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Asset managers in Japan shift to algorithmic trading, says survey

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Asset management institutions in Japan are shifting to electronic trading, with 50 per cent using electronic trading and more than 75 per cent of those firms having increased their use since 2010, according to a survey by Nomura Research Institute (NRI).

As electronic trading continues to build momentum in the region, institutions are communicating less with their broker-dealers. According to the survey, nearly 50 per cent of respondents confirmed communication with the broker-dealer community is decreasing.
“As the survey demonstrates, Japanese asset management institutions are shifting to electronic trading and it is gaining momentum in the region. At the same period, more broker-dealers are downsizing their sales trading teams to focus on electronic trading services and as a result, there are fewer people with those organisations with whom their client of asset managers can communicate with,” says Mitsuhiro Tsunoda, senior consultant at NRI. “Paradoxically, even asset managers using electronic trading have strong demands for the communication with brokers-dealers. Effective development for this communication will be the issue for the asset managers and broker-dealers community in Japan.” 
In addition to algorithmic trading, 47 per cent of firms using electronic trading have increased their use of direct market trading (DMA) throughout the past three years.
The survey also shows that 44 per cent of respondents have decreased their use of discretionary trading since 2010, 65 per cent of respondents plan on increasing their use of darks pools as an execution venue and 64 per cent of respondents plan on increasing their use of IOIs in the future.
“Alternative trading tools such as dark pools and IOIs, enable the anonymous buying and selling of large blocks of shares while mitigating risk,” says Mitsuhiro. “The implementation of blanket basis order handling rule and averaged price rule will continue to generate larger size of block orders, dark pools and IOIs use will continue to increase and proposition of those tools would be imperative for broker-dealers.”

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