Best Execution And Competition Between Markets: The Curious Case Of Japan

More than 600 stocks are cross-listed on the Tokyo Stock Exchange and the Osaka Stock Exchange and more than 100 of these are regularly traded on both markets. Best execution policies in the U.S. and Europe emphasize not only obtaining the best price for clients, but also best execution in terms of other factors such as speed of execution. But in Japan the best execution policy of most brokerage firms restricts the choice of execution venue to the one with the greatest historical trading volume, which severely limits inter exchange competition. Nevertheless, the authors find evidence to support trade routing behavior in Japan that is consistent with the notion of best execution in the U.S. and Europe.