Centuries ago, a classic tactic to manipulate prices in the Amsterdam Stock Exchange was to spread false rumors that incoming trading companies’ ships were full of furs and diamonds, in attempt to run up prices. Back then, such attempts at market manipulation were buttressed by the fact that it took a long time for the rumors to spread widely enough to actually impact the market price. Today, the debut of socalled High Frequency Trading (HFT), amplifies both the speed and scale of potential market manipulation.

HFT is defined as a type of algorithm-utilizing securities trading by which high-speed trading is carried out – typically thousands of small-scale trades per second. Despite relatively small per-trade profits, HFT can yield large profits by repeating a large number of trades and accumulating a large volume of small per-trade profits. One immediate challenge for Japanese securities regulators is to find a way to regulate this new form of trading. Beginning in April 2016, the Financial System Council at the Financial Services Agency has begun to thoroughly review various issues regarding securities markets and stock exchanges, including the impact of the increase of algorithm-utilizing HFT on the fairness, transparency, and stability of the market.

Originally published in Japan Lawyers Guide 2016/17 on October 1, 2016.