Japanese financial supervision orders Tokyo Stock Exchange to improve operations


Photo taken on Oct. 2, 2020, shows the Tokyo Stock Exchange. The exchange reopened normally the same day after all shares were halted for the entire previous day’s session due to a system issue. (Kyodo) == Kyodo

The Japanese financial watchdog on Monday issued a business improvement order to the Tokyo Stock Exchange Inc. and its parent company, following a system failure in October that resulted in an unprecedented suspension of trading in ‘a full day.

With this order, the Financial Services Agency has increased pressure on the exchange’s operator and its owner, Japan Exchange Group Inc., to take action to restore international confidence after the October 1 disruption, the worst in the history of the Tokyo market.

TSE president and CEO Koichiro Miyahara has resigned to take responsibility for the outage. At a press conference, JPX CEO Akira Kiyota said his monthly salary would be cut in half for four months and pledged to prevent any recurrence of such failures.

The directive calling for measures to prevent recurrence came at a time when Prime Minister Yoshihide Suga is trying to bolster Japan’s status as a global financial center while working to attract more foreign investment.

He demanded that the two companies clarify their responsibility for the issue and submit a plan on how they will improve their operations.

The agency said it would regularly check the progress made on the basis of the plan. FSA officials told a press conference that the order must be issued given the scale of the impact of the failure on Japanese financial markets.

Before issuing the order, the agency reviewed reports submitted by the exchange group and carried out on-site inspections from October 23 at both companies.

The full-day shutdown, the first since the Tokyo Stock Exchange was fully computerized in May 1999, ceased trading all stocks listed on the Sapporo, Nagoya and Fukuoka stock exchanges.

This is the fourth time that financial supervision has given such an order to the TSE. The latest was released in August 2012 following a system glitch during that month that led to a temporary suspension of all derivatives traded on the exchange.

The last shutdown was caused by a parameter error, which prevented an automatic save from activating after a memory failure in the TSE trading system. The shutdown also betrayed the TSE’s inability to quickly resume operations should an unexpected occurrence occur.

The parameterization error was attributed to an outdated manual provided by Fujitsu Ltd., developer of the “arrowhead” trading system, but the TSE said it was responsible for the failure as a market operator.

As part of one of its preventative measures, the exchange, where about 3 trillion yen ($ 29 billion) is traded daily, has set up a group of market professionals to work out new rules by March. on how to resume negotiations following a serious shutdown.

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