Japan ramps up high-frequency trading oversight

Author: IFLR Correspondent | Published: 31 Jan 2019

By John Forrest de Perczel and Takehiro Mishiri, Morgan Lewis & Bockius


High-frequency trading activity in Japan experienced a substantial increase following a 2011 upgrade to the infrastructure of the Tokyo Stock Exchange (TSE), and by 2016 the TSE reported that approximately 60% of its daily trading volume was originating from servers in close physical proximity to the exchange. Because such 'co-location' is a key method for reducing latency and creating the speed advantage necessary for HFT, this was seen as an indication of the outsize role that HFT had come to play on Japan’s markets. Following a period of review, the Japanese Financial Instruments and Exchange Act (FIEA) was amended in 2017 to include additional provisions providing the structure for regulating HFT.

The FIEA as amended requires registration for those carrying out trading that meets the following definition (HST operators):

1)      Trades are determined automatically by an...