Bloomberg News

Japanese Derivatives Halted After Osaka System Crashes

March 04, 2013

Nikkei 225 Stock Average futures volume plunged more than 90 percent today as a software error forced a halt to Osaka trading of some derivatives, the first outage for Nasdaq OMX Group Inc. (NDAQ:US) technology installed in 2011.

Trading of Nikkei 225 options and futures in Japan resumed at 2:10 p.m. The failure began at 10:20 a.m. when a program processing index options stopped responding, Osaka Securities Exchange Co. Managing Director Yoshinori Karino said at a press briefing. The volume of March contracts traded plummeted to 5,718, about 7 percent of the 14-day moving average, according to data compiled by Bloomberg.

Osaka is the only venue in Japan where Nikkei 225 futures change hands. The trading system that failed today, known as J- Gate, uses technology from Nasdaq OMX. The Japan bourse, formed by the merger of Osaka Securities Exchange Co. and Tokyo Stock Exchange Group Inc., which suffered two trading-system halts last year, plans to adopt J-Gate for all derivative transactions by March 2014, it said in October.

“There’s nothing positive about the troubles we saw today for the stock market,” Hidehiro Tomioka, who helps oversee $1.3 billion in Japanese equities at Manulife Asset Management (Japan) Ltd. in Tokyo. “It’s going to breed distrust among global investors, who are keeping a close eye on Japanese stocks. Generally speaking, it’s easy for there to be problems during and after a merger. It’s important that they clarify what the problem was.”

TSE Failure

Investors from outside Japan have been net buyers of the country’s stocks for the last 15 weeks, according to data compiled by Bloomberg. That’s helped propel a 34 percent rally in the Nikkei 225 since Nov. 14, when elections were announced that brought Prime Minister Shinzo Abe to power on a platform of massive economic stimulus. Japan Exchange shares added 1 percent today.

The Tokyo Stock Exchange in August had its second major system error in seven months, halting derivatives trading for about 95 minutes, cutting equity volumes, driving government bonds lower and sending futures traders to Osaka. The error occurred in servers hosting the bourse’s Tdex+ system, based on NYSE Euronext’s Liffe Connect platform.

No Virus

Today’s problem wasn’t caused by a virus, Karino said. The bourse is investigating the root cause of the outage, which was remedied by restarting the system, he told reporters.

“It’s important to gain market trust by preventing this from happening again,” said Motoharu Fujikura, president and chief executive of the OSE, at the press briefing in Osaka. He declined to comment on who will be accountable for the disruption or on potential losses. “We would like to thoroughly investigate the cause, and achieve a smooth integration.”

Volume on the Nikkei 225 was 23 percent lower than the 30- day intraday average as of the close, according to data compiled by Bloomberg.

“The impact seems to be spreading to not only futures and options, but also to the cash market,” said Naohide Une, head of equity derivatives trading at Goldman Sachs Japan Co. said before the system was restarted.

Nikkei 225 futures and options accounted for 80 percent of trading and clearing revenue at the Osaka bourse in the quarter ended Sept. 30, according to its most recent earnings statement. Buying and selling of the futures contracts was the only area that showed growth from the year-earlier period, according to the statement.

To contact the reporters on this story: Anna Kitanaka in Tokyo at akitanaka@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net; Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net

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


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