Japan: A laughing stock trade, http://www.atimes.com/atimes/Japan/GL10Dh01.html
TOKYO – The trader was supposed to sell one share for 610,000 yen ($5,065). Instead, 610,000 shares valued at $3.1 billion were offered for 1 yen each.Somebody made a typing mistake, said the brokerage unit of Mizuho Financial Group, Japan’s second-largest bank. The error set off a frenzy of trades, and cost the unit at least 27 billion yen ($224 million) as it tried to buy back the shares, the bank said. “We deeply apologize to investors, the issuer and other people for having caused such a huge problem,” Makoto Fukuda, Mizuho Securities’ president, said at a press conference in Tokyo. “It should never have happened, but someone unintentionally ignored the alerts.” “It’s a funny story,” Fumiyuki Nakanishi, a stock market strategist at SMBC Friend Securities Co in Tokyo, said in a phone interview on Friday. “Japan has become the laughing stock of the world. Many markets are concerned about this low standard of control function of the stock order system. It’s a very nonsense story. A huge amount of money. Huge. Just on order.” The erroneous sell orders in J-Com stock made it the most actively traded by value on the market on Thursday. The Osaka-based staffing company, which sold 2,800 shares in its initial public offering (IPO) earlier this month, suddenly had 700,000 shares changing hands on its stock market debut. The brokerage realized its mistake within three minutes, Fukuda said. But four attempts to cancel the order failed. Even Mizuho’s head office couldn’t stop it. So Mizuho decided to buy back most, but not all, of the shares. Within those three minutes, shares of J-Com fell by the 15% limit, from its IPO price of 610,000 yen to 572,000 yen. Over the next eight minutes,
607,957 shares were traded, including an order for about 467,000 shares, according to Bloomberg data. That trade alone was valued at $2.2 billion. Then J-Com stock closed at 772,000 yen, up by the maximum permitted 15%. J-Com shares were suspended from trading on Friday. Because of market rules limiting price fluctuations, the shares could not be bought for 1 yen but may have been sold as cheaply as 572,000 yen each. The big question is, who gained? Nakanishi speculates that somebody – perhaps day traders – made massive profits. He said there was a spike in chatter on Japanese-language chat boards, with people posting messages such as “maybe we can make a lot of money on this accident”. “It’s legal, it’s a free market,” said Nakanishi. “It’s difficult to know who bought this. Maybe they got a huge capital gain and then sold to
institutional investors.” The losses at Mizuho, however, could result in sackings, reduced salaries and a government inquiry, he suggested. Mizuho shares initially fell as far as 1.4%, while its rivals Mitsubishi UFJ grew by 2.5% and Sumitomo Mitsui Financial Group jumped 3.4%. This wasn’t the first error on the Tokyo Stock Exchange (TSE). On November 30, 2001, UBS AG sold 610,000 shares in advertising firm Dentsu Inc for 16 yen apiece on the company’s debut, instead of the price of 420,000 yen in the IPO. Nakanishi said Thursday’s “accident” highlighted the need to overhaul the structure and technology of Japan’s trading system. “It’s just Tokyo’s problem. New York doesn’t have this. Of course they have to change the system and structure, maybe the process of the order system,” he said. “If the TSE could diffuse this silly order, then the accident would not occur. Maybe the system’s programmer didn’t know how to arrange an order of equity. Maybe they don’t have knowledge of equity markets.” He said these mistakes didn’t occur during Japan’s stock market bubble in the late 1980s, when foreign analysts and writers mythologized the
management, technology wizardry and perfectionism of Japan Inc. Those days are long gone. Making fun of the blunders of Japan Inc has become a favorite pastime for many of Tokyo’s 400,000 foreigners, as well as Japanese. The city’s popular Metropolis magazine leads with a tongue-in-cheek column, devoted to the silly news of the week, called “This Week’s Required Reading by Rick Kennedy”. Japan’s financial sector has offered a lot of fodder lately. Last month, a computer system glitch delayed the start of equity trading on the TSE.
“The Tokyo Stock Exchange seized up for three hours,” said the column in the November 25 issue, “and there was no way people could trade stocks, except to stand in corners and give hot tips out of the sides of their mouths.”Like Metropolis, Japanzine’s December issue also takes aim at the money men. “If a Japanese bank ran Christmas, each time a child sat on Santa’s knee and told him what they wanted for Christmas, it would incur a charge of 110 yen (unless they visited on the weekend, in which case it would be 210 yen).” Even Nakanishi says the Tokyo market has become “the laughing stock” of the world. Fortunately, investors are less than 1% of the population, he says. “This is a baka ni suru of the stock market. But most Japanese won’t even know about it.” He predicted that the Nikkei average, which has grown from 11,500 in January to over 15,000 this month, will likely rise to 20,000 by the end of next year. “The base economic condition is still very strong for next year,” said Nakanishi. “Japanese stock price levels are still cheap compared with the New York Dow or other average prices.” Especially when the price for a 610,000 yen stock is only a yen.