Discussion Papers

Findings from research and studies conducted at the Financial Research Center (FSA Institute) are organized and published as Discussion Papers to stimulate further discussion and comment.

The views expressed in the papers are those of the authors and do not necessarily reflect the views of the Financial Services Agency or the FSA Institute.

Discussion Papers (FY 2017)

No. Title/Author(s)
(July 2017)
A survey of recent discussions regarding the lean-against-the-wind policy
Abstract | Full text (PDF:631KB) (Full text is available only in Japanese.)
(June 2017)
Trading and Ordering Patterns of Market Participants in High Frequency Trading Environment -Empirical Study in the Japanese Stock Market-
Abstract | Full text (PDF:503KB)


"A survey of recent discussions regarding the lean-against-the-wind policy"

  Takeki Sunakawa, Former Special Research Fellow, Financial Research Center (FSA Institute)
 (Associate Professor at Kobe University Center for Social System Innovation)

After the financial crisis, policymakers in each country have recognized that the price stability, which has been the main purpose of monetary policy, is not sufficient for the financial stability, and fragility in the financial system may translate into price instability through a negative feedback amplifying shocks to the economy. Under such circumstances, policymakers are facing a tradeoff between financial vulnerability in low interest environment and drops in inflation and output by raising the nominal interest rate via the risk-taking channel of monetary policy. In this note, we will survey recent discussions of the lean-against-the-wind policy considering the financial vulnerability. We believe that this provides a useful reference to financial supervisory authorities which conduct macroprudential policies.
Keywords: Lean-against-the-wind policy; Risk-taking chanel of monetary policy; Macroprudence

''Trading and Ordering Patterns of Market Participants in High Frequency Trading Environment -Empirical Study in the Japanese Stock Market-''

Taiga Saito, Former Research Fellow, Financial Research Center (FSA Institute)
(Assistant Professor, Graduate School of Economics, The University of Tokyo)
Takanori Adachi, Visiting Professor, BKC Research Organization of Social Sciences, Ritsumeikan University
Teruo Nakatsuma, Professor, Department of Economics, Keio University
Akihiko Takahashi, Professor, Graduate School of Economics, The University of Tokyo
Hiroshi Tsuda, Professor, Department of Mathematical Sciences, Doshisha University
Naoyuki Yoshino, Chief Advisor, Financial Research Center (FSA Institute), Professor Emeritus at Keio University, and Dean of the Asian Development Bank Institute (ADBI)

In this study, we investigate ordering patterns of different types of market participants in Tokyo Stock Exchange (TSE) by examining order records of the listed stocks. Firstly, we categorize the virtual servers in the trading system of TSE, each of which is linked to a single trading participant, by the ratio of cancellation and execution in the order placement as well as the number of executions at the opening of the afternoon session. Then, we analyze ordering patterns of the servers in the categories in short intervals for the top 10 highest trading volume stocks. By classifying the intervals into four cases by returns, we observe how different types of market participants submit or execute orders in the market situations. Moreover, we investigate the shares of the executed volumes for the different types of servers in the swings and roundabouts of the Nikkei 225 index, which were observed in July, August, and September in 2015. The main findings of this study are as follows: Server type A, which supposedly includes non-market making proprietary traders with high-speed algorithmic strategies, executes and places orders along with the direction of the market. The shares of the execution and order volumes along with the market direction increase when the stock price moves sharply. Server type B, which presumably includes servers employing a market making strategy with high cancellation and low execution ratio, shifts its market making price ranges in the rapid price movements. We observe that passive servers in Server type B have a large share and buy at low levels in the price falls. Also, Server type B, as well as Server type A, makes profit in the price falling days and particularly, the aggressive servers in the server type make most of the profit. Server type C, which is assumed to include servers receiving orders from small investors, constantly has a large share of execution and order volume.

Keywords: High frequency trading, Trading and ordering patterns, Japanese stock market

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