Michael Shashoua: Rising Sun

Japanese financial services firms, as well as the authorities regulating the industry, have become more willing to collaborate on assembling reference databases and managing reference data than they were a few years ago. This development strengthens the country’s potential as a leader in data operations issues for the Asia-Pacific region as a whole—in a way that could hardly have been imagined when Japan appeared to be content to keep to itself in handling data for its own market without rocking the boat and considering innovation.

What’s driving Japan’s changes in data operations? Regulatory compliance demands and greater demand for alpha, said Raymond Yeung, an IT and data expert who spoke at the Tokyo Financial Information and Technology Summit (TFITS) on April 12. Japan’s firms are no longer just settling for “jamming it all into one database,” he said.

This also means that Japanese firms are now more conscious of ensuring data quality in trading data and performance data, before aggregation, so that data will be accurate and of a high quality after it’s aggregated. “If they don’t have those core data systems clean, forget it, they can’t actually aggregate,” Yeung said. “It’s a cultural change.”

Settlement and Blockchain

On another front, the Bank of Japan (BOJ) last October launched BOJ-NET, a new transaction settlement system. Hiromi Yamaoka, director general, payment and settlement systems department at BOJ, speaking at TFITS, said the bank is considering connecting BOJ-NET with foreign markets’ payment systems.

Along with this new openness regarding data, the Japanese market is enjoying one of the stronger fintech booms globally.

“To modernize the economy, there are a lot of transactions on a cross-border basis and across time zones,” he said. “Only a central bank can provide a safe haven for settlement procedures.”

This kind of outreach to regional markets was once unimaginable. Along with this new openness regarding data, the Japanese market is enjoying one of the stronger fintech booms globally. That is contributing to other data management leadership possibilities, some of which are being generated by blockchain. Makoto Shibata, head of the global innovation team in the digital innovation division of Bank of Tokyo Mitsubishi UFJ, sees blockchain data as a wide open field. The opportunity will come from the need for organized storage and archiving of blockchain or bitcoin transaction data, plus the need to create standards for such archives and, most importantly, managing appropriate access to this data.

The Japan Exchange Group, and an industry consortium, the Distributed Ledger Group, which includes Shibata’s firm along with Mizuho, Sumitomo Mitsui Financial Group and Nomura, are both working on blockchain efforts already. The possibilities and opportunities that blockchain data will generate globally are just becoming evident, and Japanese efforts in this realm are just getting started, but could be a good complement to the actions already taken to update the way its markets manage data and share data with foreign counterparties.

ESMA’s DTCC Fine

The €64,000 ($72,000) fine levied by the European Securities and Markets Authority (ESMA) on the Depository Trust and Clearing Corp. (DTCC) on March 31 is a curious action for a regulatory body whose lack of preparedness recently led to a one-year delay in the effective date of the revised Markets in Financial Instruments Directive (Mifid II) regulation. ESMA stated that the fine was issued because the DTCC failed to set up systems and, in turn, provide derivatives data to the authority as required under the European Market Infrastructure Regulation (EMIR).

The size of the fine—relatively small in the context of financial industry enforcement—may not mean that ESMA thinks it shouldn’t severely penalize the DTCC. ESMA is prevented by statute from levying a higher fine. Perhaps the European Commission should reconsider whether its limits on fines are hampering ESMA’s credibility.