FACTBOX-TSE launches new trading system

TOKYO, Jan 4 (Reuters) - The Tokyo Stock Exchange [TSE.UL],
the world's second largest by the market value of listed
companies, launched a new super-fast trading system on Monday in
a move expected to boost automated trading in Japan.

The "Arrowhead" system will process trades in 5 milliseconds,
600 times faster than the current system and roughly the same
speed as the New York and London stock exchanges.

For a related story click on: [ID:nTOE60303P]

Following are some key facts about the new system and other
changes in trading at the Tokyo Stock Exchange from Jan. 4.

DEVELOPMENT

The system was developed by Japanese electronics conglomerate
Fujitsu Ltd (6702.T). The TSE has invested 13 billion yen ($140
million) to develop Arrowhead, a name it says is symbolic of its
speed.

Arrowhead is the TSE's first major trading platform overhaul
since 1999 when it made the switch from a stock trading floor to
a computerised trading environment.

SPEED

Arrowhead will cut the time for the distribution of price and
quote information to 3 milliseconds from 3 seconds, and lower the
time for executing trades to 5 milliseconds from the 2 to 3
seconds it takes under the current system.

That will bring the TSE into the same league as the New York
Stock Exchange, which processes trades in 5 milliseconds, and the
London Stock Exchange, which estimates its trading system can
execute trades in about 3 milliseconds.

MORE ALGO TRADING

The TSE is hoping the speed of Arrowhead will attract more
trading from investors that use computer algorithms to analyse
various market data and automatically place orders in a matter of
milliseconds.

Globally algorithmic trading is used widely by institutional
investors to divide up their orders to limit their impact on the
market and get the best price possible. But such trading has been
limited in Japan by the slowness of the exchange.

High-frequency trading -- where securities firms and hedge
funds use lightning-quick algorithms to make markets and profit
from tiny price discrepancies -- is also expected to increase
with the launch of Arrowhead. High-frequency trading accounts for
some 60 percent of equity volumes in the United States.

SMALLER TICK SIZES, WIDER DAILY LIMITS

In step with the launch of Arrowhead the TSE will cut tick
sizes -- the smallest increment by which a stock can move -- and
increase the size of daily price limits to allow stocks to rise
or fall by a larger amount in one day.

-- Tick size:

Stock price previous tick revised tick

below 2,000 yen 1 1

above 2,000 to 3,000 yen 5 1

above 3,000 to 5,000 yen 10 5

above 5,000 to 30,000 yen 10 10

above 30,000 to 50,000 yen 50 50

above 50,000 to 300,000 yen 100 100

above 300,000 to 500,000 yen 1,000 500

above 500,000 to 3 mln yen 1,000 1,000

above 3 mln to 5 mln yen 10,000 5,000

above 5 mln to 20 mln yen 10,000 10,000

above 20 mln to 30 mln yen 50,000 10,000

above 30 mln to 50 mln yen 100,000 50,000

-- Daily price limit changes:

Price range previous limit revised limit

700 to less than 1,000 yen 100 150

1,000 to less than 1,500 yen 200 300

1,500 to less than 2,000 yen 300 400

2,000 to less than 3,000 yen 400 500

3,000 to less than 5,000 yen 500 700

.....

20 mln to less than 30 mln yen 4 mln 5 mln

30 mln to less than 50 mln yen 5 mln 7 mln

ALTERNATIVE TRADING SYSTEMS

The launch of Arrowhead, by drawing more liquidity to Japan,
could provide a knock-on boost to alternative trading platforms.

Goldman Sachs, Credit Suisse and UBS are among the Western
investment banks that have set up dark pools in Japan to allow
their clients to trade blocks of stock anonymously to avoid
tipping off rivals and impacting share prices.

At the same time so-called proprietary trading systems (PTS)
have boosted their share of volumes by offering faster execution
and finer tick sizes than on the TSE. Even after the TSE's
changes, the tick sizes on the PTS will in many cases be smaller
than those offered by the TSE.

The biggest PTS are run by financial services conglomerate
SBI Holdings (8473.T), Nomura's (8604.T) Instinet and online
broker kabu.com Securities (8703.T). Collectively, PTS account
for about 1 percent of stock volumes in Japan, putting them on a
par with the Jasdaq, Japan's third-largest exchange.

Chi-X, which has emerged as a formidable rival of the London
Stock Exchange, recently announced that it would launch a PTS in
Japan in 2010 if it wins regulatory approval, a move that is
expected to add to the competition faced by the TSE.
(Editing by Chris Gallagher)