Japan Seeks Post-Trade Efficiency

Terry Flanagan

Buy-side firms and broker-dealers in Japan and other Far East nations are increasingly applying efficiencies for international equities trade processing to other asset classes. Developing markets are following suit, platform providers say.

“Across Asia, we are seeing the same standards used in post-trade automation increasingly being applied to both equities and fixed income, and a similar approach starting to be applied to the (exchange-traded) derivatives space,” said Nellie Dagdag, Asia Pacific executive director for Omgeo. “We are also seeing a growing emphasis in developing markets to adopt similar standards of automation used in more mature markets.”

While Japanese asset managers are historically known for readily adopting technologies to maximize efficiency and standardization, a cultural expectation that accuracy must be achieved to the last yen poses some unique challenges, according to Dagdag. There is also a high expectation for broker promptness with regard to settlement.

“As their market opens each day, local firms need to quickly close out any issues with the confirmation of international trades from the previous day in order to settle on time,” Dagdag told Markets Media. “This can be equally challenging to international brokers outside Japan dealing with local buy-side firms.”

Japan has high settlement efficiency and a same-day affirmation rate of more than 95%, showing the nation is a global leader in operational best practices, according to Omgeo.

Japanese institutions are eschewing multiple trade platforms in favor of a single, centralized platform for domestic and international equities and fixed income. This expedites clearing and settlement of trades, and better manages and reduce counterparty and credit risk, Dagdag said.

“There is an increasing desire amongst Japanese firms to consolidate their operational processes onto single platforms…to simplify IT requirements and introduce a greater level of predictability in their overall systems,” Dagdag said. “Asset managers want the same set of standards such as straight-through processing to be followed in international fixed income as they see in equities,” particularly as volumes rise, she added.

In a release, Omgeo cited “buoyant conditions in the local market since the end of 2012” and local adoption of its Central Trade Manager platform for a 47% increase in trades processed for Japanese clients over the past 12 months.

Local tweaks for the Japanese market include connecting Omgeo CTM and Jasdec, a local depository. “We built a link that enables buy-side clients to send trade details from Omgeo CTM, as well as accurate and compliant account and standing settlement instruction data stored in Omgeo Alert, directly to their trust banks,” which are responsible for sending settlement instructions to brokers, Dagdag said.


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