In its worst-ever glitch, Tokyo Stock Exchange trading halted

In its worst-ever glitch, Tokyo Stock Exchange trading halted

The Tokyo Stock Exchange halted trading for the entire day Thursday, freezing buying and selling in thousands of companies in the worst-ever outage for the world’s third-largest bourse.

Japan Exchange Group Inc., operator of the TSE, said the problem occurred due to a failed switchover to backups following a hardware breakdown. The exchange will replace hardware and restart its system today, and aim to resume trading as normal on Friday, TSE President Koichiro Miyahara said in a presser this afternoon in Tokyo.

The issue damps investor sentiment following a positive U.S. 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 comes 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.

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.

“This is very problematic — when things like this happen, investor confidence in the Japanese market gets impacted,” said Ryuta Otsuka, a strategist at Toyo Securities Co. “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 is considering ordering the exchange to issue a report detailing the cause of the glitch and steps it will take to prevent a recurrence, Kyodo reported.

Confidence Blow

Global markets are on a heightened state of alertness to any glitches, after a cyber attack in New Zealand that spurred trading halts over four days in August, though Japan Exchange said there were no indications today’s outage was related to hacking. Deutsche Boerse AG’s electronic trading system has also suffered two major outages this year.

Other markets in Japan, including exchanges in Sapporo, Nagoya, and Fukuoka, have also suspended trading. Derivatives, including futures, trade on the Osaka Exchange, which is not impacted by the system issue. Futures on the Nikkei 225 Stock Average were up 0.5% in Osaka as of 3:00 p.m. local time. Japan Exchange shares on the Japannext PTS platform fell as much as 4.7%.

The benchmark Topix index dropped 2% yesterday, trimming its gain for September to 0.5% and closing the latest quarter with a 4.3% 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, which could add to volatility tomorrow if the bourse doesn’t open today.

Japan’s $6.15 trillion stock market is the third-largest in the world behind the U.S. and China. There are 2,167 stocks listed on the the top section of the Tokyo Stock Exchange, where total daily turnover has averaged about $22 billion over the past year.

Makoto Sengoku, a market analyst at Tokai Tokyo Research Institute Co., said he’ll be watching the reaction in the TSE Mothers Index, the main gauge for startup companies in Japan. “For retail investors that are trading everyday, today might be a shock, but for those who aren’t frequently trading it’s not as impactful,” he said.

Glitch History

The system issue is the largest since a series of computer issues in the mid-2000s that led to the resignation of the exchange president. Trading was halted for 4 1/2 hours in 2005 due to a botched system upgrade, the first time equity trading had been completely suspended. In January 2006, the exchange halted trading early after a surge in orders, triggered by an investigation into high-flying internet company Livedoor Co., overloaded its computer systems. That resulted in shortened trading hours for three months.

The Tokyo exchange introduced its faster Arrowhead system, developed by Fujitsu Ltd. and other companies, in January 2010, but that didn’t solve the issues entirely. A computer glitch in 2012 halted trading in 241 securities, while a system error later that year took took derivatives trading offline.

Fujitsu spokesman Takeo Tanaka said the company is investigating the latest issue, but declined to comment on the details.

The halt came on the same day as one of Japan’s most closely watched economic indicators, the Bank of Japan’s Tankan survey, released just 10 minutes before trading was set to begin. The survey showed sentiment at big manufacturers picked up from its lowest point, helping the view that the worst may be over for the economy, though confidence remains far below pre-pandemic levels.