Bloomberg News

TSE’s Biggest Glitch Since ’06 Casts Shadow Over Osaka Bid

February 14, 2012

(Adds details on malfunction in the sixth paragraph.)

Feb. 2 (Bloomberg) -- The Tokyo Stock Exchange suffered its biggest disruption in six years as a computer glitch halted trading in 241 securities including shares of Sony Corp. and Hitachi Ltd., leaving investors concerned the bourse isn’t ready for a merger with its Osaka rival.

Trading resumed at 12:30 p.m. local time, about 4 1/2 hours after the bourse detected the error, which bourse spokeswoman Yukari Hozumi said was in one of eight servers that sends order information to investors.

Preventing a reoccurrence is the top priority before the proposed merger with Osaka Secuturities Exchange Co., said TSE Senior Managing Director and Chief Information Officer Yoshinori Suzuki at a media briefing in Tokyo today. “We may need to review our system carefully before merging with TSE,” said Osaka spokesman Masahiro Yada by phone today.

Today’s breakdown follows a Dec. 29 blockage in networking cables which slowed execution and is the worst since a 2006 glitch derailed all trading. Tokyo Stock Exchange Group Inc. and the Osaka venue cited cost savings from integrating computer systems as a reason for merging when they announced the takeover bid on Nov. 22. This is the busiest week for earnings reports by companies in the Topix Index.

“Unless they convince the market they’re doing everything to fix this and make sure it doesn’t happen again, the merger may face difficulties,” said Yuuki Sakurai, chief executive officer at Fukoku Capital Management Inc. in Tokyo, which manages the equivalent of $7.4 billion. “It calls into question the reliability of the system. If the market were booming and economy was growing maybe nobody would care. But these days you need to be able move quickly and to do that you need a stable system.”

Back-Ups Failed

The error, discovered around 1:27 a.m. today, occurred in a server supplied by Fujitsu Ltd. and automatic back-ups didn’t function properly, Hiroaki Uji, a bourse director said. The exchange is still investigating the cause, he said. The cost of the stoppage to investors hasn’t been determined yet, said TSE Managing Director Hironaga Miyama.

Only those securities whose order information is handled by the stricken server were affected, according to Hozumi at the exchange. Trading in the equities was halted on the Sapporo Stock Exchange and on alternative venues including SBI Japannext and Chi-X Japan Ltd.

“The glitch is too big,” said Kazuyuki Terao, chief investment officer of RCM Japan Co. “It may be understandable to a degree if it happened with something unusual taking place, like an earthquake. But it happened on a normal day, and you have to say that’s pretty unfortunate.”

Sony Reaction Stymied

The system error robbed investors of a chance to react to Sony’s announcement yesterday that it was replacing chief executive officer Howard Stringer as the company is set for its longest streak of annual losses since listing in 1958. During the Tokyo halt, shares of Sony rose 0.7 percent in Osaka, where volume in the stock was 15,000 percent of the three-month average, according to data compiled by Bloomberg. Sony fell 1.2 percent when the suspension was lifted in Tokyo.

“There must have been people who were dying to trade Sony shares today,” Terao said. “They were left between a rock and hard place if they couldn’t sell the shares.”

The Tokyo exchange introduced its faster Arrowhead system in January 2010 amid growing competition from alternative trading platforms such as SBI Japannext, Chi-X Japan.

Today’s malfunction forced the Sapporo Stock Exchange to suspend the affected securities due to system trouble, according to a statement on the bourse’s website. The TSE’s Hozumi said that trading was stopped at its rival because their servers are linked to a part of Tokyo’s system that experienced problems. Bourses in Nagoya, Fukuoka and Osaka don’t share the link, she said.

Chi-X, SBI Japannext

Chi-X Japan also could not trade any of the halted names, Beth Haines, a spokeswoman for Chi-X in Tokyo confirmed. She declined further comment.

“These stocks were halted entirely in the market, so we halted as well,” SBI Japannext Chief Operating Officer Hiroshi Sensaki said by e-mail. Transactions on the Osaka exchange weren’t affected because it uses a different system to the TSE, spokesman Yada said.

“We haven’t experienced major system troubles since 2002,” Yada said. “The trading system is the most important infrastructure for exchanges, so we may need to review our system carefully before merging with TSE.”

--With assistance from Eleni Himaras in Hong Kong and Satoshi Kawano in Tokyo. Editors: Jason Clenfield, Nick Gentle

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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