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Saturday, Jan. 21, 2006

TSE plans to upgrade capacity Monday

Weekend revamp planned after investors, experts slam early shutdowns


Staff writer

The world's second-largest bourse, embarrassed by its inability to handle a crushing selloff that erupted earlier in the week, said Friday it would work over the weekend to raise its maximum trading capacity to 5 million deals by Monday.

The Tokyo Stock Exchange has been under intense pressure from politicians and investors to fix its problematic computer system. But last Monday's surprise launch of a criminal investigation into Internet startup Livedoor Co. helped set off a two-day selling binge that swamped its computer system and forced it to halt trading 20 minutes earlier than usual. It has since delayed the start of afternoon trading by 30 minutes to prevent orders from exceeding its capacity.

Although fingers are pointing in various directions -- at TSE executives, Livedoor, and the day-traders who flooded the bourse -- the global appetite for Japanese stocks is still strong, analysts said.

"Plenty of people inside and outside Japan are mad, but a system glitch doesn't decrease a listed company's value," said Sadakazu Osaki, executive fellow of Nomura Institute of Capital Markets Research. "If there's only one plane flying to where you need to be, you take it, even if you're worried about the plane being old."

In the meantime, Osaki and other market watchers are genuinely puzzled about why the TSE had to close shop because of a capacity problem.

"I can see halting trading in the case of an earthquake or war, but computer overload? That's not an excuse," said Kiyoshi Kimura, a securities analyst and director of the nonprofit Japanese Association for Individual Investors. "It's an embarrassment."

The bellwether Nikkei average of 225 stocks dipped nearly 7 percent from Tuesday to Wednesday before regaining ground Thursday and Friday, but volatility remained high.

The orders flew in, taking the bourse by surprise with 3.8 million transactions Tuesday, 4.38 million Wednesday and 3.9 million Thursday -- all dangerously close to the 4.5 million maximum at which the computers would give out, the TSE said.

"These have been extremely sudden surges in transactions," TSE President Taizo Nishimuro told reporters Tuesday. "We didn't expect it."

The exchange has asked investors to bundle orders as much as possible until it upgrades the system to handle 5 million transactions per day.

Later Friday, TSE officials said that, pending tests over the weekend, the move would be completed by Monday and that the effective daily trading limit would be hiked to 4.5 million deals that day.

But bundling orders has become increasingly difficult because more small investors are trading online and institutional investors slice orders into smaller packages.

The TSE has been gradually increasing daily capacity, upgrading the computer system to handle 4 million trades in September and 4.5 million in October. It said the same day that it will try to expand capacity to 7 million or 8 million trades as soon as possible.

What puzzles Osaki, however, is what has taken the TSE so long to get moving.

Trading activity is rising throughout the world. On the New York Stock Exchange, for example, the average daily trading level in 1999 was under 1 million trades a day. In 2005, the average trading level was 4.83 million a day.

"That's a considerable explosion in trade," he said. "I don't know what the difference is, but the fact remains that the NYSE hasn't had to close to avoid an overload, while the TSE did."

Day-traders are meanwhile upset with the perception that their emergence on the scene is one of the reasons the TSE buckled.

"It's strange to blame the growing number of day-traders and other small investors" for the fiasco, said Yohei Sunada, head of the Japan Day Traders Association.

"For years, the government has said they wanted small investors to invest more. . . . Well, we're here. Why aren't they ready?"



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