The Japanese Financial Services Agency (FSA) has intensified its efforts to increase stock market trading activity and competition between stock exchanges and other trading platforms by lifting the ban on “discretionary trade execution” by securities firms.
Until now, the FSA has limited off-exchange trading opportunities. Although the obligation to centralize stock trading to stock exchanges was abolished in 1998 and off-exchange trading technically became possible, alternative trading platforms have not flourished because they do not allow broker-dealers to choose whether to route client orders to them even if they quote a better price than traditional stock exchanges. Under the current system, broker-dealers must ask clients for permission to trade off-exchange. “This causes delay in trading and brokerages often miss out the good pricing opportunities,” explains a spokesman for Bank of Tokyo Mitsubishi in Tokyo.
At a meeting on 12 October, a working group of the Financial Service Council, an advisory body to the Prime Minister, concluded that broker-dealers should be allowed to choose between trading venues without prior recourse to the client, though their choices must be disclosed to clients.
The FSA hopes to submit a bill revising the Securities Exchange Law to this effect during the 2004 parliamentary session, with a view to implementation during the year.