Japan’s top financial regulator is eyeing a change that could reshape how its securities markets operate. The Financial Services Agency is considering raising the 10% cap on proprietary trading volume, a move driven by surging activity in AI and semiconductor stocks that has been straining the existing limits.

Japan has been pouring government money into its technology sector, with subsidies estimated at ¥10 trillion (roughly $67 billion) aimed at supercharging AI and semiconductor industries.

What the current cap actually means

Japan’s FSA oversees securities firms and Proprietary Trading Systems, known as PTS, under the Financial Instruments and Exchange Act. Think of PTS platforms as alternative trading venues that compete with the Tokyo Stock Exchange. They let firms match buy and sell orders outside the main exchange.

These platforms currently can’t handle more than 10% of total trading volume in a given security. In English: if a stock trades a million shares in a day across all venues, no single PTS can account for more than 100,000 of those shares.

Back in 2022, Japan’s Financial System Council recommended relaxing volume caps on certain auction-style PTS operations. The idea was to foster more competition with the Tokyo Stock Exchange and give market participants greater flexibility.

Why AI and semiconductors are forcing the issue

Japan has been making an aggressive bet on becoming a global semiconductor hub. The ¥10 trillion in government subsidies is one of the largest state-backed technology investments in recent memory, designed to attract chipmakers and AI companies to build facilities on Japanese soil.

The FSA hasn’t announced a specific new percentage or provided a timeline for any changes. No official proposal has been made public.

What this means for investors

When multiple platforms can handle larger shares of trading volume, bid-ask spreads tend to tighten. That’s good news for institutional investors who move large blocks of shares and currently face constraints on where they can execute.

The Tokyo Stock Exchange has historically dominated Japanese equity trading. Loosening the cap would give alternatives more room to compete.

Japan’s Financial System Council recommended relaxing these caps four years ago, and the 10% limit is still in place. Regulatory machinery in Japan can move slowly, and there’s no guarantee that the FSA’s current consideration will translate into action on any particular timeline.