Abu Dhabi, UAESunday 25 October 2020

Tokyo Stock Exchange technical glitch stops trading

The outage is the worst-ever for the world's third largest bourse

Journalists gather next to an information board inside the Tokyo Stock Exchange where trading was halted due to a glitch on the market on October 1. AFP
Journalists gather next to an information board inside the Tokyo Stock Exchange where trading was halted due to a glitch on the market on October 1. AFP

The Tokyo Stock Exchange halted trading for the entire day on Thursday on hardware breakdown, causing the worst breakdown for the world’s third-largest bourse.

Japan Exchange Group, the operator of the TSE, gave no time frame for when trading would resume, and said it would announce plans for tomorrow’s session later. The stoppage means buying and selling in thousands of shares will be frozen on the first day of the new quarter. Previous outages had only affected part of the trading day.

The issue dampens investor sentiment following a positive US stock market performance overnight and closures in other major markets in the region, including China, Hong Kong, South Korea and Taiwan. The shutdown could also have implications on investor confidence in the Japanese markets system.

“This is very problematic -- when things like this happen, investor confidence in the Japanese market get impacted,” said Ryuta Otsuka, a strategist at Toyo Securities. “It could later weigh on Japanese stocks.”

There were no indications that the outage was related to hacking, the exchange said. The halt prompted a reaction from chief cabinet secretary Katsunobu Kato, the top government spokesman, who said it was “extremely regrettable” that trading opportunities have been restricted.

Global markets are on a heightened state of alertness to any glitches, after a cyber attack in New Zealand that spurred trading halts over four days in August.

Other markets in the country, including exchanges in Sapporo, Nagoya, and Fukuoka, have also suspended trading. Derivatives, including futures, trade on the Osaka Exchange, which is not impacted by the system issue. Futures on the Nikkei 225 Stock Average were up 0.2 per cent in Osaka as of 12:44pm local time. Japan Exchange shares on Japannext’s PTS platform fell as much as 4.7 per cent.

The benchmark Topix index fell 2 per cent yesterday, trimming its gain for September to 0.5 per cent and closing the latest quarter with a 4.3 per cent advance. A Tokyo-based equity trader at a local brokerage said mutual fund flows for the beginning of the month and second half of the fiscal year will now be queued up, which could add to volatility tomorrow if the bourse does not open today.

Members of the media are seen working at the empty Tokyo Stock Exchange (TSE) after the TSE temporarily suspended all trading due to system problems in Tokyo, Japan October 1, 2020. REUTERS/Issei Kato
Journalists at the empty Tokyo Stock Exchange after it temporarily suspended all trading due to system problems. Reuters

Japan’s $6.15 trillion stock market is the third-largest in the world behind the US and China. There are 2,167 stocks listed on the the top section of the Tokyo Stock Exchange, where total daily turnover has averaged about $22 billion over the past year.

Makoto Sengoku, a market analyst at Tokai Tokyo Research Institute, said he’ll be watching the reaction in the TSE Mothers Index, the main performance gauge for start-up companies in Japan. “For retail investors that are trading everyday, today might be a shock, but for those who aren’t frequently trading its not as impactful,” he said.

The system issue is the largest since a series of computer issues in the mid-2000s that led to the resignation of the exchange president. Trading was halted for 4 1/2 hours in 2005 due to a botched system upgrade, the first time equity trading had been completely suspended. In January 2006, the exchange halted trading early after a surge in orders, triggered by an investigation into high-flying internet company Livedoor, overloaded its computer systems. That resulted in shortened trading hours for three months.

The Tokyo exchange introduced its faster Arrowhead system, developed by Fujitsu and other companies, in January 2010, but that didn’t solve the issues entirely. A computer glitch in 2012 halted trading in 241 securities, while a system error later than year took took derivatives trading offline.

Fujitsu spokesman Takeo Tanaka said that the company is investigating the latest issue, but declined to comment on the details. Japan’s Financial Services Agency has been reaching out to brokerages to examine the impact of the incident on clients, people with knowledge of the matter said.

The halt came on the same day as one of Japan’s most closely watched economic indicators, the Bank of Japan’s Tankan survey, released just 10 minutes before trading was set to begin. The survey showed sentiment at big manufacturers picked up from its lowest point, helping the view that the worst may be over for the economy, though confidence remains far below pre-pandemic levels.

Updated: October 1, 2020 08:55 AM

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