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JPX CIO Shibuya Discusses his Vision for the Exchange IT

Hiroyuki Shibuya assumed the role of Senior Executive Officer, CIO of Japan Exchange Group, Inc. in June 2015, having become Adviser of Japan Exchange Group in March 2015. He started his professional career at Tokio Marine & Nichido Fire Insurance Co. in 1977 where he spent 38 years mainly focusing on the IT area. He was named Executive Officer of Tokio Marine & Nichido Fire Insurance Co, in 2009, Executive Officer of Tokio Marine Holdings in 2010, and Adviser of Tokio Marine Holdings in 2013. He graduated from Waseda University in 1977.


FIAJ: You were appointed CIO of JPX in June last year. What is your vision for JPX, especially for its IT?

The JPX vision is to become “Your Exchange of Choice”, and that is to become the most preferred exchange in Asia. The role of IT in realizing this vision is growing. For exchanges in this era, systems are central to trading, clearing, market data distribution and all other exchange functions. This means that IT is the foundation for developing exchange business and creating new markets, so we are being asked to combine business development and IT efficiently for the development and growth of our markets.

JPX was established in January 2013 through the merger of Tokyo Stock Exchange Group and Osaka Securities Exchange, and will complete its first three years at the end of March 2016. During this post-merger period, JPX has successfully integrated the cash equity markets and derivatives markets, and clearing systems with extensive support from market participants. These integrations are a part of reorganizing and streamlining the base market functions, a core objective of establishing JPX. In the meantime, for markets in the US, Europe and Asia, systems have become more sophisticated, and that is intensifying global market competition. Under these circumstances, in our aim to become the most preferred exchange in Asia, JPX positions IT as a core competency to sharpen our competitive edge, and seeks to develop reliable and convenient market infrastructure with the best use of the most advanced technology. To achieve the future vision of JPX, bearing in mind the requirements for global exchange, JPX renewed its cash equity trading system, arrowhead, last September based on the three fundamental concepts of improving reliability, convenience and capabilities. This renewal drew high praise from market participants.

In addition, JPX is scheduled to launch its next generation derivatives trading system, Next J-GATE, on July19, 2016.


Through the constant and stable operations of our two core trading systems, arrowhead and J-GATE, we would like to reinforce and make the foundations of the cash equity and derivatives markets more robust. In addition, JPX will formulate a road map for the next generation of JSCC’s clearing system, which was integrated in 2014. JPX has to accommodate the needs of its market participants and enhance convenience while providing highly reliable and stable market infrastructure. IT realizes these objectives at JPX and supports the foundation of its exchange business. As such, JPX will keep raising its IT to a higher level to sharpen its competitive edge.


FIAJ: JPX renewed its arrowhead system based on the three basic concepts of improving reliability, convenience and capabilities. Could you tell us the main focus for the development of the Next J-GATE, which will go live in July this year?

The trend is no longer to pursue only higher processing speed. Today, market participants expect exchanges to operate the market stably and provide appropriate functions via the system. For these reasons, JPX has also set enhanced reliability and convenience as basic concepts for the Next J-GATE. To enhance the reliability of the market, JPX will introduce a Non-Cancel Period with the system so that market participants will not be able to cancel or amend their orders one minute before the opening and closing auctions. The Next J-GATE will also offer a new “Trade Guard” risk management function to provide Pre-Trade Check and At-Trade Check for each investor. Moreover, to enhance the convenience of the market, keeping the idea of a 24-our exchange in mind, JPX will extend the night session by 2.5 hours moving the current closing time from 3:00 am (JST) to 5:30 am (JST). As a result, JPX- listed derivatives will be available for trading for about 20 hours a day. On the other hand, we see a remarkable trend with the number of orders and transactions in the derivatives market significantly increasing with the rise in market volatility, so JPX will place its emphasis on managing system capacity. To appropriately manage system capacity, we have to consider not only the current situation but also the future market conditions, taking into account the five-fold growth in trading volume in the JPX derivatives market over the last ten years, the extension of the night session, which now attracts 30% to 40% of trading volume, and the launch of new derivative products in the future.


FIAJ: These days, blockchain technology is drawing great interest, with overseas exchanges moving to invest or acquire the new technology. What are your views on this?

Thinking about blockchain technology, it seems to me similar to the impact I felt with TCP-IP, the protocol for the Internet, in the early 1990s. Both technologies essentially share the same features in that they are open, suitable for horizontal, crosssectional deployment, and free from existing hierarchical structures. Just like how TCP-IP went on to become the dominant protocol, I see blockchain having a significant impact. JPX recognizes the need to consider in what areas and how we can apply this new technology, and will start proof of concept (PoC) tests. Doing so will help us gauge the potential of this technology for JPX.


FIAJ: Cyber security is a major agenda in the IT area. How will you address this issue?

Cyber-attacks are a serious threat for the exchange because IT has an extremely important role in the market infrastructure. According to recent reports, the techniques employed in cyberattacks are advancing daily, and the websites of many companies and organizations have actually been shut down. Recognizing its mission to operate the market continuously as much as possible, JPX is expected to address cyber-attacks appropriately. As such, JPX continuously introduces enhancements against cyberattacks in the form of not only IT-based countermeasures on entry and exit but also rule-based controls such as information management. The threat of cyber-attacks will increase as attacks turn to greater sophistication and larger scale, so JPX will constantly upgrade and reinforce its cyber security.


FIAJ: In response to the Chinese stock market disruption last year, the Japanese market is gaining more attention. In addition, the Japanese government is working along with the regulators to establish Tokyo as a global financial center. At the same time, JPX aims to become the most preferred exchange in Asia. How would you advance JPX's Asian strategy from the IT perspective?

I think, to raise the presence of Tokyo as a global financial center, JPX should provide investors both inside and outside of Japan with a venue to trade a wide range of listed products. Returning to the JPX vision of becoming “Your Exchange of Choice” and the most preferred exchange in Asia, the challenge is to make use of the new trading systems for cash equity and derivatives to expand our product and service offerings. As CIO of JPX, I will support the listing of various products and stable market operations through providing market participants with highly reliable and convenient systems. On another front, although there is nothing new on the comprehensive exchange concept, Tokyo Commodity Exchange will soon start using Next J-GATE, which means that the two exchanges will use a single trading platform. This will reduce system investment and connectivity costs for market participants, and as a result, I expect it to lower the hurdle to market entry and lead to energizing both the financial derivatives and commodity derivatives markets. Considering that until a few years ago, Tokyo Stock Exchange, Osaka Securities Exchange and Tokyo Commodity Exchange each operated separate systems for trading derivatives, I believe that the series of system consolidations and integration is a very positive change for market participants.


FIAJ: Thank you.

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