Overheard in Tokyo: "We can rebuild it. We have the technology."

On Monday I wrote about the launch of Arrowhead, the Tokyo Stock Exchange's foray into low-latency trading.

According to this Reuters article from Tuesday, the revamp is already having a positive effect as the New York Stock Exchange touted the speed at which NYSE's all-electronic Arca venue was able to buy and sell orders "in as little as 650 microseconds, round-trip."

The article also noted that NYSE Euronext has “made changes to its global data feed to tap into Tokyo’s Arrowhead platform,” though it did not mention what those changes are.

There’s no question that Arrowhead will be a game-changer in the Asian market. But it should also be said that while the TSE has greatly improved its competitive edge with these upgrades, it is simply playing a game of catch-up to the likes of NYSE, the London Stock Exchange, BATS Global Markets and Nasdaq OMX.

But these improvements are still significant. An Aite Group report, which was released yesterday, made note of these enhancements. (Click here to see what the TSE has to say for itself.)

While the latency reductions have been much talked about, its capacity (which has been a massive source of pain for the exchange in the past) has been vastly improved.

According to Aite, Arrowhead’s ongoing platform capacity “will always be twice the peak number of orders per minute. If full capacity should be reached, then the TSE will take approximately one week to upgrade and return to an acceptable level of capacity.”

Also, order acknowledgement messages will be generated within 10 milliseconds or less and fill notifications will be completed in 25 milliseconds or less. Furthermore, latency enhancements “will improve the current 620 symbols per two seconds update to 8,200 symbols updating in real-time.”

Sang Lee, the author of the report, believes that these improvements will create increased interest in high-frequency trading in the region. (HFT currently accounts for about 20 percent of the average daily share volume, according to Aite, but the Boston-based consultancy predicts this number will rise to almost 45 percent by the end of 2012.)

The real question that Lee raises is if this will lead to the TSE further tightening its stranglehold on the Japanese equities market, which currently stands at about 90 percent, or will it lead to market fragmentation.

“Regardless, the move is the TSE’s implicit acknowledgement that a technology-driven market structure is a permanent trend with far-reaching consequences for the future development of the Japanese equities market—a move that will forever alter Japan’s equities trading landscape,” wrote Lee in a release.

You’ll be reading more on this topic in the pages of Waters magazine. You should also checkout Inside Market Data and Dealing With Technology next week in order to get an in-depth, exclusive look at the Arrowhead launch.

—Anthony Malakian