Japan’s FSA to address high frequency trading (HFT) for its play in market distortion and volatility

Rick Steves

Japan’s Minister for Financial Services made a statement at a press conference today, informing that a general meeting of the Financial System Council will take place in early April in order for experts to discuss the issues of FinTech disruption, such as the emergence of blockchain technology, and high frequency trading that has been massively […]

japan

Japan’s Minister for Financial Services made a statement at a press conference today, informing that a general meeting of the Financial System Council will take place in early April in order for experts to discuss the issues of FinTech disruption, such as the emergence of blockchain technology, and high frequency trading that has been massively adopted by the institutional investment banking sector, with potential negative effects.

“Since the late 1990’s, significant efforts toward diversifying investment products and enhancing trading technologies in Japanese stock markets/exchanges have been made. In recent years, for instance, high-speed trading has considerably increased, leading to some concerns being raised, including the following points:

It may be one of the factors contributing to recent market volatility, and it may have a negative effect on the consideration of long-term market value of listed companies and thereby have distortive effects on price formation in the markets. In view of such concerns being raised, we think that it is important to review the impact of high-speed trading upon the efficiency, transparency and stability of the markets.”

The statement has also made reference to the importance of global portfolio diversification and sophistication of asset management activities in the wealth formation in Japan. Hence, a discussion about fiduciary duties in regard to product development, distribution, and asset management and maintenance is needed.

Following recent news that Japan intends to pass in Parliament some regulatory changes that will allow banks to buy stakes of up to 100 percent of non-finance related companies, instead of the current 5-15 percent, permitting them to fully own robotic investment advisory services and distributed ledger technology (DLT), today’s statement addresses such disruptions. Japan’s minister for Financial Services also called for reflection on what kind of solutions the country should prepare in order to enhance the competitiveness of its markets.

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