Japan Exchange Group wields axe to slash £60 million from costs
The united Japan Exchange is aiming for major cost synergies
The Japan Exchange Group has set out plans to slash ¥8.5 billion (£60 million) from its annual operating costs by 2015 – representing 15% of the firm’s overall budget – as the exchange seeks to revitalise its equities and derivatives markets and take on its competitors.
Created by the merger of the equities-dominated Tokyo Stock Exchange and the derivatives-focused Osaka Securities exchange on 1 January 2013, the new exchange group has been promoted partly for political reasons in Japan, as the country’s political leadership sought back in 2011 to revitalise trading volumes by creating a combined derivatives and equities market that would allow for cost synergies and more cross-asset trading opportunities, as well as attract international investors.
At the same time, it is also seeking to fend off competition from rival alternative trading systems such as SBI Japannext and Chi-X Japan, both of which have gradually eaten away at its market share in recent years. Market reforms in Japan, such as the abolition of the takeover bid rule late last year, have also helped competing markets gain share. The takeover bid rule meant that any investor that held more than 5% of a company’s shares had to make a bid for the company if those shares were traded away from the primary exchange.
Some ¥7 billion of the ¥8.5 billion cost reduction target will come from reduction in system-related costs, to be achieved by integrating overlapping systems between the cash and derivatives markets. The remainder will come from promiting operational efficiency and “revision of operational bases”, according to the Group’s mid-term plan 2013, which was published earlier this week.
The Japan Exchange is currently working on developing new stock price indices, enhancing its corporate governance including revising the listing rules, reducing latency of its trading engine and implementing new smaller tick sizes as well as extended trading hours. In its derivatives market, it is focusing on expanding its presence in commodity derivatives, developing overseas index products, reviewing the fee structure and planning a new derivatives trading engine.
Japan Exchange Group also includes a clearing facility, which is currently preparing for the clearing of OTC derivatives later this year, including FX interest rate swaps, as part of the G20 nations’ commitment to reduce systemic risk in financial markets.
