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Broker SBI upgrades with eye on high-frequency future

Bloomberg

SBI Securities Co., Japan’s largest online broker, has upgraded its technology in anticipation of faster trading speeds in the world’s second-biggest equity market.

SBI purchased a high-speed data feed this month from MarketPrizm, said Yoshitaka Kitao, president and chief executive officer of Tokyo-based parent company, SBI Holdings Inc. This will let SBI customers get pricing information and execute trades faster on both the Tokyo Stock Exchange and the venue run by sister company SBI Japannext.

Japan Exchange Group Inc., formed this year by the merger of the country’s biggest stock and derivative markets, is cutting the minimum price increment for 100 of its biggest stocks next month. A similar shift in the U.S. more than a decade ago reduced profits for human traders, fueling the rise of high-frequency trading firms whose automated systems made money despite the narrowed gap between prices to buy and sell. Kitao said SBI is preparing for more high-speed trading.

“I am certain that other Japanese brokers are considering moving into the HFT space,” Kitao said by email. “Online brokerages need to evolve.”

Japan Exchange Group CEO Atsushi Saito said in May that some Japanese stocks would see smaller tick sizes starting in January, an attempt to reduce investors’ costs, boost liquidity and bring them more in line with practices of “major exchanges overseas.” Only stocks on the Topix 100 index, comprising the country’s biggest companies, will take part in the test of narrower tick sizes.

Stocks in Japan don’t all have the same tick sizes. Usually, the minimum increment is about one-thousandth of the stock price, with the smallest tick being ¥1 for shares priced less than ¥3,000 and the largest being ¥100,000 for companies above ¥50 million. Starting in January, ticks for Topix 100 stocks priced above ¥30,000 will be reduced by a factor of 10.

The Japanese shift comes as the U.S. debates whether to widen ticks for smaller companies. Representatives from American exchanges, brokers, mutual funds and regulatory agencies held two conference calls on Dec. 3 to discuss concerns about market structure, including tick sizes, two sources said.

Compressing U.S. price increments reduced profits for human market makers and helped drive the ascent of automated firms known as high-frequency traders, who now account for about half of American equity volume, according to data compiled by Tabb Group LLC.

Supporters of larger price increments argue it would make trades more profitable for market makers, encouraging more transactions in smaller stocks.