Japan passes law to tighten regulations on high-frequency trading

Pedestrians pass in front of electric quotation boards flashing the Nikkei key index of the Tokyo Stock Exchange (L) and the current exchange rate of the Japanese yen against the US dollar (R) in Tokyo on February 16, 2017. The Toshiba Corporation logo is seen at the company's headquarters in Tokyo on February 16, 2017. Shares in Toshiba fell 1.95 percent to 205.6 yen after losing 16 percent the previous two days as fears mount over massive losses from its US nuclear power business. / AFP PHOTO / KAZUHIRO NOGI

TOKYO: Japan tightened regulations on high-frequency trading (HFT) this week, passing into law measures that will require HFT firms to register with regulators.

Other nations in Europe and elsewhere in Asia are looking to tighten the leash on high-frequency traders who programme ultra-fast computers to trade in milliseconds without human intervention. Some major US exchanges want to introduce speed limits on trading.

The growing presence of HFT on the Tokyo Stock Exchange (TSE) has raised concerns high-speed trading could destabilise markets and leave retail investors at a disadvantage.

The law was passed by parliament on Wednesday and the new regulations could come into force as early as 2018.

Japan’s market regulator, the Financial Services Agency (FSA), has said previously it wanted HFT participants to register and to ensure proper risk management measures were in place.

“The definition has not yet been created. We can guess at who might be affected, but we don’t know for sure the full scope of who will be affected,” said Seth Friedman, chief executive of advisory firm Shiroyama Consulting Co.

The new rules stipulate that a company engaging in HFT will have to establish an office in Japan or be represented in the country by an agent.

HFT accounted for about 70% of orders on the Tokyo Stock Exchange in 2016, FSA estimates show.

High-speed trading accounted for slightly less than half of actual traded value, according to market participants, taking into account order cancellations. That would amount to slightly less than 321 trillion yen (US$2.9 trillion) based on figures on the TSE website for total trade in cash equity of 643 trillion yen. - Reuters
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