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ECONOMY > Finance

Japan to tighten oversight of high-frequency trading

  • October 20, 2016
  • , Nikkei Asian Review , 12:17 am
  • English Press

High-frequency stock traders may soon have to register in Japan, according to new rules being eyed by the country’s financial watchdog.

 

High-frequency trading involves the use of artificial intelligence and other technologies designed to predict market movements, with powerful computers placing as many as 1,000 buy or sell orders per second. Such automated trading platforms are said to boost turnover but also increase volatility.

 

Japan’s Financial Services Agency seeks to prevent market turmoil caused by HFT, as well as problems due to glitches in such trading systems.

 

The idea to step up oversight through registration was presented Wednesday to the Financial System Council, with no objections voiced. The definition of applicable traders is to be hammered out so a legislative proposal can be brought to the ordinary Diet session next year.

 

Under the new rule, securities brokerages will be banned from taking orders from unregistered high-frequency traders and businesses lacking a proper risk management mechanism.

 

The FSA seeks to ensure that HFT systems block errant orders and have ample processing capacity. The agency will require that transaction records be kept so authorities can respond quickly if an issue arises. About 50 high-frequency traders are in the Japanese equities market, and many are based abroad, according to an analyst.

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