My name is Kawai. I am in charge of equities as well as financial literacy at the Tokyo Stock Exchange. Today, I will be talking about the ETF market revitalization, as well as dealing with the HFT age. In 2016, in the Financial System Council, there was momentum to discuss the overall framework. In terms of enhancing financial asset investment, ETF was promoted. With the emergence of HFT, the market management had come to the fore. With the legislative work, we have come to where we are today. First of all, I would like to talk about the revitalization of the ETF market. Let me talk about the current state of the ETF market in Japan today. It started in 2001 with five names. Currently, there are 220 listed. It is low cost and making investment in various asset class possible.
Transactions can be made looking at the stock market. Therefore, it has become very attractive for the retail investors as well as long-term diversified investors. In terms of AUM, currently we are at JPY 30 trillion level, and JPY 26 trillion are purchased by the BOJ. Having said that, there is a high concentration on Japanese equities. In terms of trading value, 90% are leveraged inverse type ETF. There is a high concentration in this regard as well. Therefore, long-term diversified investment needs will warrant that this be further utilized. Against this backdrop, I would like to talk about the market making system. From yesterday, we have started this system. The reason why market making is necessary will be explained. ETF, as you know, by establishing as well as through transactions, it will be made available to the market, and ETF will be procured.
That means that the liquidity provider in this framework will be very important. On a voluntary basis, there are market makers in many of the ETFs. In the absence of rules in the framework, the significant liquidity type of ETF is limited as shown. As before, leverage inverse as well as concentration on Japanese indices can be seen. Continuous quote obligation can be set. By so doing, we hope that better price trading will take place. We would like to enable such a framework to be established. Now from yesterday, we started the market making system. Let me give you further details. This is a busy chart. I am sorry about that. First point is the target. Now, taking into consideration the objective, it is ETFs excluding leveraged and inverse ETFs.
In terms of qualifications, the prop desks as well as the registered low latency traders at the FSA will be the qualifications for becoming a market maker. In reality, let me give you further details about the system. There is a continuous quote obligation, and there will also be incentive provided accordingly. In terms of the continuous quote obligation, in terms of the number of ETFs, there will be continuous quoting. Specifically, there are different patterns. At least 30 ETFs, and of which 20 or more are illiquid. This will be the crit eria used. Compared to overseas rules, it is rather stringent. In terms of quoting time, at least 80% of the time during continuous auction. That will be a requirement. In terms of strength as well as minimum quantity, it depends on the type of ETF. We have set this for different categories.
In terms of strength for TOPIX where liquidity is high and hedge tools are available, it will be 20 basis points. On the other hand, with foreign equities where liquidity is low and hedging is difficult, 50 basis points will be set. It will depend on the type of ETF and liquidity. By so doing, we will enable appropriate spreads. In terms of the volume for TOPIX sites, JPY 30 million will be presented all the time. For foreign equities, JPY 5 million will be required in terms of the minimum quantity. If JPY 5 million is available for individual investors, one-shot trading will be possible. That is the reason why with the system, we hope that the trades of individual investors can be facilitated. Next, let me talk about the incentives. There is a proportional to trading value as well as a waiver of access fees.
In terms of the waiver of access fees, there is a need for continuous bid. So access fee is waived for that purpose. A waiver of virtual server fee has been provided as incentive. This is ID for access. We are waiving the virtual server fee so that it will facilitate the process. From yesterday, this has already started, and there are five market makers. There is about 190 target, but currently, the market makers are providing market making for 98 ETFs. Nomura Securities, Mitsubishi, UFJ, Morgan Stanley Securities, and other three market makers. In terms of the target, as mentioned here in the asterisk, by market, by industry, by scale, and by theme it has been made available. There are also overseas ETFs. Indices as well as other assets have been included in the target. In addition to this, there is also the sponsored system.
What I mentioned earlier is the incentive system provided by the TSE. In addition to that, the asset managers companies will expect to have better liquidity as well as AUM. Therefore, they can provide their own incentives. It is called the sponsored system. There are three companies, Nomura Asset Management, as well as Daiwa Securities Investment Trust, as well as Asset Management One. To 24 ETFs, they will have individual obligation, as well as incentives will be provided accordingly. This is only for reference sake. I would like to provide this information. By introducing such a market-making system, we will enable the structuring as well as transactions of various asset class in the portfolio. In each of the asset class, we will have appropriate bids provided. By so doing, ETF will become the tool for long-term diversified investment.
There is also another pillar that I would like to refer to, the establishment as well as exchange facilitation. So providing equities for ETF and ETF for equities. This process currently is by ETF or by asset management companies. The flow as well as the settlement time is various. There is also a significant manual work. But it is conducted in OTC settlement, and that means that settlement risk will remain. Legally, there is a settlement risk. That means that it has to be presented beforehand, and the settlement period is longer, so cost tends to be higher. Therefore, JSCC can assume the obligation, and by establishing a porting system, which was originally manual work, can be improved. After T+2, scheduled for next year, we hope to provide support. This is the operation and settlement.
But in terms of the market, the facilitation will have an impact as well. It is as shown in this diagram. The upper side is the current flow. The lower side is after review. Currently, at T+0, the equity basket will be purchased. That would be T+3 will be the settlement date. Here at the first time, the security firms that purchase will make the application to the asset management company. It takes about two days. It will be set in T+6. ETF transfer will be made. Delivery will be made, and ETF and equities are exchanged physically. So there is a shorting of equities to purchase ETF. With such a transaction, optimization can take place. But currently, because of the prevailing practices, this has not been realized, and we will facilitate this process going forward, as you can see below.
The short selling of ETF as well as the equity basket purchase will start at T+0. At the time of settlement, Japan Securities Clearing Corporation will be able to conduct netting. So the ETF short selling as well as purchase or procurement of equities and the exchange thereof will be facilitated. By so doing, we believe that further liquidity will be provided in addition to market making system. From yesterday, we have started market making. This facilitation process will be made from next year onward. Therefore, with that, we hope that the market will be further expanded. Next, I would like to talk about our initiatives in terms of HFT. The current situation is shown here. I'm sure you are used to seeing this. In 2010, for cash equity, arrowhead, the high-speed system has been enabled from this year. This is showing the co-location ratio.
It was around 10% at that time. Let's look at the current situation. In terms of number of transactions, it's around 60%. In terms of trade value, as well as the number of contracts, it's around the same, 30%-40% over time. As you can see here, in the market, the HFT, electronic trade, is increasing in terms of the ratio. Against this backdrop, in terms of the market working group, discussions have been taking place. Overseas, during this time, with the system issues, the market flash crash phenomenon has occurred. So there is an emphasis on systemic risk as well. So the legislative work is taking place to deal with HFT. From April of this year, the registered system has been established. In terms of actors, we have the low latency traders on the left-hand side, Financial Services Agency, Japan Exchange Group, and security firms.
Now, in terms of HFT, by registering, compliance and risk management measures will be required. After establishing such a system to the FSA from April to September, the application will be made for registration. On the other hand, on the part of the Japan Exchange Group, the HFT applications after made to the FSA, we will manage the HFT. Strategy will be required, market making as well as arbitrage. With these flags in place, HFT management, as well as trade management, will be made more effective and efficient. Against this backdrop, the arrowhead system will be upgraded in November of next year. There are two initiatives. First is the trading system improvement, and the other is the system improvement. Now in the market, HFT is becoming more prominent. That means that risk management will be increasingly important.
In 2015, when we made the enhancements of the current arrowhead, risk management was very important. When algorithm has made mistakes, the system was suspended, and the security firms could set limits, not to have increase over that limit, or the functions of cancellation after order is made was enabled, and the test names was also established. In the full production, the algorithm could be verified. It is called the dummy symbol. This requirement in terms of risk management is very important. Players are also calling for such improvements. Therefore, when we have the enhancement next year, we will be mindful of this risk management area as well. In terms of the test environment, we will make more time available for the user test. With the registration of HFT participants, we will do our utmost to enhance the trust and reliability of the system.
Next, I would like to talk about the trading system improvement. In November of next year, when we conduct a renewal and version will be enhanced for arrowhead. We will also be reviewing the sequential trade quote as well as the closing auction. The first point is the circuit breaker system review that will take place. In order to suppress short-term volatility, when there is a 5% or 6% change in time, there will be one minute of suspension to cool off, so that highly reliable pricing mechanism can be enabled by this. Next is the closing auction review. This is not related to HFT directly, but currently, index management passive investment is increasing. When the indices are replaced in a significant scale, then at closing, there are cases where contracts cannot be concluded. So we will maintain the closing system, but make sure that pricing will be provided.
The tick size is around 2%- 3% at closing. We'll try to increase that by two times so that closing transaction can be made. These two initiatives will be promoted when we improve the system next year. With that, I would like to conclude my presentation regarding ETF market revitalization and dealing with HFT.