Tokyo Stock Exchange faces lawsuit over botched trade

Japanese stock broker Mizuho Securities is suing the Tokyo Stock Exchange over losses incurred on a botched trade that Mizuho says was not cancelled because of a defect in the exchange's computer system.

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Japanese stock broker Mizuho Securities is suing the Tokyo Stock Exchange over losses incurred on a botched trade that Mizuho says was not cancelled because of a defect in the exchange's computer system.

The lawsuit relates to an erroneous sell order that was placed by Mizuho on 8 December 2005. Mizuho ordered the sale of 610,000 shares in newly-listed J-Com for ¥1 (US$0.01) per share instead of the intended sale of one share in J-Com for ¥610,000.

The error was "immediately realised" and a cancel order was "repeatedly conducted" but it was not processed owing to a “defect in the TSE's electronic trading system", according to Mizuho.

Mizuho tried to buy back as many of the J-Com shares as possible but in the end 97,000 shares were purchased by other investors. J-Com's initial public offering only numbered 14,500 shares so it became impossible for Mizuho to satisfy all the transactions that were concluded. In the end the brokerage and individuals who bought the shares settled on a price of ¥912,000 per share and Mizuho racked up losses of ¥40.7bn in the incident.

The brokerage said that it contacted the TSE in March this year and has held more than 10 meetings with the exchange over sharing the losses but the meetings have made no progress. In a statement, the company said it had “reached the judgment that it has become quite difficult to resolve the issue through discussions between the parties, and was compelled to file the lawsuit”.

In response, the Tokyo Stock Exchange said it will "make clear our assertions on the matter in the appropriate legal forum". Nevertheless, Takuo Tsurushima resigned as president of the exchange.

The incident was one of a number that brought the exchange and its information technology systems in for criticism from the industry, government and investors.

A month before the J-Com incident, trading was suspended for half a day after a software patch was incorrectly applied to the market's trading system causing the system to crash. System vendor Fujitsu took responsibility for that mistake.

Then in January the exchange stopped trading 20 minutes early because it feared its computer system would collapse due to heavy trading. The unprecedented halt was accompanied by limited trading for several weeks afterwards and the quick addition of hardware to help handle heavy trading. The exchange also appointed its first CIO and has since installed a new stock trade clearing system.

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