TOKYO -- Electronic trading house XTX Markets is making waves in global financial markets with its advanced computerized trading. From a mediocre 12th place a year earlier in terms of currency trading volume, the company has vaulted into third place in 2017, trailing only JPMorgan Chase and UBS.
The London-based proprietary trading company deals in nearly all financial instruments, including Japanese equities. Its daily average trading value has ballooned to around $150 billion, a company representative said.
According to sources familiar with the company, XTX trades hundreds of billions of yen on the Tokyo Stock Exchange on certain days, more than any other market player. Some estimates have it accounting for more than 10% of the bourse's total turnover.
In an interview with Nikkei, an XTX representative did not comment on its TSE trading value, but hinted at further expansion here, saying that Japanese markets are more cost competitive and efficient compared to those in other developed countries.
The company's Asian business outside Japan is also growing. According to financial publisher Euromoney's 2018 survey, it jumped to seventh in a ranking of currency market makers in the Asia-Pacific region, up from 31st in the previous year.
Established in 2015, XTX has some 40 data centers across Europe, the U.S. and Japan. Many of its 100 or so employees were tech engineers at big-name financial institutions before joining the company. Alex Gerko, the Russian-educated founder and co-chief executive, was a former head of quantitative trading research at Deutsche Bank.
Gerko is indicative of the growing presence of Russian engineers in the financial sector, where they are applying artificial intelligence to high-frequency trading.
High-frequency traders typically place their servers close to a stock market's data network to save precious milliseconds when completing trades. Known as co-location, the practice accounts for nearly half of the trading value on the TSE, which is dominated by foreign investors and high-frequency traders.
XTX does not regard itself as a high-frequency trader, claiming its strength lies in building advanced systems through detailed analysis of mathematical models.
Unlike hedge funds that manage customers' money, XTX invests its own funds, sometimes in direct trades with investors outside of public exchanges.
Market watchers say that computerized traders like XTX account for about 10% of equity-related fee revenues received by Japanese brokerages.