The unthinkable at the TSE
(From The Japan Times Dec. 17 issue)

東証の考えられない失態

    On Dec. 8, Mizuho Securities Co., a brokerage unit of Mizuho Financial Group Inc., offered a massive erroneous sell order for shares of J-Com, a manpower recruitment firm newly listed on the TSE's Mothers market. A Mizuho employee placed an order to sell 610,000 J-Com shares for ¥1 each, instead of offering to sell one J-Com share for ¥610,000.

    Although a warning that the order was abnormal appeared on the computer screen, the employee continued the operation. After the TSE telephoned Mizuho to find out whether the order was correct, Mizuho noticed the mistake and tried several times to cancel the sell order. But the TSE's computer system would not accept the cancellation request.

    J-Com stock had fetched an initial price of ¥672,000 per share. Since the number of shares mistakenly offered by Mizuho was about 42 times the 14,500 outstanding J-Com shares, the shares plunged by their ¥100,000 daily limit to 57¥2,000. When Mizuho started buying back the shares, the price in turn went up to the limit high of ¥772,000 per share.

    Because Mizuho had to buy back the shares at a price higher than the price at which it sold them, it incurred a loss of some ¥27 billion at this stage. The chaos made investors worry about the possible impact of the losses on the brokerage as well as on the market as a whole and triggered broad-based selling on the TSE.

    The Mizuho employee's mistake was something that had been considered utterly inconceivable for a securities professional. Mizuho apologized for causing the trouble and initially appeared to accept sole responsibility for the mess. Immediately after the mishap, the TSE explained that Mizuho had failed to follow the correct procedure for canceling a wrong sell order. However, the situation changed Dec. 11 when the TSE admitted that a defect in its trading system had prevented Mizuho from canceling the order.

    The problem is that, although Mizuho sent a request to cancel the ¥1 sell order, the TSE system would not accept it and instead presented a sell order for the limit low of ¥572,000, at which a trade was made. Apparently the ¥1 selling price was so far below the daily-limit low that the TSE system automatically set the selling price at ¥572,000. At issue is whether the TSE's system can rectify an unusual situation caused by human error.

    On Nov. 1, a failure in the TSE system forced the bourse to shut down morning trade for three hours. The TSE started examining the design of the program for its system. The J-Com stock fiasco struck while that examination was going on.

    In the end, Mizuho bought back about 510,000 J-Com shares, although 96,236 shares theoretically remained in the hands of investors. Since these shares were more than six times the number of the outstanding J-Com shares and Mizuho was unable to deliver actual stock certificates to those investors, Japan Securities Clearing Corp. had Mizuho pay ¥912,000 in cash for each share to the investors. The price was based on an estimate of how the shares would have been priced if a proper sell order had been placed the morning of Dec. 8. The settlement put Mizuho's total loss at around ¥40 billion.

    It is thought that Mizuho's loss would have been limited to several hundred million yen if the TSE system had immediately accepted Mizuho's cancellation request. Because the TSE admitted to a defect in its system, it will have to shoulder part of Mizuho's loss. It is a costly lesson for the TSE, whose president, Mr. Takuo Tsurushima, is expected to resign over the incident.

    The story should not end here. Apart from settling the financial matter with Mizuho, the TSE needs to immediately re-examine and correct the design of its system. Because a large amount of money instantly changes hands in a stock market, a minor error can cause enormous problems. A system dealing with stock transactions should be designed so that it can cope with unforseen errors.

    Designing and building a system capable of coping with every possible error will cost a lot. But TSE management should recognize that, if they begrudge the expense, irreparable harm to the nation's financial market will result.

The Japan Times Weekly
Dec. 24, 2005
(C) All rights reserved

    問題は、みずほ証券が東証のマザーズ市場に新規上場された人材派遣会社ジェイコム株の「1株を61万円で売る」とすべき注文を「61万株を1円で売る」と誤ったことだ。東証はみずほ証券に異常注文について電話で問い合わせをし、同社は誤発注を数回訂正しようとしたが、東証の売買システムは訂正を受けつけなかった。

    同株は67万2000円の初値をつけ制限値幅（上下10万円）が設定、売り注文の株数が発行済み株数の42倍にもなったため、一時ストップ安の57万2000円まで急落、その後、みずほ証券が買戻しを始めると77万2000円のストップ高まで急騰した。

    問題の誤発注は、証券プロには考えられなかった誤りである。みずほ証券は問題の全責任を取る姿勢を見せたが、東証は11日に、株式売買システムの不具合のため誤発注が訂正できなかったことを認めた。

    みずほ証券は結局、51万株のジェイコム株を買い戻したが、9万6236株は一般投資家の買い手がついたままになった。

    しかし、これは発行済み株式の6倍以上になり、みずほ証券は現株券を引き渡しできないため、日本証券クリアリング機構は同社に売買成立した株について1株91万2000円を支払わせ強制清算させた。結果、同証券の損失は400億円にのぼった。

    もし東証の株式売買システムが注文訂正を直ちに受け付けていれば、みずほ証券の損失は数億円で済んだはずだ。東証の鶴島琢夫社長は、問題の責任を取り辞任するとみられている。

    考えうるすべての誤りに対処できるシステムを構築するには巨額の資金が必要になるが、その出費を惜しめば市場に対する信頼を取り返しのつかぬほど傷つけることになることを東証は認識すべきだ。