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Tokyo Exchange Struck By Another Systems Glitch

  • July 23, 2008
  • Wang Fangqing

The Tokyo Stock Exchange (TSE) halted trading of Topix index futures, government bond futures and all options for nearly four hours Tuesday, when systems problems prevented the order book from being accessed by the exchange’s trading platform.

According to TSE spokesperson Mitsuo Miwa, the issues were caused by a programming error that occurred when the exchange upgraded the order book’s information dissemination capabilities over the weekend. Trading was stopped at 9:21 a.m. and resumed at 1:45 p.m., after the coding was reverted, explained Miwa.

TSE has been plagued by technology glitches in recent years. The exchange in February was forced to halt futures contracts based on Topix, its key equity derivatives index, for four days. In May, the exchange stopped trading Nagoya Railroad Co. and Alps Electric Co. stocks for about four hours due to another systems glitch. In late 2005, its Fujitsu-supplied equity trading platform prevented a trader from canceling a trade, which caused Mizuho Securities Co., one of the largest brokers in Japan, to lose $344 million.

However, “traders saw little disruption in the market when TSE’s derivatives system went down yesterday,” said Neil Katkov, head of Asia research with Boston-based Celent. While the Tokyo exchange accounts for 90 percent of Japan’s cash equities market, noted Katkkov, the Osaka Securities Exchange (OSE) controls the lion’s share of the derivatives market.

Though TSE has blamed many of its technology problems on Fujitsu technology--the Tokyo-based vendor developed the derivatives platform that launched Jan. 15 after being delayed for months due to quality-control concerns--it is tapping the company to supply a next-generation equity trading system that is slated to roll out next year.

The Tokyo exchange also plans to implement an options trading platform from NYSE Euronext’s Advanced Trading Solutions unit in the first half of 2009. The system, Tdex+, is based on the platform used by NYSE Euronext’s Liffe derivatives exchange and will allow TSE to introduce features such as market-maker functionality. “Option trading will move to the new system while futures will remain on the current system,” explained TSE’s Miwa. “We currently have no plans to upgrade our futures trading system.”

“Exchanges in Japan have traditionally relied on domestic, proprietary technology for their trading systems,” noted Celent’s Katkov. “This is starting to change, as demonstrated by the TSE’s decision to use an international supplier for their next-generation derivatives system.”

Katkov said that the new platform is part of TSE’s bid to make inroads in the derivatives market. In June, the average daily turnover of index futures at the TSE was 1.4 billion yen ($13.2 million), compared to 775 million yen ($7 million) in May, according to the exchange.

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