity market with the very agile derivatives business, and we are feeding off each other’s strengths,” said Hiromi Yamaji, president and CEO of the Osaka Exchange, which handles the derivatives trading for JPX.

Yamaji said that TOPIX, the former TSE index futures contract, has been folded into the OSE’s product offering. Since then, volumes have risen “substantially,” he said. TOPIX futures volumes hit 22.3 million contracts in 2015, second highest on record, while the mini-Nikkei 225 futures hit a record 247.1 million contracts for the year.   

Costs to end users have gone down, and its overall competitiveness with other exchanges outside Japan, has improved, he said. The exchange plans to roll out a new trading platform from Nasdaq in July, and is the process of adding a new clearinghouse, from Cinnober, due in 2018.

Along with the new trading platform will be extended trading hours for the exchange, better data distribution as well as enhanced speeds on the matching engine along with new risk management tools. In addition, JPX wants to add more products along with a “new traders” program.

Yamaji said the extended hours will help add liquidity during the US and European trading day. The current night trading session now represents about 40 percent of its total volume.

Despite the consolidation between Tokyo and Osaka’s exchanges, Yamaji said the Japanese market is still quite fragmented.

“We are just trading financial products,” Yamaji said. “We are not trading commodities. We are not trading short-term interest rates. But I think we’ll overcome this obstacle over time.”

With the new exchange structure well in place, new trading platform due to launch in days, Yamaji said JPX has a good opportunity to draw in new participants.

“About 70 percent of our trading volume comes from outside Japan, of which about 10 percent is Japanese hedge funds abroad and 30 percent are Japanese industries,” Yamaji said. “We’d like to expand both pies in the future through new hours, new products and the new trading platform.”

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