Selling stampede shuts down Tokyo stock market

A stampede of sell orders forced the shut-down of the world's second-biggest bourse on Wednesday as investors fled the Tokyo stock market, spooked by fallout from an investigation into Internet company Livedoor Co. (4753.T).

The Tokyo Stock Exchange suspended trading at 0540 GMT (2.40 p.m.), 20 minutes before the normal closing time, after the number of transactions threatened to exceed its computer system's capacity of 4.5 million trades per day.

The exchange has been hit by a series of system problems in recent months, including a glitch that halted trading for almost a full day late last year.

Analysts said Wednesday's shut-down would deal another blow to the image of the exchange, which has plans to list its own shares.

Exchange President Taizo Nishimuro told a news conference earlier that the bourse would also consider shortening trading hours on Thursday and beyond if necessary.

News that the exchange was considering a shut-down accelerated selling across the board, pushing down the Nikkei share average by more than four percent to as low as 15,059.52 before it clawed back to finish the shortened session down 2.94 percent at 15,341.18.

That was still the Nikkei's biggest one-day fall since April 18, 2005, when it fell 3.8 percent. The broader TOPIX (^TOPX - news) index fell 3.49 percent to close at 1,574.67.

The three-day sell-off has wiped out more than $300 billion in shareholder value -- equal to about the gross domestic product of Sweden.

The share-price tumble also hit the yen, which fell to a day's low of 115.88 yen to the dollar, before recovering to around 115.60.

"The problem has caused a selling climax. Everyone is throwing in sell orders. The system is jammed and orders aren't making their way through," said Ken Masuda, a senior dealer at Shinko Securities. "Even after five minutes, orders aren't going through. This is ridiculous."

Investigators from the Tokyo District Prosecutors' office and the Securities and Exchange Surveillance Commission raided the Tokyo headquarters of Livedoor late on Monday on suspicion that the company had spread false information to investors.

Newspaper reports on Wednesday said the company was also suspected of tampering with its financial reports.

The investigation has scared off individual investors, who were a major factor in the Nikkei's 40 percent rise last year. Only last Friday, the Nikkei hit a five-year closing high.

"This is clearly about the TSE's system risk," said Tsuyoshi Nomaguchi, strategist at Daiwa Securities.

"Investors, who have traded stocks on the assumption that the TSE system does not break down, are running away from the market and the selling pressure will continue for the rest of the day."

"Until the investigation on Livedoor and the fate of the company becomes clear, selling pressure on the overall Tokyo stock market will likely stay. But I think the market will recover after that," he said.

Re #4

New Livedoor allegations emerge

Tue Jan 17, 9:21 PM ET

New allegations emerged on Wednesday that Livedoor Co. tampered with its earnings statements, prompting a suspension of the Japanese Internet portal's shares and driving down the stock market for a second day.

The Mainichi newspaper reported that Livedoor had changed details in its report for the year ended September 2005 while the Yomiuri newspaper said the company had falsified part of its report for the previous year.

Livedoor said in a statement that it would comment after conducting its own investigation. The Tokyo bourse said it would resume trading of the company's shares at the start of afternoon trade at 12:30 p.m. (0330 GMT).

The Tokyo District Prosecutors office said on Monday that it and the Securities and Exchange Surveillance Commission were investigating Livedoor for spreading false information related to shares in a subsidiary.

That triggered a 2.84 percent drop in the Nikkei share average on Tuesday, its biggest percentage loss in nine months. The Nikkei was down 2.6 percent on Wednesday morning.

Livedoor shares failed to trade on Tuesday due to a huge glut of sell orders but were quoted down 14.4 percent, the daily limit.

Before the suspension on Wednesday, the stock was quoted down 17 percent in the pre-market.

"We need more clarification on what offenses if at all have been committed," said Hiroshi Kamide, an analyst with KBC Securities.

UBS Warburg analyst Atsushi Shinoda also said in a research note on Tuesday that it had put its "buy" rating on Livedoor under review until the facts become clearer.

Authorities have not provided further details about their investigation since the initial statement, even as local media have reported on possible window-dressing of the company's earnings.

Reuters sources familiar with the matter said on Monday the investigation by prosecutors and securities regulators was centered on the acquisition in 2004 of a publishing firm, Money Life, by a predecessor of Livedoor Marketing, a separately listed subsidiary.

According to local media reports, Livedoor and Livedoor Marketing are suspected of illegally profiting from a deal that had been announced as an external acquisition but which in fact was an internal transfer of shares.

The company so far has declined to comment on specific allegations but has said it was conducting its own investigation and was cooperating with authorities.

Livedoor, known for its aggressive acquisition strategy, has grown rapidly to amass a broad portfolio of Internet-related businesses from software to online financial services.

The company's maverick chief executive, Takafumi Horie, has made many enemies in Japan's staid corporate and media world with his "bare-knuckled" business practices and brash personality.

The 33-year-old college dropout emerged as a media fixture in 2004 when he launched a bid to buy a professional baseball team.

He then shook Japan's conservative broadcast industry last year when he took advantage of a structural loophole to try and take control of the sprawling Fuji Sankei media empire. Both attempts failed.

He also ran for parliament in a general election last September but lost to an old-guard incumbent.

That was a fairly serious situation back in 1987. I read the story about the day after the crash in the WSJ. At one point the next day there were no buyers for any stocks on the NYSE and the exchange fell silent for almost five minutes. The SEC regulators of course saw this happening and they called a couple of Fed Reserve bank officials who called some of the big brokerage houses and told them to "buy everything now...you have unlimited credit from the Fed so start buying stocks ASAP." Well they started buying and created a big bounce back rally in which the brokerage firms made a ton of money and stopped the market decline. This is a long time ago and I was in college at the time, but that's the way I recall the story.

After the '87 crash, the NYSE put in all kinds of new trading rules and limits on program trading which have stabilized the market a great deal since then. So that kind of collapse isn't possible these days on the NYSE. It sounds like the Tokyo exchange needs some new trading rules and limits on certain kinds of trading (plus new computer hardware/software.)

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