Key facts
- The Tokyo Stock Exchange plans to upgrade its trading system by November.
- The upgrade aims to nearly double the exchange's processing capacity.
- Trading volume has surged due to increased overseas investor activity.
- The TSE extended its trading hours and implemented a closing auction in November 2024.
- These reforms have led to increased market depth and trading value.
The Tokyo Stock Exchange (TSE) is set to upgrade its trading system as early as November, aiming to nearly double its processing capacity. This strategic move is a direct response to a significant surge in trading volume, largely fueled by a substantial increase in activity from overseas investors. In June, transactions on the Tokyo bourse nearly doubled year-on-year, highlighting the growing demand for trading capacity.
This upgrade follows earlier reforms implemented on November 5, 2024, which included extending the trading day to 15:30 and introducing a formalized closing auction. These changes were designed to enhance the exchange's global competitiveness and better accommodate the liquidity needs of passive investment strategies. The reforms have aimed to improve transparency through the dissemination of indicative prices and volumes, enhance price discovery by prioritizing price over time in the closing auction, and align with international standards.
Empirical analysis of the reforms indicates success, with market depth increasing by approximately 58% and nominal spreads tightening. The extended trading window has reportedly supported an additional JPY 1 trillion in trading activity specifically in the post-3:00 p.m. window, refuting concerns about liquidity fragmentation. Furthermore, the ratio of value traded at the close has risen significantly, reaching a peak of 16.8% post-reform.