TSE Faces Suit Over System-Linked Botched Trade

Japanese stock brokerage Mizuho Securities is suing The Tokyo Stock Exchange (TSE) over losses incurred on a botched trade that Mizuho says was not canceled because of a defect in the exchange’s computer system.

The lawsuit relates to an erroneous sell order that was placed by Mizuho on Dec. 8, 2005. Mizuho ordered the sale of 610,000 shares in newly listed J-Com for 1 yen (US$0.01) per share instead of the intended sale of one share in J-Com for 610,000 yen.

The error was “immediately realized” and a cancel order was “repeatedly conducted,” but it was not processed “due to a defect in the TSE’s electronic trading system,” according to Mizuho.

Mizuho tried to buy back as many of the J-Com shares as possible, but in the end, 97,000 shares were purchased by other investors. J-Com’s initial public offering numbered only 14,500 shares, so it became impossible for Mizuho to satisfy all the transactions that were concluded. In the end, the brokerage and individuals who bought the shares settled on a price of 912,000 yen per share, and Mizuho racked up losses of 40.7 billion yen in the incident.

The brokerage said it contacted the TSE in March this year and has held more than 10 meetings with the exchange over sharing of the losses, but the meetings have made no progress. “The company has reached the judgment that it has become quite difficult to resolve the issue through discussions between the parties, and was compelled to file the lawsuit,” it said in a statement.

In response, the Tokyo Stock Exchange said it will “make clear our assertions on the matter in the appropriate legal forum.”

The incident was one of a number that brought the exchange and its information technology systems under criticism from the industry, government and investors.

A month before the J-Com incident, trading was suspended for half a day after a software patch was incorrectly applied to the market’s trading system, causing the system to crash. System vendor Fujitsu took responsibility for that mistake, and after the J-Com problems, Takuo Tsurushima resigned as president of the exchange.

Then in January, the exchange stopped trading 20 minutes early because it feared its computer system would collapse due to heavy trading. The unprecedented halt was accompanied by limited trading for several weeks afterward and the quick addition of hardware to help handle heavy trading. The exchange also appointed its first CIO and has since installed a new stock trade clearing system.

-Martyn Williams, IDG News Service (Tokyo Bureau)

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