National

'Livedoor shock' halts TSE

15,000 line held but continued selloff threatened overload

by Taiga Uranaka

The Tokyo Stock Exchange shut down trading early to avoid system troubles Wednesday amid a continued free-fall as investors spooked by the investigation into Livedoor Co. flooded the bourse with sell orders.

The benchmark Nikkei 225 index dropped 464.77 points to close at 15,341.18 points, its biggest drop since May 10, 2004. The plunge came on the heels of the 462.08-point dive Tuesday. The key average briefly plummeted more than 700 points.

At 1:21 p.m., the Nikkei average was down 746.43 points, or 4.7 percent, at 15,059.52. However, it resisted a further fall and managed to stay above the 15,000 line.

The bourse’s shutdown reportedly dealt a blow to exchanges in Hong Kong, Seoul, Taipei and Sydney.

The TSE suspended trading in all stocks at 2:40 p.m., 20 minutes earlier than the regular market close, after the transaction volume came dangerously close to a system overflow.

The TSE, which suffered a major system glitch Nov. 1, said it was the first time for the trouble-laden bourse to suspend all activity due to an excessive number of trades beyond its system’s capacity.

TSE officials said the exchange would not be able to process settlements of transactions if the volume went beyond the capacity.

The exchange said it will shorten market hours by 30 minutes beginning Thursday, delaying the start of the afternoon session by half an hour.

The shorter session will continue indefinitely until trading volume falls to within a volume the system can handle. It did not rule out cutting the session even more if trading remained high.

Responding to recent rise in trading volume, the exchange had been expanding the capacity of its trading system. It was scheduled to increase the capacity of daily transaction volume from the current 4.5 million to 5 million on Jan. 30. But the bourse saw a sudden jump in trading volume in Tuesday’s session, posting a record 3.8 million transactions.

“It is clear that the unexpected investigation into Livedoor has led to selling of related stocks, which in turn has increased the transaction volume,” TSE President Taizo Nishimuro told reporters at a hastily arranged news conference.

The exchange continued to be flooded with transactions Wednesday and decided to close the market 20 minutes early after the volume reached 4 million at 2:25 p.m.

News of the Livedoor raid extended a selloff that has wiped out more than $300 billion in shareholder value — reportedly about equal to the gross domestic product of Sweden — in just three days.

Nishimuro expressed discontent with Livedoor, which lists its shares on TSE’s Mothers market for startups.

The TSE suspended trading of Livedoor shares during the morning session following a newspaper report of its alleged window-dressing.

The exchange resumed trading from the start of the afternoon session after Livedoor issued a statement. But Nishimuro said Livedoor’s explanation is “extremely sketchy,” and the bourse was seeking for further information.

“If its information disclosure does not go beyond the current level, we have to consider other actions,” he said.

Share prices extended losses from Tuesday, when the Nikkei fell 2.8 percent, following newspaper reports that the Livedoor probe investigation that had started Monday was expanding. The index has fallen nearly 6 percent the last two days.

“Individual and foreign investors are selling in panic,” said Satoru Otsuka, senior economist at Mizuho Research Institute in Tokyo. “The problem is that we have no idea how the Livedoor problem will unfold.”

Investors and the public alike were stunned when prosecutors marched into the Tokyo headquarters of Livedoor Monday evening to probe alleged violations of securities laws via false information.

Livedoor is headed by upstart tycoon Takafumi Horie, 33, who has risen to celebrity status for his aggressive but unsuccessful attempts to buy a media conglomerate and to start a baseball team. Horie, who has gained further cache with his television appearances, has denied any wrongdoing and has pledged to cooperate with authorities.

The media have dubbed the two-day plunge in Tokyo stocks as “Livedoor shock,” which has garnered banner headlines and intense media coverage the last two days.

Technology and electronics firms took a hit Wednesday, including Advantest Corp., Canon Inc., Toshiba Corp. and Sony Corp.

Those losses could also be partly attributed to investor reaction to lower than expected earnings results Tuesday from U.S. chip maker Intel Corp. and Yahoo Inc.

Government officials made efforts to play down the day’s events by stressing that Japan’s economic fundamentals remain strong.

“A view has prevailed that a raid related to the stocks of a Livedoor subsidiary was the cause (of the stock fall),” Chief Cabinet Secretary Shinzo Abe told reporters after the TSE’s afternoon close.

“On the other hand, the fundamentals of our country still remain strong. I think the fall is a little bit abrupt,” he said.

Meanwhile, in the evening, Prime Minister Junichiro Koizumi brushed aside concerns about recent stock market price falls, calling it a “temporary” phenomenon.

“I think this is temporary because, I believe that overall economic conditions are stable,” Koizumi told reporters at the Prime Minister’s Official Residence.

But he added that it is “regrettable” to see the TSE’s operations suspended “right at the time when the stock market has finally become very lively.”

“I’d like (the TSE) to handle the situation to prevent chaos,” he said.

Abe also said the government has urged the TSE to improve the apparent shortcomings of its trading system, saying exchange stability is “the basis” of the country’s market economy.

Information from AP added

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