Japan regulator to review proprietary trading platform rules - Nikkei

Japan’s Financial Services Agency plans to review regulations that govern proprietary trading systems, according to Nikkei, as these alternative platforms gain popularity among market participants.

The FSA currently limits proprietary trading systems to handling no more than 10% of total Japanese stock trading value to prevent market fragmentation.

Under existing guidelines, a proprietary trading platform must obtain a license to become a full securities exchange if its trading volume exceeds the 10% threshold for six months and meets additional requirements. This would place it in the same category as the Tokyo Stock Exchange and Osaka Exchange.

The current framework creates challenges for platforms approaching the limit. If a system becomes a full exchange, it cannot offer trading in TSE-listed stocks unless those companies have dual listings, which companies rarely pursue due to costs.

Full exchanges must also perform regulatory functions including monitoring for insider trading and market manipulation. Building this self-regulation infrastructure quickly presents difficulties for proprietary trading systems.

To avoid crossing the 10% threshold, platforms can impose trading restrictions to reduce their market share.