TSE must Demonstrate Resolve to Regain Trust after System Malfunction

This is the third administrative punishment on the grounds of a system malfunction. In order to restore the trust that has been lost, it is necessary to have an unwavering resolve never to repeat such failures.

The Financial Services Agency has issued business improvement orders to Tokyo Stock Exchange Inc., which halted trading on the exchange for an entire day due to a system failure, and its parent company, Japan Exchange Group Inc. TSE President Koichiro Miyahara resigned to take responsibility.

Although major system failures arose at the TSE in 2005 and 2012, this was the first full-day suspension of trading for all stocks since trading was fully computerized in 1999.

The average daily trading value on the TSE is about 3 trillion yen. It was only natural for the FSA to severely criticize the TSE, saying that the incident has seriously undermined the confidence of investors and other stakeholders.

The system failure occurred on Oct. 1. When a device in the equipment used to store customer information and other data broke down, the backup function did not work. The function that automatically switches over to a reserve machine was reportedly set to “off.”

When the current system was introduced in 2010, it would switch over to the reserve machine even if set to “off,” but a change in the specifications in 2015 when the system was updated meant the system functioned only when set to “on.”

Fujitsu Ltd., the supplier of the system, failed to revise the manual in what is said to be a human error. The TSE also should have noticed the error by conducting a series of tests and training sessions.

Another problem is that the TSE was not prepared for trouble.

It was possible to restart trading by manually rebooting the system, but due to insufficient rules governing the processing of orders already received from securities firms, the TSE was forced to suspend trading for the whole day to avoid spreading confusion.

The FSA is strongly urging that appropriate measures be taken in this respect.

The TSE had proclaimed the slogan “Never Stop” regarding the operation of the system. If the company was preoccupied with not stopping the system and failed to prepare for the resumption of operations after a suspension in trading, wasn’t that putting the cart before the horse?

Malfunctions have often arisen at major overseas stock exchanges, but they have avoided all-day trading shutdowns.

Even advanced systems can have trouble. It is hoped that the TSE will reconstruct its operational preparedness to handle all possible contingencies, including human error.

It is important for the TSE to work closely with the securities industry to establish a highly effective framework for rules aimed at resuming transactions as soon as possible.

The TSE is the hub of Japan’s capital market and plays a role in developing Tokyo into an international financial city. The company should be aware of its heavy responsibilities.

(From The Yomiuri Shimbun, Dec. 2, 2020)