TOKYO • The Tokyo Stock Exchange (TSE) yesterday halted trading for the entire day, freezing the buying and selling of thousands of companies' shares in the worst-ever outage in the world's third-largest equity market.
Japan Exchange Group, the operator of the TSE, said the problem was because of a failed switchover to backups following a hardware breakdown. The exchange was to replace hardware and restart its system yesterday, aiming to resume trading as normal today, TSE president Koichiro Miyahara said in a press conference.
The exchange said it would notify investors at around 7.30pm local time yesterday if it was ready to restart today.
"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 dampened 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 came 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 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 yesterday were cancelled, and opening prices if trading resumes today will be Wednesday's closing prices.
"This is very problematic - when things like this happen, investor confidence in the Japanese market gets impacted," said Toyo Securities' strategist Ryuta Otsuka, adding: "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 may order the exchange to issue a report detailing the cause of the glitch and steps it will take to prevent a recurrence, Kyodo News reported.
Global markets are on a heightened state of alert for any glitches after a cyber attack in New Zealand that spurred trading halts over four days in August, though Tokyo exchange officials said there were no indications that yesterday's outage was related to hacking, which occurred on hardware not directly connected externally.
Deutsche Bourse's electronic-trading system has also suffered two major outages this year.
Other markets in Japan, including exchanges in Sapporo, Nagoya, and Fukuoka, also suspended trading. Derivatives, including futures, trade on the Osaka Exchange, was not impacted by the system issue. Futures contracts on the Nikkei 225 Stock Average closed 0.5 per cent higher in Osaka while Japan Exchange shares on the Japannext PTS platform earlier fell as much as 4.7 per cent.
The benchmark Topix index dropped 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.
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 top section of the Tokyo Stock Exchange, where total daily turnover has averaged about US$22 billion over the past year.
Analyst Makoto Sengoku from Tokai Tokyo Research Institute said he will be watching the reaction in the TSE Mothers Index, the main gauge for start-up companies in Japan. "For retail investors that are trading every day, today might be a shock, but for those who aren't frequently trading it's not as impactful," he said.
A series of computer issues in the mid-2000s led to the resignation of the exchange president.
BLOOMBERG
