The Tokyo District Court on Friday ordered the Tokyo Stock Exchange to pay about ¥10.7 billion in damages to Mizuho Securities Co., saying the bourse is more to blame in a case of botched trading in 2005 that caused the brokerage to incur hefty losses.
Mizuho Financial Group Inc.’s brokerage unit sued the TSE in October 2006, seeking ¥41.5 billion in damages because the Tokyo bourse’s computer system failed to respond to a cancellation order for a large number of erroneous sell orders it placed on J-Com Co. shares on the Mothers market of the TSE in December 2005.
The mishap occurred on Dec. 8, 2005, when Mizuho Securities mistakenly placed a sell order for 610,000 shares in staffing company J-Com for ¥1, although it had intended to sell one share for ¥610,000.
TSE President Atsushi Saito said in a press conference the bourse will consider appealing the ruling.
Presiding Judge Hidetaka Matsui called it “absurd” that the Tokyo bourse failed to exercise its right to halt trading knowing that such an order-placement could have blocked the smooth flow of market transactions.
While pointing out that Mizuho was also seriously at fault, Matsui said, “The TSE is at greater fault for providing a defective system as the core system (for market trading).”
The court ruled that the TSE bore 70 percent of the blame in the case, putting the amount of damage incurred by Mizuho at some ¥15 billion.
The damages, if paid, could seriously affect the TSE’s financial base and prompt it to reconsider its planned initial public offering of shares, industry sources said.
It has not booked any provision for the damages, which amount to more than half of its group net profit at ¥19.9 billion posted in fiscal 2006.
The TSE incurred a consolidated net loss of ¥3.6 billion for fiscal 2008 through last March as its trading volume-based revenues from member brokerages declined on a stock market slump.
Even if the suit is protracted to avoid immediate payment of the damages on an appeal by Mizuho Securities or the TSE against the district court ruling, the problem may affect the TSE’s IPO plan.
The TSE has already postponed the planned IPO from 2009 to early fiscal 2010. It could be forced to consider another postponement, the sources said.
Mizuho Securities said in a statement the company is scrutinizing the ruling’s content and will “carefully weigh” the response it will take in consultation with its lawyers.
The Mizuho Securities-TSE legal faceoff had drawn attention in the financial market since it was the first time a securities firm had sued the operator of the bourse over equity trading.
Mizuho Securities tried to withdraw the sell order immediately after noticing the mistake, but the TSE’s computer system failed to process the cancellation order smoothly, leading it to take steps such as buy back shares. In about 10 minutes, the brokerage incurred losses of about ¥40.7 billion.
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