Posted on 12/09/2005 5:17:02 AM PST by Brilliant
Typing Error Causes Japanese Firm to Lose $225 Million on a Stock Trade, Roiling Japanese Market
TOKYO (AP) -- Japan's government rebuked the Tokyo Stock Exchange and one of the country's biggest brokerage firms Friday after a typing error caused Mizuho Securities Co. to lose at least 27 billion yen, or $225 million, on a stock trade.
The glitch roiled the Japanese market, and jitters over the reliability of the exchange's trading system contributing to a 1.95 percent drop in the benchmark Nikkei 225 index Thursday.
The Nikkei rebounded 1.45 percent Friday to finish at 15,404.05, but the mishap triggered concern among some traders just a month after an embarrassing glitch at the Tokyo exchange shut down the market for almost an entire day.
The trouble began Thursday morning, when Mizuho Securities tried to sell 610,000 shares at 1 yen -- less than a penny -- apiece in a job recruiting firm called J-Com Co., which was having its public debut on the exchange.
It had actually intended to sell 1 share at 610,000 yen, or $5,041.
Worse still, the number of shares in Mizuho's order was 41 times that of J-Com's true outstanding amount, but the Tokyo Stock Exchange processed the order anyway.
Mizuho says it tried to cancel the order three times, but the exchange said it doesn't cancel transactions -- even if they are executed on erroneous orders.
By the end of the day, Mizuho Securities -- a division of the nation's second-largest bank, Mizuho Financial Group, Inc. -- had lost at least $225 million. That total could rise, Mizuho Securities spokesman Hideki Sakuma said Friday, adding that the mishap was sparked by human error.
Japan's Financial Services Agency, the country's financial watchdog, began an immediate investigation into what went wrong and how to prevent a repeat.
"In order to maintain the credibility of the Tokyo Stock Exchange, I very strongly want this issue to be resolved quickly," Economy and Banking Minister Kaoru Yosano told reporters Friday. "The first thing for the Financial Services Agency to do is to determine what happened in detail. Based on that, we will decide what is needed based on the rules and regulations."
Chief Cabinet Secretary Shinzo Abe echoed the sentiment saying that the Finance Ministry was working with Mizuho and the Tokyo Stock Exchange to formulate countermeasures for the future.
"It's extremely regrettable this caused confusion in the market and such huge problems for the related parties," Abe said.
J-Com's shares debuted at $5,600 on the Tokyo exchange's Mothers market and plunged to $4,767. But a big buy bid placed after Mizuho Securities' sell order helped lift J-Com to $6,433 at the close.
According to a Ministry of Finance filing, Morgan Stanley ended the session with a 31.2 percent stake in J-Com.
The Tokyo Stock Exchange suspended trading of J-Com on Friday, but declined to specify how it will sort out a mess created by the botched order.
Many of the sell orders have yet to be carried out, meaning further trading could "cause instability in the market," said Tomio Amano, the exchange's managing director.
The botched trade comes at a sensitive time for the Tokyo exchange, which has surged on record volume, spurred by buying from foreign investors.
For Mizuho Securities, the news is even worse.
Mizuho Financial Group said it would fully back its security arm's losses from erroneous trades on J-Com. But the red ink could wipe out Mizuho Securities' profit of $233 million for the fiscal year that ended in March 2005.
Well, that's where the fault becomes that of the Tokyo Stock Exchange.
"No catastrophic typos since 2005!" is a bad slogan on a resume, but after a few years it might seem reassuring. ;)
I trade via Charles Schwab and as of a few months ago, I cannot sell/buy stocks whose price is less that $1 via the Internet. I have to call-in to trade. This would have prevented this disaster.
Chuck Norris made a typo once but then proceeded to beat the hell out of the keyboard until it admitted he was correct.
Stuned beebers can be mighty costly sometimes.
You have a good point...I think I'll go revise my resume as well.
Situation Wanted: Dyslexic typist. Very doog with numbers. Also with Engrish.
My wife and I heard this this morning on the news. Her first words were, "So I take it there is a job opening in that firm."
It would look good on the resume of the person who designed the system either. It is a terrible UI design if it allows a simple typo to cost millions of dollars.
I suspect that in the US, this trade would be set aside in court as a mistake.
Actually, I would be willing to bet the inverse is true, and that the software involved made it easy to make this error.
Not that it would be the software's fault, you understand, just our reliance on software to do our thinking for us.
Seems like it would be pretty easy to design software that would compare the price of the trade in question to the prevailing market price, and redflag the trades that seem way out of line so that someone can look at them before they are consummated.
It shouldn't take much effort to program the software to display a warning if the price being entered is way out of bounds from the actual price.
Dang, I must have missed something fun. Whats with all the Chuck Norris stuff? BTW my mom's a big fan.
Dude-san wanted to sell one (1) share at 610,000 Yen, but instead offered to sell 610,000 shares at one (1) Yen. There were a lot of willing buyers! So many that none actually went off at 1 Yen, but many went off well below 610,000 Yen. Trouble is, the stock clsoed higher for the day, and many shares sold by the brokerage haven't been bought back yet. (Many more than actually exist.)
You're logically correct, but see what beez said.
Maybe an "Are you sure?" type warning (which could STILL be answered wrong) coud be implemented, but beez is correct.
Ya still gotta think.
You need a closed loop system. Operating the software (with safegaurds or not) without thinking takes the brain out of the loop with potentially disastrous results, such as happened in this case.
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