Shutdown of Tokyo Stock Exchange Reveals Risk of Japan’s Stock Market

A technical glitch caused Tokyo Stock Exchange to halt all stock trading (Flickr).

The Tokyo Stock Exchange (TSE) halted all trading for an entire day for the first time in its history due to hardware problems on October 1. The outage of the world’s third largest stock exchange led to disorder throughout Japan’s stock market and exposed flaws in its system.

Koichiro Miyashita, a president and CEO of TSE, explains that its decision to “suspend trading for the entire day” resulted from a malfunction in the trading system that caused “abnormalities” in its ability to transmit information. “I feel painfully responsible for all the confusion this incident has caused for investors and market participants,” he remarked.

The failure cost TSE around $30 billion in untraded stocks. “Individual investors are losing a day of trading, so a huge number of people will be upset,” said Tomoichiro Kubota, a market analyst at Matsui Securities. The halt of TSE shuttered all stock exchanges in the region since exchanges in mainland China, Hong Kong, Taiwan, and Korea had closed for the Golden Week holiday period. 

Exchanges have historically broken down before, for instance the Nasdaq halted trading in 2013 due to technological problems, while the New York Stock Exchange suspended trading in 2015 after it found a technical glitch. However, these stoppages rarely cause dysfunction in a country’s entire stock market because in most countries, multiple exchanges make up the market. On the other hand, TSE holds about 85 percent of stocks in the Japanese stock market, which rendered it impossible for investors to buy or sell almost any stocks during the outage. 

Yukihiro Takahashi, a manager at Ichiyoshi Securities Co., says that this event “revealed the vulnerability of the Japanese stock market caused by the heavy centralization of stocks in the TSE.”

While Tokyo Prefecture has sought to present itself as an alternative financial center in Asia after the recent implementation of a national security law shook Hong Kong’s status as a global financial hub, the breakdown of TSE “might undermine foreign investors’ trust” in the Japanese stock market, said Shingo Ide, an economist at NLI Research Institute.

TSE resumed normal trading operations on October 2 after remediating their system.