Japan brings in high speed trading rules

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Japan’s financial services watchdog is to introduce new rules that will require high frequency trading firms to register with the regulator and demonstrate that they have proper risk management processes in place.

High frequency trading (HFT) has become a growing presence on the Tokyo Stock Exchange (TSE) and a source of concern for securities lawmakers in Japan, as it has elsewhere.

Last year the European Central Bank called for a gradual approach to HFT while in the US a number of exchanges have looked to introduce so-called speed bumps to counter the trading advantages enjoyed by HFT firms at the expense of retail and mainstream investors.

it is not just the sense of unfair competition that bothers market supervisors but also the threat to market stability posed by ultra-fast trading services and software. However, it continues to be a divisive subject with others arguing that HFT provides valuable liquidity to the market and adds to its efficiency.

Japan’s new law will possibly come into effect in early 2018. It will require any HFT participants to register with the FSA and to provide evidence of proper risk management systems. They will also have to either establish an office in Japan or a representative agent.

According to FSA figures, HFT accounted for almost 70% of orders on the TSE and just less than half of the traded value, just less than $2.9 trillion.