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Tokyo Taps NYSE for Options Platform as Trading Technology Competition Heats Up

  • April 28, 2008
  • Maria Trombly

The Tokyo Stock Exchange (TSE), historically reliant on technology from Japanese providers, announced today that it will implement an options platform from NYSE Euronext’s Advanced Trading Solutions unit.

Scheduled to launch in the first half of 2009, the new system, Tdex+, is based on the Liffe Connect platform used by the Euronext.liffe derivatives exchange and will allow TSE to introduce features such as market-maker functionality. The Tokyo exchange said it evaluated several electronic trading systems in use at major stock exchanges around the world before opting for the NYSE platform.

TSE has almost exclusively used domestic suppliers such as Fujitsu, which the exchange has blamed for several technology glitches over the last couple of years, including problems that on Feb. 8 halted some derivatives trading. But the New York Stock Exchange and TSE signed a technology-sharing agreement early last year, and “this seems to be the first public initiative to come out of that relationship,” said Larry Tabb, CEO of New York-based Tabb Group. “While it remains to be seen whether TSE will sever Asian relationships and replace them with Western technology relationships, this certainly is a directional change.”

“NYSE Euronext’s technical and operational expertise in various markets such as the capital and derivatives markets, within multiple localities in Europe and [the U.S.] is of indispensable value to us,” said TSE chief executive Atsushi Saito in a statement.

Neil Katkov, analyst in Tokyo for Boston-based Celent, called it one of the most significant moves TSE has made in a long time. “This is the first time that the Tokyo Stock Exchange has put in a major piece of technology from a foreign supplier,” he said. What likely made the move easier is that there was no preexisting system in place, said Katkov.

“The Tokyo Stock Exchange didn’t have to shut down a long-term relationship with an existing supplier,” he said. “Also, in the options market, international options exchanges are far and away the leaders--Japan has a very small options market. So it makes sense to use foreign know-how to try and set one up.”

It also may indicate that TSE has abandoned rumored plans to merge with the Osaka Securities Exchange, which trades futures and options. “The Osaka exchange is furiously independent and has resisted all offers,” he said.

Though Katkov said that the deal with NYSE is not necessarily a sign that Tokyo is looking abroad for a suitor, it does reflect a trend toward partnerships among global exchange. “The business climate has turned to co-opetition replacing competition,” he said.

NYSE’s deal with the Bursa Malaysia is a prime example, added Katkov. On April 21, Bursa Malaysia announced it had launched a direct-market access platform for its derivatives market that is based on NYSE’s Secure Financial Transaction Infrastructure, or SFTI, market access technology. “Five years ago, I don’t think NYSE would have done anything like this,” he said. “It would have protected its franchise aggressively.”

Sam Johnson, chief executive of Advanced Trading Solutions, the recently formed umbrella for the NYSE Euronext’s commercial technology business, called Asia an area of “tremendous importance” to the exchange. “As capital markets there continue to grow rapidly we hope to continue to build upon our meaningful partnerships with the most important exchanges in that region,” he said. NYSE last week said that the Philippine Stock Exchange has agreed to implement its NSC platform, and the Stock Exchange of Thailand is also a customer.

SFTI had been used by U.S. brokers connecting with NYSE, said Tabb, and then expanded to Europe. The expansion into Asia “will enable them to better facilitate a global integration of both the NYSE and Euronext markets as well as with other markets they have relationships with,” he said.

“As a node on the global SFTI community, this new solution provides truly open and global access to our market through a variety of networks and end-user applications,” said Bursa Malaysia COO Omar Merican in a statement.

International growth is particularly important now, said Dushyant Shahrawat, analyst at Needham, Mass.-based TowerGroup, with slowdowns in North America and Western Europe and the growth of alternative trading systems in the developed markets.

“While NYSE Euronext is a major force in U.S. and Europe, its limited presence in Asia, the Middle East and South America remains a weakness for it,” said Shahrawat, “especially as rivals like Nasdaq and CME Group make aggressive moves into these markets.”

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