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Tokyo Stock Exchange admits error in Mizuho trade botch-up

12 December 2005  |  18440 views  |  0 TSE

The Tokyo Stock Exchange (TSE) has admitted that a problem with its own dealing system prevented a Mizuho Securities trader from cancelling an erroneous share-sale order that could cost the brokerage more than $225m.

Last Thursday a trader at Mizuho mistakenly tried to sell 610,000 shares at one yen apiece in recruiting company J-Com, which had just completed an IPO on the market for smaller companies. The broker had actually intended to sell one share at Y610,000.

Mizuho says it tried to withdraw the order four times, and although the number of shares in the order is more than 40 times the actual number of J-Com's outstanding shares, the TSE processed the trade anyway.

The TSE says it has learned from Fujitsu, which is responsible for the development and support of its trading platform, that its dealing system is unable to cancel sell orders while taking buy orders.

The exchange did not initially acknowledge responsibility for failing to recognise the cancellation orders and blamed Mizuho for the incident, but it now admits that its own trading system was partially at fault.

In a statement, TSE says: "We express our deepest regret to all parties concerned for the great inconvenience caused when we incorrectly reported early on that the reason the aforementioned cancel order was not executed was because Mizuho Securities failed to specify the post-deemed processing price in the cancel order price."

TSE president Takuo Tsurushima also told an emergency news conference that he is considering resigning over the incident.

Mizuho has stated that the mistake will cost it at least Y27bn ($225m) to settle. The broker said today that it will pay an 18% premium to buy back the shares it erroneously sold, although the TSE may share part of the bill.

According to local press reports, Japan's Financial Services Agency may impose a penalty against the exchange.

News of TSE's role in the botched trade comes a month after the exchange suffered its worst ever systems crash.

Tsurushima and nine other TSE senior executives had their pay cut for six months following the systems failure, which halted trading at the exchange for more than four hours on 1 November.

The TSE blamed Fujitsu for the shut-down, which was caused by a problem with software upgrade carried out by the exchange's subsidiary, Tosho Computer Systems (TCS). Fujitsu later cut the salaries of its president and six other top executives following its role in the incident.

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