Atsuo Tachikawa, Manager – IT Planning, Daiwa SB Investments speaks to Andrew Thake in the run up to TradeTech Japan and answers What are the main challenges facing the Japanese institutional equity trading marketplace as we move into the second half of 2010?

TradeTech: 4 months on what has been the real impact of Arrowhead on the trading landscape in Japan?

Atsuo Tachikawa: On the plus side we have seen some improvement regarding trading costs. However some equities have shown unusual price movement.

TradeTech: Where does Daiwa SB see the greatest opportunity in Japan and what initiatives are you undertaking to capitalize on this?

Atsuo Tachikawa: We need to keep an eye on algo trading and market orders of DMA. We are also looking at what kinds of equities tend to show unusual pricing.

TradeTech: What are the main challenges facing the Japanese institutional equity trading marketplace as we move into the second half of 2010?

Atsuo Tachikawa: On one hand the financial crisis is gone and foreign investors (traditionally the most aggressive investors in Japan) are coming back to invest again.

On the other hand, there is a growing trend among pension funds regarding asset allocation and how Japan is being weighted in relation to the MSCI index. This issue needs to be addressed going forward as it could be a potential downside risk to the Japanese equity market.

We should promote the Japanese market as it still remains attractive. TSE's Arrowhead and recent regulatory changes are some of the reasons why we need to educate those institutional investors.

In addition, although the FSA is still reluctant to allow CSA in Japan, foreign investors know the importance of having electronic trading capability, more so than Japanese investors. Due to the regulatory challenges we currently face, we should put more emphasis on trading technology.

TradeTech: Moving forward what are your main predictions for equity trading in Japan in 2011?

Atsuo Tachikawa: The economy will continue to improve and with the market rebounding, equity trading is going to grow higher in 2011

However we need to have fundamental changes in both the regulator as well as market participants which only focus on the domestic market.