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Business

IT majors to fight for $97M Japan derivatives trading system

TOKYO -- With competition raging among the world's major securities exchanges, Japan Exchange Group (JPX) is seeking to set itself apart by offering faster, more convenient and more reliable services through the integration of its derivatives trading systems.

     On Tuesday, JPX, created through the merger of Tokyo Stock Exchange Group and Osaka Securities Exchange a year ago, announced plans to overhaul its derivatives trading systems, saying it aims to launch the new system sometime in 2016. The goal is to attract more transactions both at home and abroad.

     Now it needs to find an information-technology company to turn the plan into a reality. "We want the process for selecting an IT vendor to be fair, so we have decided to hold an open bid," said a senior executive at JPX. "We hope to have as many applicants as possible."

Emphasis on derivatives

IT systems are a critical resource that directly impact an exchange's competitiveness. Under its medium-term business plan for fiscal 2013 through fiscal 2015 ending March 2016, JPX places high priority on expanding its derivatives market operations. That is a big reason why the company wants to revamp its trading system.

     The bourse operator will start by accepting bid applications until March 5. It will finish screening the applications at the end of that month. As the next step, JPX will sign nondisclosure agreements with the applicants that passed the initial screening and provide them with the specifications and requirements it is looking for in the new system. The company will request the bidders to submit their proposals by mid-May. It will study those from late June to late July to select the winner.

     JPX currently operates two derivatives trading systems: Tdex+ at the Tokyo Stock Exchange and J-Gate at the Osaka Securities Exchange. Prior to the overhaul, the company will in March integrate all the financial products traded via Tdex+ into the J-Gate system. The new system will take over derivatives trading from J-Gate, which uses software developed by Nasdaq OMX Group of the U.S. and is managed by NTT Data.

     The new new trading system will cost an estimated 10 billion yen ($97.4 million) to develop and maintain. This presents a lucrative opportunity for IT firms hoping for a big contract. If NTT Data gets the nod, it will not have to lose its derivatives trading business.

Second chance     

Hitachi, the company in charge of the Tokyo Stock Exchange's Tdex+ system, has been even less lucky. The major Japanese electrical machinery company will lose its business with the March integration. What is more, Hitachi used to manage the stock trading system at the Osaka Securities Exchange, but it lost this business as well when the system was integrated into the TSE's arrowhead trading system in July last year. With the new bid, Hitachi has a chance to win back some of its trading system business.

     Fujitsu, another big-name Japanese company, oversees arrowhead. If the computer giant wins the contract, it would manage the stock and derivatives trading systems.     

     JPX is allowing joint applications for the bid, meaning there may be tie-ups between Japanese IT firms and overseas players with proven track records in creating systems for major bourses.

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