TSE consults customers for trading technology upgrade

The report gives an outline of the planned changes that it says will improve the scalability, speediness, flexibility and robustness of the exchange. The exchange has been consulting with 11 brokerage chief information officers since April to advise on the shape of the next-generation system.

The TSE will increase its processing capacity to twice the number of orders received per minute during peak time, starting with a capacity of 30 million orders per day that will be extended as volumes increase. This is in response to system failures earlier this year caused by soaring trade volumes after the Livedoor scandal broke. The New York Stock Exchange has 10 times the capacity of average daily trading.

The TSE also aims to speed up response times to less than 10 milliseconds for an order acceptance message, and to several tens of milliseconds for a trade execution message, according to the report.

The new system will be flexible enough to integrate new products, instruments and changes to trading rules easily. Trading hours will also be extended “significantly”. The participants particularly welcomed the exchange’s plan to build a back-up site, and they also recommended adopting the FIX protocol for trading.

The TSE is also considering adding functions to better retrieve trading errors, which have blighted the exchange since December last year when a flaw in the exchange’s dealing system prevented the cancellation of a Mizuho Securities botched trade. The exchange’s chief executive, chief information officer and computer systems head all resigned in the wake of the trading error, and Mizuho subsequently demanded compensation from the TSE, which has refused to pay. A month later, mistaken trades by Daiwa and Nikko traders could not be retrieved, and last week, JP Morgan had to buy back a mistakenly placed order, causing a dip in the market.

Despite the element of human error, the events exposed the exchange’s lack of capacity, inadequate rules and functionality, and emphasised how operational failures can have a knock-on effect on market prices and lead to significant losses for trading and brokerage firms.

The overhaul of the TSE’s e-trading system was announced in January this year, when Yoshinori Suzuki was appointed as its first chief information officer, overseeing IT strategy.