Saitori Defined

What Is a Saitori?

A saitori is a member of a Japanese stock exchange who is responsible for fulfilling market-making responsibilities and executing orders on behalf of stockbrokers. Their function is therefore similar to the specialists of the New York Stock Exchange (NYSE).

The majority of saitoris are employed by the Tokyo Stock Exchange (TSE), which is the nation’s largest securities exchange. On the Osaka Securities Exchange (OSE), the term “nakadachi” is used instead of saitori.

Understanding the Role of a Saitori

Saitoris are professional security trading intermediaries that assist the members of a Japanese stock exchange. Their core responsibilities are to facilitate the trading of securities by matching buy and sell orders and to provide market-making services to increase liquidity and decrease volatility.

Unlike the specialists employed by the NYSE, saitoris face relatively few constraints regarding the parties for whom they can trade. For example, NYSE specialists are not permitted to execute proprietary trades for their own accounts, or for the public at large. Saitoris, on the other hand, generally do not face these restrictions.

For the most part, however, saitoris and NYSE specialists fulfill broadly similar roles: matching buyers with sellers and acting as market makers to ensure that transactions are handled smoothly and accurately.

Real-World Example of a Saitori

The responsibilities of a saitori are quite broad. As the principal agent in each transaction, saitoris are responsible for placing orders in accordance with their clients’ requests. This requires them to ensure that the client receives the best price available and that all transactions are handled accurately and as quickly as possible.

In addition to this trade-execution function, saitoris are expected to intervene in periods of heightened volatility in order to reassure other market participants. For instance, in circumstances where panic selling has caused supply to far outstrip demand, saitoris are expected to purchase shares in order to add liquidity and help soften the decline in share values.

Conversely, at times when demand far outstrips supply, saitoris will sell shares from their own inventory in order to add supply and help meet this demand.

In effect, saitoris play the role of directing the market action in each trading day. When the exchanges open, saitoris are responsible for conveying the opening price quotations for the securities they cover. When facilitating trading of securities they hold in inventory, saitoris must establish the opening price quotation for these securities based on the information they have received from other market participants.

In the NYSE, the role of specialists has gradually diminished in favor of fully automated electronic trading platforms. It remains to be seen whether a similar transition will take place in Japan, and what impact this might have on the role of a saitori.