Asset managers in Japan shift to algorithmic trading - NRI

Source: Nomura Research Institute

Nomura Research Institute, Ltd. (NRI), a leading provider of consulting services and system solutions, today announced the results of its recent survey focused on equity trading in Japan.

The analysis concluded that asset management institutions in the region are shifting to electronic trading, as 50% of respondents are using electronic trading and more than 75% of those firms have increased their use since 2010.

As electronic trading continues to build momentum in the region, institutions are communicating less with their broker-dealers. According to the survey, nearly 50% of respondents confirmed communication with the broker-dealer community is decreasing.

"As the survey demonstrates, Japanese asset management institutions are shifting to electronic trading and it is gaining momentum in the region. At the same period, more broker-dealers are downsizing their sales trading teams to focus on electronic trading services and as a result, there are fewer people with those organizations with whom their client of asset managers can communicate with," said Mitsuhiro Tsunoda, Senior Consultant at NRI. "Paradoxically, even asset managers using electronic trading have strong demands for the communication with brokers-dealers. Effective development for this communication will be the issue for the asset managers and broker-dealers community in Japan."

Some of the key findings include:
• In addition to algorithmic trading, 47% of firms using electronic trading have increased their use of direct market trading (DMA) throughout the past three years
• 44% of respondents have decreased their use of discretionary trading since 2010
• 65% of respondents plan on increasing their use of darks pools as an execution venue
• 64% of respondents plan on increasing their use of IOIs in the future

"Alternative trading tools such as dark pools and IOIs, enable the anonymous buying and selling of large blocks of shares while mitigating risk," continued Mitsuhiro. "The implementation of blanket basis order handling rule(*1) and averaged price rule(*2) will continue to generate larger size of block orders, dark pools and IOIs use will continnd IOIs use will continue to increase and proposition of those tools would be imperative for broker-dealers."

*1 Blanket basis order handling rule: Several orders with common requirements from several fund units are allowed to be handled as a single order on blanket basis.
*2 Averaged price rule: Several executed prices from a single order are allowed to be handled with the average price.

NRI conducted this survey in September among the leading Japanese asset management institutions, including investment advisory firms, asset managers, life insurers and trust banks that have trading desks in Japan.

Comments: (0)