TSE shortens trading hours following shutdown

The Tokyo Stock Exchange (TSE) will shorten its afternoon trading by half an hour starting tomorrow, after it was forced to close some of its markets 20 minutes early today as the volume of transactions hit capacity levels.

The TSE had warned traders earlier in the day that trading on its equity, convertible bonds and exchangeable bonds markets would be halted if the volume of daily executions went over four million. But a market sell-off sparked by allegations of fraud at internet start-up Livedoor on Monday caused a breach of the upper limit 35 minutes before scheduled closure.

The Nikkei, the TSE’s main equities index, closed down 2.9% at 15,341.18. Shares in Livedoor have also lost almost 15% of their value since Monday. Trading on the futures and options markets was not affected by the temporary halt, with these markets closing as scheduled.

At a hastily called press conference, the exchange said normal afternoon trading would now begin at 13.00 local time instead of the usual 12.30 until further notice, according to wire service reports. It also said it would close the markets again if trading went beyond capacity levels.

The events will place the exchange’s operational risk strategy under further scrutiny. It has already experienced two computer breakdowns in the past three months, and its trading system failed to implement trade cancellation requests by a Mizuho Securities broker, which resulted in $330 million of potential losses for the dealer.

Just last week, the TSE unveiled plans to update its trading system in the next three years as part of what it called an ‘IT master plan’. A spokesperson for the exchange said the rapid increase in the number of trading orders was placing a strain on the current system architecture. But the exchange has yet to appoint a chief information officer.