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Japan to weigh changes to proprietary trading cap amid volume surge

Created at 6 Aug · 6:31 PM1 source↑ Market-relevant
IN SHORT

Japan's Financial Services Agency is considering revising rules on proprietary trading systems, which are gaining popularity as alternatives to the Tokyo Stock Exchange. The move aims to ease trading concentration and promote fairness.

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Key Numbers

5%takeover bid rule exemption for PTS transactions
13 October 2024comment submission deadline
1 May 2026FIEA amendment effective date

Who's Involved

Japan's Financial Services Agency
exploring revisions to proprietary trading rules
Financial System Council
recommended system for trading fairness and transparency
Japan to weigh changes to proprietary trading cap amid volume surge

↳ Why This Matters

The proposed regulatory changes could foster greater competition and efficiency in Japan's financial markets by encouraging alternative trading venues, potentially reducing the dominance of the Tokyo Stock Exchange and improving price discovery.

Key facts

  • Japan's Financial Services Agency is considering revising rules for proprietary trading systems.
  • The proposed changes aim to ease trading concentration at the Tokyo Stock Exchange.
  • New rules would allow private trading systems for unlisted securities with low liquidity to operate as type I financial instruments businesses.
  • The upper limit on auction trading volume is set to be relaxed.
  • The FSA is seeking public comments on the proposed revisions until October 13, 2024.

Japan's financial authorities are set to examine changes to regulations governing proprietary trading systems, a move prompted by the increasing popularity of these platforms as alternatives to the Tokyo Stock Exchange. The Financial Services Agency (FSA) is considering revising rules that currently separate proprietary trading systems from full-fledged securities exchanges.

These proposed revisions, put forth on September 13, 2024, follow earlier reports and submissions concerning the Financial Instruments and Exchange Act (FIEA). The updated FIEA would permit private trading systems that handle unlisted securities with low liquidity and limited trade volumes to operate as type I financial instruments businesses. The revisions also aim to relax the upper limit on auction trading volumes and establish criteria for trading volumes that do not require approval.

The FSA's objective is to enhance trading fairness and price transparency, aligning with recommendations from the Financial System Council. This includes potentially exempting PTS transactions, similar to off-floor trading, from the 5% takeover bid rule. Public comments on these proposals are being accepted until October 13, 2024.

Separately, an amendment to the FIEA that took effect on May 1, 2026, introduced changes to the Large Shareholding Report and Tender Offer systems, intended to foster better dialogue between listed companies and investors and improve market transparency.

Frequently asked questions

A proprietary trading system is a platform used by financial firms to trade securities for their own accounts, rather than on behalf of clients. These systems are often designed for high-frequency trading and can operate outside traditional stock exchanges.

The popularity of alternative trading platforms is growing, and authorities want to ease the concentration of trading at the Tokyo Stock Exchange, promoting fairness and efficiency in the market.

Exempting certain PTS transactions from the 5% takeover bid rule could make it easier for large trades to occur without triggering mandatory tender offers, potentially increasing market liquidity and facilitating corporate transactions.

What Happens Next

01The FSA will review public comments submitted by October 13, 2024.
02The FSA will decide on the final revisions to the FIEA and related ordinances.

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How It Developed

Japan's Financial Services Agency (FSA) is exploring changes to rules separating proprietary trading systems from securities exchanges.
The FSA proposed revisions to cabinet orders and ordinances related to the Financial Instruments and Exchange Act (FIEA) on September 13, 2024.
These proposed revisions follow a December 2022 report and March 2024 submissions concerning FIEA and trusts.
The revised FIEA would allow private trading systems handling unlisted securities with low liquidity and limited trade volumes to operate as type I financial instruments businesses.
Criteria for trading volume requiring approval will be set, and the upper limit on auction trading volume will be relaxed.
The FSA aims to ensure fairness and transparency in trading, similar to off-floor trading exemptions from the 5% takeover bid rule.
Comments on the proposed revisions are due by October 13, 2024.
An amendment to the FIEA, effective May 1, 2026, aimed to promote dialogue between listed companies and investors, improving transparency and fairness.

Sources

T1
Japan to weigh changes to proprietary trading cap as volume soarsNikkei Asia
T2
Ashurst Perkins Coie monthly Japanese finance regulatory update July 2026ashurstperkinscoie.com
T2
Japan - FSA Proposed Revisions Proprietary Trading (incl. Takeovers)solutions-atlantic.com

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