The two founders of INTERTRADE are security industry veterans that worked at securities companies until 1998, gaining over a decade of experience in market-related systems development and trading. At that time, the internet was steadily gaining ground in Japan, and the government was pushing through reform measures that would greatly ease financial market regulations. The aim of these measures was to establish "free, fair, and global" markets in Japan and help bring the country out of a financial depression (i.e., the Japanese version of the financial Big Bang).
In 1999, as the Japanese securities industry was further shaken by changes such as the end of floor trading on the Tokyo Stock Exchange and the deregulation of stock brokerage commissions, INTERTRADE was founded with the goal of creating a truly networked financial system. In the years that followed, the growing use of the internet and the many changes in the securities industry brought about by deregulation were as much as INTERTRADE had anticipated, and this has allowed the company to build a solid track record.
Moving on to recent years, the Japanese stock market has been strong, with the Nikkei 225 Average reaching its highest level in 26 years in 2017. Meanwhile, Bitcoin and other virtual currencies are making even larger runs and, in the process, drawing the blockchain technology that underpins them into the spotlight. The pros and cons of virtual currencies notwithstanding, INTERTRADE believes blockchain technology will change the way the world works much as the internet did, and that a new era is approaching when we will see a steady stream of new services being launched based on blockchain technology. Up until now, INTERTRADE has been a systems provider. However, business models such as this will soon come under pricing pressure from competitors. INTERTRADE thinks that companies with a certain amount of market share in one field will be expanding into the neighboring domain in the near future, and that it must transition from a systems provider to a service provider leveraging systems. Now is the time for INTERTRADE to begin launching new services that make use of new technologies.
１．INTERTRADE’S FIRST SYSTEM
◇Trigger Order System
The first system offered by INTERTRADE since its founding. When stock brokerage commissions were deregulated in October 1999, several companies began developing trading systems in preparation for starting up online brokerage businesses. The common expectation was that stock brokerage commissions would go down as the newly established internet brokers competed for customers. In July that year, kabu.com Securities (then known as Japan Online Securities) adopted INTERTRADE's patented technology that gave it an automated order system in which data on stock prices, trading volume, profit and losses, order status and other information could be freely assembled. That trading system distinguished the services of kabu.com Securities from other online brokers and is in fact still in use today. At the time stop-loss orders were prohibited by law in Japan; however, thanks to the system that provided digital records proving customer’s intent to place stop-loss orders, the regulations were eventually amended.
２．INTERTRADE’S LANDMARK DEVELOPMENT PROJECT
◇PTS：Proprietary Trading System（IT-Monster）
In September 2006, kabu.com Securities launched its own proprietary trading system (PTS) that was the first in Japan that could handle auction-type stock trading in the after-hours market. The matching engine at the heart of this auction-type system was IT-Monster, a packaged software product from INTERTRADE capable of handling roughly 2,000 different stocks. Following the financial system reforms enacted in 1998, brokers were no longer obligated to send all their orders to the stock exchanges, so they moved to establish their own proprietary trading systems. However, most proprietary trading systems could only handle trades done at the closing price on the exchange, and because auction-type price discovery was not available on proprietary trading systems, rules had not even been established to govern this type of trading. INTERTRADE began with efforts to help create the new rules, and subsequently put its new auction-type proprietary trading system into operation.
IT-Monster is equipped with the functions to handle market orders and special orders that are unique to Japan, and INTERTRADE and the Tokyo Stock Exchange are the only companies that offer products with this type of functionality. IT-Monster is a system that can be applied to a wide variety of matching needs.
An interesting side note in relation, INTERTRADE had decided to call this product "Monster" via an in-house naming contest, but as fate would have it, it was also the name of a certain project that had been under way in the US in 1999, the same year that INTERTRADE was established.
Heightened competition with ECNs and other new entrants: ECNs, ATSs, and other electronic exchanges are the real "MONSTERS"！
Even if all the world's exchanges were to join forces and form a single grand alliance, they could not necessarily rest at ease because new rivals would inevitably pop up from outside the industry. In the United States there are already nine ECNs (electronic communication networks) registered with the Securities and Exchange Commission: Instinet, Island, Archipelago, REDIBook, NexTrade, Attain, B-Trade, The Brass Utility, and Strike. Head of the Futures Industry Association John M. Damgard demonstrated his bullishness on the prospects for ECNs, saying there was still room for a lot more ECNs considering the fact that the networks of nine already in existence were only estimated to account for roughly 25% of the trading on the Nasdaq. Spurring the industry in this direction, seven major brokerage houses (Deutsche Bank, CSFB, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Solomon Brothers) joined together in 1999 to form the company BrokerTec. According to Mr. Damgard, BrokerTec aimed to provide global bond dealers an electronic trading platform that would increase liquidity, lower trading costs, and provide greater price transparency. Eurex's CEO Franke referred to such newcomers as "MONSTERS," saying this was short for "Market-Oriented Network System Terrify Exchange Regulators." Mr. Frankel also said that since ECNs are designed to help traders take advantage of trading opportunities that exist for extremely short periods of time, and also appeal greatly to the market, they do indeed present a threat to traditional exchanges.
*These remarks were made on November 19, 1999, at the Third Annual International Equity Derivatives Seminar, held in Osaka and sponsored by the Osaka Stock Exchange.
◇Proprietary Trading System（IT-Monster）
◇Equity dealing/trading systems（TradeOffice-SX / MarketAxis / TIGER Trading System）
A securities dealing system developed by INTERTRADE a year after the company’s founding. The founding members of INTERTRADE used securities dealing and trading systems when they worked at securities companies, but because the systems in existence at that time did not have the features that would manage real-time positions and risks as well as profits and losses, they developed these features on their own.
When the Tokyo Stock Exchange closed its trading floor at the end of April 1999, a lot of the floor traders* left the exchange with most joining securities brokers as members of their proprietary trading team. At that time, most brokers had their own dealing operations that would use special trading terminals supplied by the stock exchange. Because those terminals had no features that would permit real-time position and profit/loss management, compliance monitoring, or automated notification, not only did dealing managers have a hard time overseeing individual dealers and dealing departments, the cumbersome paperwork after the trades led to many mistakes, which in turn caused trading volume on the exchange as a whole to stagnate.
Into that environment, INTERTRADE introduced its first generation securities dealing system TradeOffice-SX. With this system, once the order details were entered, not only were all of the remaining steps in the process automated, dealers were also able to manage their positions, and profits and losses in real time. Compliance checks were also automatic and there were numerous other features. TradeOffice-SX was also the first dealing system with many features that are now commonplace, such as one-click order placement, one-click order cancellation, and drag-and-drop price correction. The user interface that focused on high functionality led to the system’s adoption by many securities brokers. To cope with the subsequent increases in market data and the increasing speed of market systems, INTERTRADE brought out follow-on versions such as MarketAxis and TIGER TradingSystem that at one time were being used by as many as 45 different securities brokers. A more detailed account of INTERTRADE's track record can be found below.
- Japan Asia Securities Co.,Ltd.
- Bright Securities Co.,Ltd.
- Mitsubishi UFJ Securities Co., Ltd.
- Akagiya Securities Co., Ltd.
- Musashi Securities Co., Ltd.
- ARK Securities Co.,Ltd.
- Tokai Tokyo Securities Co., Ltd.
- Yutaka Securities Co., Ltd.
- Hikari Securities Co., Ltd.
- Kazaka Securities Co., Ltd.
- Yamamaru Secrities Co.,Ltd.
- SMBC Friend Securities Co., Ltd.
- Mito Securities Co., Ltd.
- Utsumiya Securities Co,.Ltd.
- Marusan Securities Co., Ltd.
- Phillip Securities Co., Ltd.
- Meiwa Securities Co.,Ltd.
- Chibagin Securities Co.,Ltd.
- NAITO Securities Co., Ltd.
- SANKO Securities Co., Ltd.
- Cosmo Securities Co.,Ltd.
- Netwing Securities Co.,Ltd.
- Marufuku Securities Co.,Ltd.
- Aizawa Securities Co., Ltd.
- TOYO Securities Co.,Ltd.
- Mrukuni Securities Co.,Ltd.
- Tukamoto Securities Co.,Ltd.
- News Securities Co.,Ltd.
- Dojima KantoSecurities Co.,Ltd.
- NIS Securities Co.,Ltd.
- Yamawa Securities Co., Ltd.
- Nozomi Securities Co.,Ltd.
- Deutsche Securities Inc.
- Okasan Securities Co., Ltd.
- Ando Securities Co., Ltd.
- Kyokuto Securities Co., Ltd.
- Hinode Securities Co.,Ltd.
- Taisei Securities Co.,Ltd.
- Kose Securities Co., Ltd.
- Hirota Securities Co.,Ltd.
- Kaneju Securities Co.,Ltd.
- Sieg Securities Co.,Ltd.
- Okachi Securities Co.,Ltd.
- MITA SECURITIES Co.,Ltd.
- Shinogaki Securities Co.,Ltd.
*A floor trader is someone who works on the trading floor of a securities or commodities exchange and handles the execution of buy and sell orders placed by brokers who are members of that exchange. Floor traders no longer exist in Japan due to the introduction of computerized trading systems and the subsequent closing of the trading floors at securities exchanges. (Source: Daijisen Japanese digital dictionary)
◇Forex market-making model cover solution（fortissimo）
In 2007, INTERTRADE released fortissmo, a packaged software solution for initiating and covering forex trades. In forex trading that is popular among Japanese retail investors, service operators offer their own forex rates to individual investors who are their customers. To do so, they connect to numerous counterparties and generate forex rates known as "house rates." Since these operators take the other side of the customers’ trades, its in-house position starts building up if the market continues moving in one direction. With INTERTRADE's fortissimo system, operators can execute optimal cover trades with their counterparties, using the system’s functionality to unwind positions manually, in semi-auto mode, or in full-auto mode.
It is essential that rate quotes and cover trades be processed quickly; when it was first introduced INTERTRADE's fortissimo system had faster processing times for cover trades than any other system available in Japan at that time.
◇Simulation services with full auction-type matching engine （MEXⅢ/MSRⅢ）
In the financial markets there is a limit to what can be learned from the study of past data using computer algorithms and investment training. In a constantly changing market, real-time information from the outside world matters. The MEX III & MSR III simulation software from INTERTRADE receives price data from the exchange in real time and uses high-speed processing to turn that data into orders, which are then transmitted to its own exchange system to create an order book. As the real market changes, the simulation software reflects the same price changes in the simulated environment. MEX III & MSR III is the only simulation service in Japan that has a full auction-type matching engine that has been shaped by the unique order-driven culture of the Japanese stock market. Using MEX III & MSR III, special quotes and sequential quotes can be reproduced, and basic behavior notification exchange functions can be developed when creating in-house systems; the simulation software can also be used in the initial training of rookie traders. MEX III & MSR III simulation software can naturally be used for these purposes, but it can be used to address higher level needs such as verifying the efficacy of computer algorithms designed to increase operating profitability.
INTERTRADE was selected the ISV (independent software vendor) for trading terminals of former domestic OTC market JASDAQ in line with the announcement of related API release. After a thorough analysis of the API, INTERTRADE released the TradeOffice-J9 trading terminal. As this terminal was also provided to the many large domestic and foreign securities companies mostly among the JASDAQ members, INTERTRADE instantly gained widespread name recognition and was able to expand its client base. INTERTRADE subsequently served as the provider of J1 trading terminals when the Tokyo Stock Exchange switched to its new Arrowhead trading system.
(Note: In the Japanese securities industry, J9 is short for "Japan 9" with 9 being the market code number for the JASDAQ exchange; similarly, J1 is short for "Japan 1" with 1 being the market code number for the Tokyo Stock Exchange.)。
４．SYSTEM INSTALLATION WORK FOR PUBLIC ORGANIZATIONS
◇Off-exchange trade reporting and announcement system for Japan Security Dealers Association
The Japan Security Dealers Association (JSDA), authorized under domestic legislation as a Financial Instruments Firms Association and comprised of securities companies from all around Japan, subcontracted its off-exchange trade reporting and announcement system to INTERTRADE. The services INTERTRADE provided under the contract touched on many areas. It entailed the construction of a network accessible by all JSDA members that would provide quotes and trade execution reports; the creation of an internet-based system that would confirm, compile, and show the details of these reports; and a reporting system that would automatically send the information to the Financial Services Agency.
Supplementary remarks: The companies that responded to JSDA's request for proposals for this service included Japan's largest systems developers. INTERTRADE was the only small- to mid-sized company that submitted a proposal but was able to win the order based on its track record of providing smooth operation of proprietary trading systems. The systems developed for JSDA operated smoothly without any major accidents during the service period. With this, INTERTRADE established connections with the many securities companies in Japan.
◇Futures trading system for Osaka Dojima Commodity Exchange
INTERTRADE provided the major domestic commodity exchange with matching engine services comprising a complete package of trading terminals, key exchange system functions such as market data distribution, and additional functions necessary for operating other exchange systems.
Supplementary remarks: Because this project was quite large, a number of major domestic and overseas systems developers responded to the exchange's request for proposals. However, among the many competitors, INTERTRADE won the order based on the long track record of its IT-Monster propriety trading system and the reputation of its consulting services that would help the exchange select the matching logic that best fits the commodity in question. Since its installation, the system has received extremely high marks based on its accident-free track record, so much so that INTERTRADE received a public commendation from the Osaka Dojima Commodity Exchange in 2017.
LOOKING INTO THE FUTURE
Several years ago, INTERTRADE started an internal project to design a new system for the future. Dubbed "SPIDER," the project was aimed at creating the infrastructure of a system that would bring together on a single platform all of the functions of the many products that the company had developed over the years.
The project name SPIDER reflects INTERTRADE’s belief that the world of trading is shifting from an era when limited users traded in a single product or service to an increasingly digital era in which all who wanted to trade could participate directly and trade among themselves. The growing web-like connections of the future bring to mind the image of webs created by spiders; thus the project name, SPIDER.
Some of the functions included in SPIDER were carved out and made available under the product name Prospect. SPIDER, while continuing to make evolutionary progress, has also been put into operation at nonfinancial business corporations, as opposed to the conventional financial institutions. There was a time in the past when people talked about the barriers between banks and securities brokers disappearing; it now appears that we are moving into an era when there will be fewer barriers between financial institutions and nonfinancial business corporations.
In the past several years, the adoption of blockchain and other advanced IT technologies that have been brought about as a result of Fintech innovations has led to the propagation of services that make use of these technologies, such as initial coin offerings (ICOs) and virtual currency trading. Because Japan accounts for a large proportion of the trading in virtual currencies, what is happening in Japan in this area attracts a lot of attention from the rest of the world as well. Also in Japan, progress on the regulatory front (including amendments to the Payment Services Act and the introduction of a registration system for virtual currency exchange operators) has been largely matched by the growth in related services and the average investor is quickly becoming familiar with virtual currencies. As initial coin offerings grow in popularity around the globe as a new fund-raising method for companies (especially small and medium-sized companies), regulators around the world are also responding to the expansion of related services with the creation of new regulations. If INTERTRADE can link the SPIDER system to the blockchain technology that underpins these services, then we should be able to achieve the right balance between the technological and the service aspects of our business and can start working to deepen our product offering with introduction of services that make use of this technology.
Blockchain is essentially a distributed ledger and, as such, is the foundational technology of all virtual currency-related services. Developed to facilitate the launch of the virtual currency Bitcoin, blockchain technology utilizes a public ledger that shows all transactions between two parties. Using peer-to-peer networking and distributed servers that time-stamp all transactions, the blockchain database automatically manages itself. As a virtual currency, Bitcoin is a major technological innovation that has attracted a lot of media attention; at the same time, there has also been further progress made in the development of blockchain technology.
Blockchain is a technical program that is used by a group to maintain a reliable database as part of a distributed, "trustless" system (i.e., one does not require a trusted authority). With this program, each node within the system uses an encryption algorithm and, within a set period, completes all data exchange calculations and recording within the system and adds a new "block." At the same time, one block is linked to the next block, leaving a digital "fingerprint" that can be used to verify the next block. Together, all of the nodes in the system serve to guarantee the validity of the records in the overall system. Blockchain technology is unique in that it brings together four key properties, as it is distributed, trustless, maintained by a group, and also provides a reliable database.
As blockchain technology advances rapidly, a range of new services are being developed that are based on these four properties. By making use of these superior properties, it will be possible to create more advanced services in the field of finance as well. Here at INTERTRADE, we will strive to make maximum use of the potential that blockchain technology offers and, combining this with the expertise that we have built up over the years, will seek to provide new, high-quality services in the near future.