TOKYO -- SBI Holdings and Sumitomo Mitsui Financial Group will launch a digitalized stock exchange in Osaka in the spring of 2022 to compete against the Tokyo Stock Exchange, Nikkei has learned.
The move comes amid growing calls for alternatives to the TSE, which in the fall suffered a computer glitch that halted trading for a day.
The joint venture also aims to be the first Japanese exchange to handle digital securities using blockchain technology.
To prepare for the launch of the new exchange, the companies in March will set up an operator, the Osaka Digital Exchange. SBI will own 60% of ODX, and SMFG 40%.
The exchange will use a proprietary trading system, an electronic trading venue run by a securities company to allow investors to conduct transactions outside a normal public exchange.
The companies aim to make the exchange more attractive to investors by taking orders outside the TSE's trading hours and reducing the tick size, the minimum amount securities can move up or down.
SBI and SMFG both have brokerage units. The companies will put in place a governance structure to prevent any conflict of interest.
The exchange is expected to start handling digital securities in 2023. Japan gave the greenlight to digital securities last year, making it possible for brokers to offer securities faster and in smaller units.
SBI, a major investor in blockchain technology, reckons digital security technology will make it easier for investors to put money into nontraditional assets such as real estate, art and movie distribution rights. It intends for the exchange to become a marketplace for such assets.
The initiative follows a strategic partnership announced in April between SBI and SMFG that is meant to create a financial services "platformer" targeting fields like settlements and corporate deal-making. The digital securities exchange is seen as a step toward this goal.
SMFG's brokerage, SMBC Nikko Securities, is expected to route some customer orders to the new exchange.
The launch of the ODX is expected to lend support to Osaka's bid to become a global financial hub, rivaling Tokyo, Singapore and Hong Kong.
SBI is also behind a move to turn the Osaka Dojima Commodity Exchange, a rice futures market, into a stock company in April. SBI is set to own 35% of the commodities exchange operator. The exchange's goal is to become a global commodities market to vie with Singapore and Hong Kong.
Proprietary trading system operators emerged in Japan after stock markets were deregulated in 1998. Currently, there are two PTS operators, Japannext and Chi-X Japan. Japannext, 49% owned by SBI, will continue after the ODS is launched.