Tokyo Stock Exchange (TSE) said Monday its President Koichiro Miyahara would step down the same day to take responsibility for a technical glitch on the bourse in October that was its worst since electronic trading began in 1999, causing the exchange’s first full-day suspension of electronic trading.
The announcement came the same day the Financial Services Agency (FSA), the nation’s financial watchdog, issued a business improvement order to the TSE and its parent Japan Exchange Group (JPX) aimed at prompting countermeasures that will prevent a recurrence and, in turn, rebuild trust among global investors.
JPX said it would thoroughly check its systems and take countermeasures to prevent such shutdowns in the future. JPX CEO Akira Kiyota would also accept a salary cut of 50% for four months, the organization said in a statement.
Miyahara offered to resign for not having prevented the serious situation, Kiyota said at a news conference, adding that he had “accepted the offer.”
Kiyota also said he would serve temporarily as TSE president from Tuesday. JPX Chief Information Officer Ryusuke Yokoyama and one other executive at TSE also took salary cuts of 20% and 10%, respectively.
The FSA’s improvement order marked the first for the Tokyo exchange since August 2012. Earlier that month derivatives trading was suspended for about an hour and a half due to a hardware malfunction, despite various countermeasures put in place earlier that year.
The outage on Oct. 1 also deprived investors of the opportunity to make trades worth about ¥3 trillion in the more than 3,700 firms listed on the TSE. Their combined market capitalization of more than ¥600 trillion makes the exchange the world’s third-biggest after the New York Stock Exchange and Nasdaq. Bourses in Sapporo, Nagoya and Fukuoka, which use the same trading system, also saw trading halted.
The latest incident has put a damper on efforts by the government to boost the nation’s profile as a major global financial hub on a par with New York and London, and attract foreign financial institutions.
“The shutdown was regrettable,” Chief Cabinet Secretary Katsunobu Kato said Monday. “I would want them to ensure reliability in the Japanese market by implementing countermeasures.”
The full-day halt was the first outage since the state-of-the-art Arrowhead stock trading system, developed by Fujitsu Ltd., was introduced in 2010. In its investigative report issued last month, the exchange attributed the shutdown to omissions in a manual made by Fujitsu.
The issue occurred due to an error in a setting, which prevented the bourse from automatically switching to a backup trading system following the discovery of a memory failure early that morning. The system was supposed to automatically switch to the alternative trading system in the event of a system failure, even if automation was turned off.
But since a revamp in 2015, the automated switching functionality had been deactivated. Fujitsu was not aware of the change and did not reflect it in the manual.
To make matters worse, TSE did not test the system after the 2015 revamp because the manual said it would switch automatically. The exchange said it finally modified the setting to correct the issue and reinstate the automated switching on Oct. 5.
The FSA also faulted TSE for not having resumed trading the same day, even though it had been able to switch to the backup system manually, due to a lack of clear guidelines on how to handle trading orders received prior to such an unplanned trading halt.
“Taking the latest incident as a lesson, the Tokyo Stock Exchange will strengthen its system — so I don’t think a similar large-scale outage will happen again,” said an analyst at a major domestic brokerage who declined to be identified.
The October incident marked the first exchange-wide shutdown since the halt of all trading shortly before the afternoon session was set to close on Jan. 18, 2006. That was triggered by a surge in trading of shares in Livedoor, after police launched an investigation into the internet company. Trading in all shares was also temporarily suspended on Nov. 1, 2005, due to a computer programming error.
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