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On
January 18, this year, Tokyo Stock Exchange (TSE), the world's
second largest bourse after NYSE with a market cap of over
$3 tn, suspended all trading 20 minutes before its scheduled
close, as share orders inundated and overwhelmed its computers.
This not only sent investors into jitters, but also threatened
to bring to an end the impressive run-up in Nikkei, which
gained a robust 40% last year. As Nikkei extended its loss
to another 2.94% that day, after falling by 2.84% a day before,
it marked its biggest two-day loss in the last five-and-a-half
years. In fact, in the last three days, since January 17,
as the selling bout accelerated, triggered by Enron-like scandals
at the beleaguered Internet-cum-investment firm, Livedoor,
and subsequent raids at its premises, the investors had lost
about $300 bn; Livedoor alone had lost $1.8 bn in market cap.
The tremor at TSE added to investors' worries as they had
one more reason to worry about now besides grappling with
the nervous Nikkei, Livedoor shock, and disappointing corporate
results. The string of bad news exacerbated by events at TSE
prompted many s to raise fears about the flight of
foreign investors. Some even expressed concerns about the
prospects of a recovery for the Japanese economy. "It
has thrown an unexpected bump into the path of Japan's economic
recovery... fears mounting that Horie (founder of Livedoor)
and Livedoor and its related companies illegally drove up
stock prices and inflated company earnings, investors dumped
what had been red-hot Japanese Internet, information-technology,
and start-up stocks," wrote The Boston Globe,
the US daily. Such concerns were not invalid. The Japanese
economy had just begun to show signs of a turnaround after
over a decade of recession.
However,
despite capacity upgrades, TSE has been beset by technology
glitches in recent times, which many s attribute to
the exchange's apathy towards IT and under-investment on the
same. But some experts feel that the recent surge in investment
inflows, both from domestic as well as foreign investors,
has caught the exchange off guard. For instance, online trading
volumes, which now form a large chunk of trading orders, almost
doubled in 2005. Nevertheless, it is hard to believe that
exchange was totally ignorant about the coming opportunity.
"Despite daily trading volumes reaching record highs
last year as foreign and domestic retail investors piled into
a market rally, the TSE's capacity remains pitifully low by
the standards of other major financial centers," commented
Financial Times. It blamed TSE for the underinvestment
and a poor attitude to IT, developed during years of deflation,
while exchanges like the NYSE and the LSE spent more on upgrades
and maintenance. The trading glitches came hot on the heels
of other IT embarrassments that led it to defer its much publicized
IPO and unceremonious ouster of its president. On November
1, the trading had to be paused for four-and-a-half hours
because of a computer glitch. And in December 2005, it failed
to reverse a miskeyed share order by a broker at Mizuho Securities,
which resulted in a loss of $330 mn for the brokerage firm. |
