Tokyo system errors underscore decline in Japan’s equity market

Derivatives trading was offline for 95 minutes

IT Synergies

The Tokyo exchange operator and the Osaka venue cited cost savings from integrating computer systems as a reason for merging when they announced the takeover bid on Nov. 22. Tokyo is offering 480,000 yen a share for up to 67 percent of Osaka in a tender offer that ends Aug. 22. The merger has the backing of Japan’s government as it tries to revive the country’s reputation as a global financial hub amid competition from Hong Kong and Shanghai.

Tokyo started using Tdex+, based on NYSE Euronext’s Liffe Connect platform, for options trading in Oct. 2009 and for futures in November 2011.

Osaka’s J-Gate derivatives system uses technology from Nasdaq OMX Group Inc. and hasn’t had a major error since it began operations in February 2011, Fumihiro Yada, a spokesman for Osaka Securities Exchange, said by phone. Some firms reported that placed options orders didn’t appear on the system in February this year, Yada said.

‘Ongoing Problems’

“It could be argued that the TSE is worth a little bit less now than it was yesterday, because they’ve got ongoing problems with their systems,” said Jonathan Foster, Singapore- based director of Global Special Situations at Religare Capital Markets Ltd., who advises some of Osaka’s shareholders. “There aren’t ongoing issues with the OSE. This perhaps demonstrates that the TSE needs them and their expertise more than the other way round.”

Tokyo stopped trading in 241 securities for 3.5 hours on Feb. 2 after backup systems failed to compensate for a server error. That malfunction, which also occurred during the height of earnings season, followed a Dec. 29 cable problem that slowed trading. Another bug in 2006 derailed all trading.

A Tokyo Stock Exchange information technology planning document from September last year made building and maintaining “a trading system of the highest global standard” a core priority for developing the company’s derivatives market.

“Even without this, there’s a feeling that Japan’s markets are losing ground, and I want them to get their act together,” said Isao Kubo, a Tokyo-based equity strategist at Nissay Asset Management Corp., which oversees about 5 trillion yen ($64 billion.) “The presence of Japanese stocks is shrinking, and so, as an investor, I want them to do their job for the future.”

Bloomberg News

--Editors: Nick Gentle, Jim Powell

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