2nd TSE System Error in 7 Months Halts Derivatives
August 7, 2012
￼The Tokyo Stock Exchange Group’s second major system error in seven months halted derivatives trading for about 95 minutes.
The disruption cut volume of trading in stocks, as well, drove government bonds lower and sent futures traders to the Osaka exchange.
The system failure occurred at 9:18 a.m., according to a notice to members posted by the exchange, and trading halted at 9:22 a.m. The interruption lasted until 10:55 a.m. local time, the exchange operator said.
Trading in Topix Index shares was 20 percent below the average for the time of day after index and government bond futures were halted. Japanese 10-year government bonds fell during the breakdown.
The exchange suffered its biggest disruption in six years on Feb. 2 as a fault halted trading for 3.5 hours in some of the country’s biggest companies.
The outage is a further setback for the Tokyo exchange as it pursues a takeover bid for the smaller Osaka exchange, which dominates Japan’s equity derivatives business.
The system failure also highlights the vulnerability of global markets to computer malfunctions, a week after errors at market-maker Knight Capital Group Inc. led to incorrect trades for more than 100 U.S. stocks. This week is the second-busiest for earnings on the 1,672-company Topix.
“This shouldn’t be happening at all, and it’s a risk for investors that they can’t trade when they want to,” said Kazuyuki Terao, chief investment officer of RCM Japan Co. RCM oversees about $153 billion globally. “A system error happened earlier as well, and I have to have reservations about what’s going on.”
The error took place somewhere in the Tdex+ system used for derivatives at the bourse, not Arrowhead that handles cash equity transactions, said Naoya Takahashi, a TSE spokesman.
Tokyo started using Tdex+, based on NYSE Euronext’s Liffe Connect platform, for options trading in Oct. 2009 and for futures in November 2011. The exchange hasn’t decided whether to hold press conference to explain the error, Ryo Takahashi, another spokesman said.
Volume on the Topix Index was about 20 percent below the 10-day average for the time of day when derivatives resumed trading. Average daily turnover for futures on Japan’s broadest measure of stock performance was 737 billion yen ($9.42 billion) in June, the Tokyo bourse said. Volume for the day was 12 percent below the 10-day average.
“The failure of Topix futures reduced the number of people doing index arbitrage,” said Naohide Une, head of equity derivatives trading at Goldman Sachs Japan Co. “That’s why the system error is not only affecting futures, but making cash- equity trading thinner. I thought lower volume could cause unusually big moves in stocks, but what actually happened was market participants were holding back trading.”
The breakdown diverted investors to Osaka, the only place in Japan where contracts on the benchmark Nikkei 225 Stock Average are traded, said Yuji Nakagawa, manager of derivatives trading at Toyo Securities Co. in Tokyo. Osaka Securities Exchange Co. reported daily average turnover of 1.29 trillion yen in contracts and mini contracts on the Nikkei 225 during June.