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Japan financial watchdog orders Tokyo Stock Exchange to improve operations

A financial data board at the Tokyo Stock Exchange shows no stock prices on Oct. 1, 2020, after Japan Exchange Group Inc. halted trading in all shares listed on the bourse earlier in the day due to a system glitch. (Kyodo)

TOKYO (Kyodo) -- Japan's financial watchdog on Monday issued a business improvement order to Tokyo Stock Exchange Inc. and its parent company, following a system failure in October that caused an unprecedented full-day trading suspension.

    With the order, the Financial Services Agency added to pressure on the bourse operator and its owner, Japan Exchange Group Inc., to take steps to restore international trust following the Oct. 1 disruption, the worst in the Tokyo market's history.

    TSE President and CEO Koichiro Miyahara stepped down to take responsibility for the outage. At a press conference, JPX CEO Akira Kiyota said his monthly salary will be halved for four months and pledged to prevent any recurrence of such failures.

    The directive calling for measures to prevent recurrences came at a time when Prime Minister Yoshihide Suga is trying to bolster Japan's status as a global financial hub while making efforts to attract more investment from abroad.

    It demanded that the two companies clarify their responsibility for the problem and submit a plan on how they will improve their operations.

    The agency said it will regularly check on the progress made based on the plan. FSA officials told a press conference that the order had to be issued given the magnitude of the impact that the failure had on Japan's capital markets.

    Before issuing the order, the agency looked into reports submitted by the exchange group and conducted on-site inspections from Oct. 23 at the two companies.

    The full-day shutdown, the first since the Tokyo bourse's trading was completely computerized in May 1999, stopped dealing in all equities listed on stock exchanges in Sapporo, Nagoya and Fukuoka.

    It is the fourth time that the financial watchdog has given such an order to the TSE. The last one was issued in August 2012 following a system glitch in that month that led to a temporary suspension of all derivatives trading on the bourse.

    The latest shutdown was caused by a settings error, which prevented an automatic backup from activating after a memory failure in the TSE's trading system. The shutdown also betrayed the TSE's inability to resume trading promptly in the event of an unexpected occurrence.

    The settings mistake was blamed on an outdated manual provided by Fujitsu Ltd., developer of the "arrowhead" trading system, but the TSE has said it was responsible for the outage as the market operator.

    As one of its preventive measures, the bourse, where about 3 trillion yen ($29 billion) is traded daily, has set up a panel of market professionals to craft new rules by March on how to resume trading in the wake of a serious shutdown.

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