TOKYO (BLOOMBERG) - The Tokyo Stock Exchange (TSE) halted trading for the entire day on Thursday (Oct 1), freezing buying and selling of thousands of companies in the worst-ever outage in the world's third-largest equity market.
Japan Exchange Group, the operator of the TSE, said the problem occurred due to a failed switchover to backups following a hardware breakdown. The exchange will replace hardware and restart its system on Thursday, aiming to resume trading as normal on Friday, TSE president Koichiro Miyahara said in a press conference. The exchange said it would notify investors around 7:30pm local time on Thursday if it was ready to restart on Friday.
"We have caused great inconvenience to many market participants, investors and listed companies," said Mr Miyahara. "We will take thorough steps to prevent a recurrence."
The issue damps 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 for public holidays.
It also comes on the first day of a new quarter and of the second half of Japan's fiscal year, when trading volumes would typically be high as many funds adjust their positions. One of Japan's most closely watched economic indicators, the Bank of Japan's Tankan survey, was also released just 10 minutes before trading was set to begin.
The failure was the first all-day stoppage of trading since the exchange shifted from the open-outcry trading pit to a fully-electronic system in 1999. Previous system glitches had only affected part of the trading day. The decision to call off trading Thursday was made after conferring with market participants, who said it would be difficult to deal with their clients and carry out orders, the TSE said. All orders on Thursday are canceled, and opening prices if trading resumes Friday will be the closing prices on Wednesday.
"This is very problematic - when things like this happen, investor confidence in the Japanese market gets impacted," said Ryuta Otsuka, a strategist at Toyo Securities. "It could later weigh on Japanese stocks."
Chief Cabinet Secretary Katsunobu Kato, the top government spokesman, said it was "extremely regrettable" that trading opportunities have been restricted. The Financial Services Agency is considering ordering the exchange to issue a report detailing the cause of the glitch and steps it will take to prevent a recurrence, Kyodo reported.
CONFIDENCE BLOW
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 on Wednesday, 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.
Japan's US$6.15 trillion (S$8.39 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 US$22 billion over the past year.
Makoto Sengoku, a market analyst at Tokai Tokyo Research Institute Co., 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.
GLITCH HISTORY
The system issue appears to be the largest since a series of computer issues in the mid-2000s. Trading was halted for 4 ½ hours in 2005 due to a botched system upgrade, the first time equity trading had been completely suspended. The issue led to the resignation of the president of the exchange. In 2006, the exchange halted trading early after a surge in orders, triggered by an investigation into 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 securites, 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 is looking into the exchange outage, an official said.
