Thomson Reuters today announced a new suite of initiatives to help the trading community take advantage of increasing liquidity fragmentation and price competition in Japan.
This includes real-time consolidated pricing, deep fragmentation analytics, and post-trade best execution monitoring.
In Japan, the Tokyo Stock Exchange (TSE) continues to dominate market share with 99% of overall traded volume. Alternative execution venues, including Proprietary Trading Systems (PTS's) such as SBI Japannext, Kabu.com and Instinet CBX Japan, have doubled in volume since beginning of the year but still represent a fraction of overall market share. However among the Nikkei 225 stocks for example, these PTS's in aggregate represent the best price about 60% of the time, as measured by the duration of time spent at the consolidated best bid/ask, according to Thomson Reuters Equity Market Share Reporter (EMSR).
This small but important fragmentation of liquidity presents Japan's buy and sell side trading community with clear opportunities to reduce trading costs. In response Thomson Reuters has launched pre and post trade transparency analytical tools:
- Pre-trade - the launch of an independent Japan Consolidated Tape will for the first time allow buy and sell-side traders, investment managers and trading venues to compare share prices offered across the Japanese equity markets and discover real-time price improvement opportunities. The consolidated tape incorporates pricing from the traditional exchanges as well as the three major Japanese PTS's to reveal the true consolidated best bid/ask and trade prices at any given time.
- Pre-trade - The real-time consolidated tape is complemented by the historical fragmentation analytics delivered by the web-based EMSR platform. This offers a unique Fragmentation Score model enabling firms to easily rank stocks by degree of fragmentation. Stocks with greater fragmentation scores pose the greatest opportunity for price improvement as well as the greatest risk of missed opportunity if not handled appropriately. With EMSR, traders can compare liquidity, spreads, and pricece performance trends across competing venues for a given stock or index; and optimise routing policies accordingly.
- Post-trade - The web-based Global TCA platform enables investment firms to monitor their actual execution quality. Trading activity is analysed against consolidated cross-venue TCA benchmarks, delivering insightful performance statistics by order originator, execution venue, trading strategy, and much more. The end result is a deeper understanding of trade costs, outliers, and opportunities for execution policy refinement.
"The trading community in Japan is no different to its counterparts in the US and Europe in wanting to execute orders as cost effectively as possible. The launch of Thomson Reuters independent consolidated tape and fragmentation analytics will shine a light on hidden opportunities. Our analysis clearly shows that traders and their clients in Japan are often missing an opportunity, since a significant portion of the time there is a better price for trading at an alternative execution venue", said Miftah Khan, Global Head of Transaction Analytics at Thomson Reuters.
Khan adds, "Traders, algos and smart routers will need to take advantage of this fragmentation by seeking liquidity across the competing venues, minimising trading costs, and ultimately achieving best execution on behalf of clients."
Commenting on the launch of Thomson Reuters suite of new trading initiatives for Japan, Mitsunori Fukushi, CEO of SBI Japannext Securities, said, "Both buy and sell side market participants in Japan have been crying out for a more competitive trading environment where prices could be improved. Thomson Reuters analytical tools should really help this process accelerate as more people are able to fine tune their trading strategies to discover deeper, rich liquidity at better prices."