Fujitsu Out, Hitachi In at Osaka Exchange

By Maria Trombly | Securities Industry News | February 20, 2006

The Osaka Stock Exchange (OSE) confirmed last week that it is in the process of replacing its old Fujitsu trading system with a platform by Hitachi.

Fujitsu's technology has figured in system problems in recent months at the Tokyo Stock Exchange (TSE) that led to trading halts, erroneous trades and the firing of senior executives. That did not necessarily reflect on the quality of Osaka's operations, nor did it directly affect the decision to switch to a competitor, which, according to an OSE spokesperson, is the culmination of a three-year process.

The new system will be launched Feb. 27 and serve as the trading platform for all equities and derivatives listed on the OSE, the spokesperson said. The technology platform and architecture are a complete departure from the past: Its processing speed is seven times faster, which should accommodate an anticipated doubling in trading capacity over the next few months.

The spokesperson denied a recent report by the Yomiuri Shimbun daily that OSE had decided to switch to a system from Stockholm-based exchange operator and technology vendor OMX. The OSE is, however, planning continued system enhancements and is "considering several alternatives in this regard," he said. It has not designated any vendor or set a timetable to do so.

Neither the Fujitsu nor Hitachi trading technologies are well known outside Japan, where markets have historically made domestic choices. According to analyst Neil Katkov of Boston-based research firm Celent, the OSE is more likely than the TSE to break that tradition. "The Tokyo Stock Exchange's position is very politically sensitive," he explained. "It is the cornerstone of the securities industry in Japan and very closely tied to the government and bureaucracy. But they would also do well to consider all options. An international, world-class solution like OMX or one from Deutsche Borse would probably be a better choice."

Deutsche Borse has recently provided the platform for the Shanghai Stock Exchange, and OMX for the Singapore Exchange. Both of those upgrades went smoothly, in part because the two European platforms are well tested in exchanges around the world.

Katkov said that the OSE was prescient in starting its upgrade process three years ago. "The high volumes of trading that Japan's markets have been experiencing over the past year probably took everyone by surprise," he said.

The Tokyo Stock Exchange got most of the bad press, but it wasn't alone in facing capacity problems.

Asia is getting on the algorithmic trading bandwagon that has already had a significant impact on exchange volumes in the West. For example, Credit Suisse First Boston recently gave Japanese buy-side clients access to its Advanced Execution Services algorithmic trading platform. Katkov said that as part of any upgrade process, exchanges should improve their client connectivity in anticipation of algorithmic trading.