Michael Shashoua: In Japan, Half Measures Don’t Pay

The Tokyo securities markets’ resistance to outside participants and influences extends into the realm of market and reference data. This became apparent on listening to participants speaking at last month’s Tokyo Financial Information Summit sponsored by Inside Market Data and Inside Reference Data, and from speaking personally to some market professionals while in Tokyo for the conference.

In the data world, the differences arise particularly in local market data vendors having an advantage over foreign providers, and centralization of data being difficult to implement. The context of data itself in the Tokyo markets is different. The Tokyo Stock Exchange still conducts about 95 percent of the trading in the market, with outside proprietary trading systems (PTSs)—the Japanese equivalent of ECNs and ATSs—not penetrating that market the way their counterparts have in many other regions. The TSE does not permit some parties to gain advantages over others by co-locating their servers at the exchange’s facilities. Co-location does exist, but the transmission times are artificially kept equal.

Language Barrier
Furthermore, tick data itself is different than in many other markets because there are rarely decimals involved. The values of securities are so large in the yen currency that the smallest increment is often no lower than one yen. And Tokyo markets and their data are all conducted in the Japanese language, which makes it challenging for outside data vendors to break into the market if they have not developed the ability to accommodate data in the Japanese language. The language barrier also creates a challenge for banks and financial firms looking to consolidate data feeds for more accurate management of both market and reference data. 

Being fluent in Japanese is crucial to the fortunes of any market data vendors, as Raymond Yeung, head of technology products at Nikko Asset Management, explained during the conference. Providers have to go “all in,” and failing to do so just doesn’t cut it. Yeung has seen this when hearing from vendors who approach the market by opening an office in Hong Kong, and holding off hiring Japanese speakers until they can get a client, unwittingly making it certain they will never get the needed client.

So for now, foreign players with designs on the Japanese market have to figure out how to handle and manage market information that naturally will be localized, distinct and unique to Japan. For large investment firms, centralizing data would normally help better manage it, but this can be a non-starter in the Japanese environment. Hideyuki Kato, manager of the reference data management office at Mizuho Securities, advocates a virtual centralization approach, a middle ground between centralization and localization, to reconcile the benefits of centralization with the localized data of Japan’s markets.

The Humble Approach
The difficulty that outside data services providers experienced when entering the Japanese markets is similar to the difficulty foreign financial services firms as a whole have had entering Japan, and the reasons for those difficulties are similar. As one industry executive noted during the conference, an outsider thinking they can dictate from the top down how to conduct operations and get a good response will be disappointed. Practitioners have to enter the game with some humility and respect, and work out ways to interact and develop systems within the rules and traditions of how Japanese markets work. With the country rebuilding and the markets rebounding now, following the earthquake and tsunami disaster six months ago, new opportunities are arising in meeting financial processing and disaster recovery related challenges discovered due to the turmoil. For foreign firms and providers who aren’t careful or knowledgeable in their approach, these opportunities could also slip away.