TSE must implement measures to prevent recurrence of system failures

The Yomiuri Shimbun

13:30 JST, March 28, 2021

The Tokyo Stock Exchange must do everything it can to restore its systems as soon as possible in the event of a failure to prevent a repeat of the mishap that caused the suspension of trading of all issues for a whole day.

The TSE has released its final report, which includes measures to prevent a recurrence of the system troubles that occurred last October. The report clarifies the rules, to be implemented from April, for resuming trading in the event of a failure.

Last year’s failure was caused by an equipment malfunction and the failure of the backup function, but it was possible to restart the system manually and resume trading.

However, there were insufficient arrangements for how to handle orders that had already been placed by securities firms, so the TSE said it had no choice but to suspend trading for the entire day to avoid turmoil.

This was the first time that no issues were traded for a whole day since the transition to the current system in 1999.

The TSE had set a “Never Stop” goal for its system operations. Is this not a case of the TSE neglecting to prepare for a situation in which it had to halt operations due to a failure, because it was so preoccupied with not stopping the system?

The TSE is one of the leading stock exchanges in the world. Investment opportunities should not be deprived due to a prolonged trading suspension.

Firstly, the new rules establish a provision that allows the TSE to cancel orders that have already been placed. Once there is a prospect of recovery, the TSE will confirm with securities companies and other traders via the internet whether they can resume trading.

The new rules further stipulate that trading can restart only when traders with a combined share of at least 50% of the market’s trading value can participate, along with at least 30% of individual investors.

The TSE will also make it a requirement for the trading period to be at least 15 minutes to prevent a negative impact on price formation due to low trading volumes. Since the TSE’s trading hours end at 3 p.m., the exchange must therefore reopen by 2:45 p.m.

In addition to establishing rules, it is essential to conduct drills that presume a variety of situations.

In the report, the TSE presented a new plan. It will conduct drills on how to respond to failures and how to apply the rules, and check the procedures with securities firms and others. Through this process, it should be able to identify further issues and make improvements repeatedly.

During last year’s troubles, the holding of a press conference was delayed. The TSE must improve its approach to information disclosure.

The TSE plans to open a special webpage in the event of a system failure and update it at least every 30 minutes. It must not forget that the careful dissemination of information is essential for investors to be able to trade with peace of mind.

— The original Japanese article appeared in The Yomiuri Shimbun on March 28, 2021.