Modernizing Japan’s trade lifecycle through innovation and operational resilience

David Runacres, President of APAC at Broadridge, spoke to Global Trading about Japan’s capital markets and the structural, technological, and operational changes driving modernization and operational resilience.

Japan’s capital markets have shown strong momentum toward modernization. What are the key trends driving change across the market today?

We’re working with customers on four areas. One is market activity. The Nikkei is at a record high of over 51,000 and there’s a lot of international money coming in, making it a global market. There are also structural and regulatory changes within the Japan Securities Depository Center (JASDEC) and the upcoming discussions around when T + 1 will happen in Japan and what’s needed to deliver it. The TSE is looking at moving closer to a twenty two by five trading day.

There will be an extension of the trading day at least, but it has to align with global practices. Changes to governance—things like ownership, more transparency, more investment in the NISA 2 program, and more superannuation and retirement funds looking for a home—all have an effect.

The third part is really technology and digital innovation. Japan’s markets have been more of a trend follower when it comes to technology changes, but the sheer trade volume and dealing with international markets is driving changes such as blockchain and AI requirements. Cybersecurity, which has affected Japan recently, has become a real focus.

Running through all of this is investor behavior. We’re finally seeing savings starting to move into investment in the domestic market.

That’s driven by tax incentives, digital engagement with retail investors, and also the rise of Exchange Traded Funds (ETFs). Retail investors may not focus on individual equities but view structured products like ETFs as a way to get more arbitrage on the market.

What efficiency challenges are participants encountering across the trade lifecycle in Japan?

More international firms are participating in the market than ever before, and Japan has unique regulation, infrastructure, and culture. So, one of the challenges is how to operate in this market.

Using faxes, decades old software and hardware infrastructure creates inefficiencies. There’s wide demand for securities lending, and we have examples of some early adopters.

Brokers who are first to market with it are making considerable revenues. The challenge is scaling a very fast growing business using a largely manual approach.

I know a large firm running this via a spreadsheet. That’s not a scalable approach.

How are automation, AI, and operational resilience helping firms address these challenges and strengthen connectivity across markets?

Managing a very fragmented and often manual process is the place to start by creating straight through processing.

That involves a set of skills and technology capabilities that a firm may not have but are key to an efficient trade lifecycle.

Our platform approach is one way to solve this, creating a more straightforward interface between each function in a trade lifecycle. We are focused on standardizing wherever possible and using standard protocols such as FIX.

Consider JASDEC —the interface with exchanges here. Making that as seamless and straightforward as possible to create straight through processing is the production line for trading.

Japan is a slow but steady adopter of tech like AI. There is caution, rightfully so, about using AI in decision making processes.

Generally, AI should support the decision making process rather than make the decisions itself. A survey we published this year on AI adoption and implementation in Japan underscored that firms are still in early phases of adoption, but they’re looking at AI to help them get over manual processes.

An example of a manual process is reconciliation in settlement. Looking at anomalies is a manual process today. AI is a fantastic pattern matching, high speed approach to pull out anomalies.

AI in our products is used to help accelerate failure identification and resolution. There has to be a human to make a decision, but problems are surfaced faster and at scale. Japan has some unique resilience challenges—not least as probably the most earthquake prone country on earth. It’s only recently that the regulator has regulated best practice for systemically important financial infrastructure.

Electronification is helping there. A few years ago, an exchange might have used a nearby backup within Tokyo. Now the regulator’s saying that’s nowhere near good enough. You’ve got to be somewhere like Osaka for your backup and prove that you can do it. That’s not very straightforward. Broadridge is an example of a firm that already has that recovery in place.

Most efforts in cybersecurity have traditionally focused on prevention—for example, stopping intrusions before they occur. However, recent events like the CrowdStrike and AWS outages have shown that it’s impossible to block every threat or disruption. As a result, attention is shifting toward recovery. What we call immutable and repave—the ability to quickly restore systems to their exact state before an incident—emphasizes not just defense, but resilience and agility in bouncing back after something goes wrong.

Looking ahead, what’s your vision for a more simplified, standardized, and resilient ecosystem in Japan?

Japan’s markets are easily in the top three global markets; there’s the benchmark, [so] how does Japan make sure that it is not behind? It doesn’t have to be in front, but it has to be in lockstep with two other markets globally. I think we’re going to see the market further internationalized because of the amount of investment appetite into Japan in almost any asset class these days.

The challenge to the inward flow is that many of the owners of that flow don’t necessarily understand the market.

We’re going to see more standardized, globally acceptable practices. We’ll see interfaces that work here as they work anywhere else, and Japan being at least as good as other major markets at leveraging AI and operational resilience technology. Moving forward, Japan will become a more global financial center rather than an extremely large domestic financial one.

For more local market insights and our capabilities in Japan, please visit broadridge.com/jp/ (Japanese language only).