Japanese Market Slated to Welcome its Newest Exchange, Kai-X

Kai-X will compete with TSE pricing, establishing itself as a ‘Reference Price’ trading venue.

Japan is primed to receive a new equity-trading venue, with Chi-X Japan launching its Kai-X group later this month following regulatory approvals and requisite registration with Japan’s Financial Services Agency (FSA), according to a Chi-X statement.

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Presently, the Japanese financial market is one of the largest in the world, with traditional bellwether exchanges such as the Tokyo Stock Exchange (TSE) and others. Kai-X will look to establish itself as a ‘Reference Price’ trading venue, meaning investors will be able to anonymously execute trades at prices that are on parity or better with traditional venues such as the TSE.

Kai-X will cater itself to both institutional and retail traders. The venue will be open to local Japanese and overseas institutional and retail customers via their Japanese broker-dealers.

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As such, trading on Kai-X will be enabled at prices equal to the TSE ‘reference prices’ of: best bid or best offer in conjunction with the derived mid-point between the TSE best bid and best offer prices. Additionally, Japanese traders will also gain access to ‘Minimum Execution Quantity’ (MEQ), helping them execute larger blocks of stock than they are typically able to on the Tokyo Stock Exchange (TSE).

Kai-X has billed itself as a broker-neutral trading venue where brokers can source liquidity on a level playing field. The group is slated to launch on October 17, 2016. In a bid to help mitigate any potential, or perceived, latency arbitrage opportunities and lower connectivity costs, Kai-X connectivity will be limited to the FIX protocol and with be no colocation.

Tony Mackay
Tony Mackay

According to the group’s Chief Executive Officer (CEO) Tony Mackay in a recent statement on the launch, “As the trading prices on Kai-X will reference TSE prices, Kai-X will not publish pre-trade bid or offer prices, quantities or indications of interest,” he said. “This should deliver a number of advantages such as, limiting information leakage and facilitating the execution of large blocks which may be difficult to achieve on ‘lit’ markets due to a lack of depth in their order books.”

“Matching priority will price, broker, then time which will allow a broker to match against their own orders at the same price first, and then anything else on a strict price and time priority, as in the Chi-X ‘lit’ PTS market,” he said. “All trades executed on Kai-X can be automatically reported as ‘on-exchange’ trades to the TSE ToSTNeT market on behalf of the brokers submitting the orders. Trades will be cleared by JSCC and settled by JASDEC in the same manner as ordinary PTS or TSE trades,” he added.

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