Typing Error Causes $3.5 Billion Trade for Company valued at $93 Million
- Thread starter fxpeculator
- Start date
Escuse my abruptness. It is a serious matter in Japan to be fired. But there should be some disiplinary action perhaps...
How do we know a dialog box didn't pop up saying "Are you really really sure you want to sell 610,000 shares for 1 yen each!?!?!?!?!?!?!?" -- push YES or NO.
And the trader said, "What the hell is this crap - of course I want to do the trade!" (YES)
I suppose a well designed system would not allow that type of order to go through no matter what you said. However, it could be that the safety checks on these orders were manually overriden because the person doing the order was so hurried or delusional that even after being warned, they still "wanted' to execute it.
It would be interesting to know all the details of these screwups.
Fat finger mistakes happen but I don't see why anyone would think this needs to be regulated. It sounds like the stock in question closed up on the day. SO the firm that makes the fat finger mistakes paid a hefty "fine" in the losses they took. Others gained.
Sounds like a free market to me...stupidity was punished.
Sounds like a free market to me...stupidity was punished.
Generally a good compliance system is connected to a workflow that requires signoff of multiple parties for such an extraordinary trade. This check and balance usually stops the problem before it ever occurs .. unless the person at the top authorizes the trade and allows it to be put on anyway, in conflict with the risk position of the accounts/portfolios.
FredBloggs
Guest
Quote from illiquid:
Hey Freddy, did it bum you out when you had to stop using the word "colored" too?
YES IT DID!!!!
(why was the last post deleted??? im assuming its because of my NATIVE english way of spelling coloUred!!!!
)skepticaltrader
Guest
maybe the trader was a former failed Sumo wrestler and he had fat fingers.
http://online.wsj.com/article/SB113431858095219566.html?mod=home_whats_news_us
Exchange made
botched trade worse
By YUKA HAYASHI and ANDREW MORSE
Staff Reporters of THE WALL STREET JOURNAL
December 12, 2005
TOKYO -- The Tokyo Stock Exchange said the malfunctioning of its own trading system prevented Mizuho Securities Co. from quickly canceling a botched trade last week that has cost the brokerage firm close to a quarter of a billion dollars.
The admission raises questions about who is responsible for the financial fallout, and could shift a large chunk of the clean-up cost to the bourse from the brokerage arm of Mizuho Financial Group, one of Japan's largest financial institutions.
Mizuho said on Thursday it had racked up a stock-trading loss of at least $233 million, caused when a broker made an error inputing an order to trade shares of a small job-recruiting company called J-Com Co.
When Mizuho noticed the input error just minutes after the opening of Thursday's trade, only "several thousand shares" had actually been sold to buyers, a fraction of the 610,000 shares Mizuho had mistakenly offered to the market, Mizuho executives said last week. Mizuho then tried several times to cancel the order but wasn't able to do so. If the Tokyo Stock Exchange's order-canceling system had functioned properly, the amount of the loss would have been much smaller.
The TSE had previouly said that Mizuho Securities made an incorrect input to cancel the errant order.
A TSE official said it wasn't yet clear who will eventually pay for the loss. Mizuho will settle its trade tomorrow, and could later ask the TSE to pay for some of the cost. Officials at Mizuho couldn't immediately be reached for comment yesterday.
The TSE's admission of the problems with its own computer system underscores growing concern that the bourse's trading system is too weak to handle surging activity on the Tokyo stock market. Trading volume on the exchange has been running at near-record levels in recent months as investors from both inside and outside the country rush into Japanese stocks, lured by Japan's rapidly recovering economy. Just last month, the exchange had to suspend trading of all listed shares for several hours because of a software glitch related to an earlier capacity upgrade.
Before TSE's announcement yesterday, traders and investors had speculated that Mizuho might offer to pay a premium to people who bought the J-Com shares Mizuho mistakenly sold, in an effort to close out the trade. Mizuho's error resulted in the sale of 610,000 shares of J-Com shares, more than 40 times the number of the shares the company had actually issued.
Even before yesterday's announcement, both the TSE and Mizuho drew criticism for mishandling the situation. Even though the mistake occurred at the beginning of the day Thursday, Mizuho didn't disclose it until well after the close of trading. The TSE didn't suspend trading of J-Com until Friday morning, leading to swings in its shares throughout the day on Thursday. And the two companies didn't explain what happened until just before midnight. Confused investors dumped shares of financial companies, helping to push down benchmark Nikkei 225 Stock Average down nearly 2% on Thursday.
The clumsy response stands in sharp contrast to the image of Japan that has lured many investors back to the Japanese equity market in recent months. Economists have been painting Japan as an economy on the brink of a significant recovery, its businesses having cleaned house to become nimbler and more efficient. Encouraged, foreign investors have been pouring money into Japanese shares this year, making up the bulk of net purchases in Japan's stock market. The Nikkei has soared 34% since the beginning of the year, reaching five-year highs.
But a recent series of glitches signal that Japan's financial markets are poorly prepared to handle the increased interest, in everything from modern trading systems to investor disclosure and risk control.
One problem: The TSE has no substantial competition in Japan, which means change tends to come slowly.
"They have no real incentive to modernize," said Philippa Allen, managing director of ComplianceAsia Consulting Pte., which advises companies on how to meet regulatory obligations. "If you want to trade in Japan, you have to go through them." By contrast, many big companies in the U.S. that are listed on the New York Stock Exchange and Nasdaq also maintain listing on regional exchanges, like Boston and Philadelphia.
The Mizuho fiasco started soon after the 9 a.m. local-time opening bell Thursday. A broker at Mizuho Securities Co. received a call asking to sell one share of J-Com, which had its debut on the exchange that morning at 610,000 yen, or about $5,000. Instead, the Mizuho broker typed in 610,000 shares at one yen each.
An assistant caught the error within a minute and a half. For the next half hour, Mizuho tried to cancel the erroneous order, but the computer system didn't respond. Mizuho sought help from the TSE, but still couldn't cancel the order. The company didn't disclose the identity of the broker, or whether any action was taken against this employee.
By 10:30 a.m., senior executives at Mizuho and the TSE were made aware of the error. But it took Mizuho until 4:30 p.m. to acknowledge involvement as it focused on figuring out what happened, rather than trying to stem repercussions in the market.
The problem trade wreaked havoc at other investment banks. Some were deluged with phone calls from traders and investors asking if they were responsible for the huge error. Nikko Cordial Securities Inc., one of Japan's Big Three brokers, released a statement saying that neither it nor its affiliates were responsible for the trade.
Lehman Brothers Inc., which recognized the order was potentially an error, stopped all of its trading in J-Com before the market took its lunch break at 11:30 a.m.
The trade has also created confusion as to who owns Osaka-based J-Com. On Friday, Morgan Stanley, following local disclosure regulations, filed documents with tax authorities saying that it bought 4,522 shares. That accounts for 31.2% of the shares outstanding, but only about 1% of the number of shares Mizuho sold.
The details of the trading error were finally disclosed at 11:40 p.m., nearly 15 hours after the mistake was made. Keisuke Yokoo, a Mizuho vice president, said: "All we can do is to accept the criticism that we lacked the will to control the crisis."
Mizuho and the TSE blamed each other for inadequate systems. Tomio Amano, a TSE senior executive, said Mizuho couldn't cancel the trade because its system didn't automatically update to market prices. Mizuho executives suggested the bourse's system should have rejected Mizuho's order because the size was clearly abnormal. The TSE's Mr. Amano acknowledged the bourse should have suspended trading in J-Com when the error was confirmed.
U.S. exchanges have had to make their own tough calls about botched transactions. In 2003, for example, an apparent spurt of bad trades pushed the stock of education company Corinthian Colleges Inc. down more than 30% in minutes on the Nasdaq Stock Market. The exchange halted trading, but Archipelago Holdings Inc., the electronic exchange now in the process of merging with the New York Stock Exchange, reopened Corinthian trading before Nasdaq did, prompting confusion. Nasdaq canceled hundreds of trades it said were the result of errors. A Nasdaq spokeswoman says rival trading centers now wait for Nasdaq to reopen halted Nasdaq stocks before trading begins.
At the NYSE, people for the most part still trade with each other -- not computer to computer. Even though errors often start with a clerk mistyping an order, humans are better at catching the problem than computers, Big Board officials say.
But NYSE trading glitches concerning so-called program trades have dragged the entire U.S. stock market down for short periods.
--Aaron Lucchetti and David Reilly contributed to this article.
Write to Yuka Hayashi at yuka.hayashi@wsj.com and Andrew Morse at andrew.morse@wsj.com
Exchange made
botched trade worse
By YUKA HAYASHI and ANDREW MORSE
Staff Reporters of THE WALL STREET JOURNAL
December 12, 2005
TOKYO -- The Tokyo Stock Exchange said the malfunctioning of its own trading system prevented Mizuho Securities Co. from quickly canceling a botched trade last week that has cost the brokerage firm close to a quarter of a billion dollars.
The admission raises questions about who is responsible for the financial fallout, and could shift a large chunk of the clean-up cost to the bourse from the brokerage arm of Mizuho Financial Group, one of Japan's largest financial institutions.
Mizuho said on Thursday it had racked up a stock-trading loss of at least $233 million, caused when a broker made an error inputing an order to trade shares of a small job-recruiting company called J-Com Co.
When Mizuho noticed the input error just minutes after the opening of Thursday's trade, only "several thousand shares" had actually been sold to buyers, a fraction of the 610,000 shares Mizuho had mistakenly offered to the market, Mizuho executives said last week. Mizuho then tried several times to cancel the order but wasn't able to do so. If the Tokyo Stock Exchange's order-canceling system had functioned properly, the amount of the loss would have been much smaller.
The TSE had previouly said that Mizuho Securities made an incorrect input to cancel the errant order.
A TSE official said it wasn't yet clear who will eventually pay for the loss. Mizuho will settle its trade tomorrow, and could later ask the TSE to pay for some of the cost. Officials at Mizuho couldn't immediately be reached for comment yesterday.
The TSE's admission of the problems with its own computer system underscores growing concern that the bourse's trading system is too weak to handle surging activity on the Tokyo stock market. Trading volume on the exchange has been running at near-record levels in recent months as investors from both inside and outside the country rush into Japanese stocks, lured by Japan's rapidly recovering economy. Just last month, the exchange had to suspend trading of all listed shares for several hours because of a software glitch related to an earlier capacity upgrade.
Before TSE's announcement yesterday, traders and investors had speculated that Mizuho might offer to pay a premium to people who bought the J-Com shares Mizuho mistakenly sold, in an effort to close out the trade. Mizuho's error resulted in the sale of 610,000 shares of J-Com shares, more than 40 times the number of the shares the company had actually issued.
Even before yesterday's announcement, both the TSE and Mizuho drew criticism for mishandling the situation. Even though the mistake occurred at the beginning of the day Thursday, Mizuho didn't disclose it until well after the close of trading. The TSE didn't suspend trading of J-Com until Friday morning, leading to swings in its shares throughout the day on Thursday. And the two companies didn't explain what happened until just before midnight. Confused investors dumped shares of financial companies, helping to push down benchmark Nikkei 225 Stock Average down nearly 2% on Thursday.
The clumsy response stands in sharp contrast to the image of Japan that has lured many investors back to the Japanese equity market in recent months. Economists have been painting Japan as an economy on the brink of a significant recovery, its businesses having cleaned house to become nimbler and more efficient. Encouraged, foreign investors have been pouring money into Japanese shares this year, making up the bulk of net purchases in Japan's stock market. The Nikkei has soared 34% since the beginning of the year, reaching five-year highs.
But a recent series of glitches signal that Japan's financial markets are poorly prepared to handle the increased interest, in everything from modern trading systems to investor disclosure and risk control.
One problem: The TSE has no substantial competition in Japan, which means change tends to come slowly.
"They have no real incentive to modernize," said Philippa Allen, managing director of ComplianceAsia Consulting Pte., which advises companies on how to meet regulatory obligations. "If you want to trade in Japan, you have to go through them." By contrast, many big companies in the U.S. that are listed on the New York Stock Exchange and Nasdaq also maintain listing on regional exchanges, like Boston and Philadelphia.
The Mizuho fiasco started soon after the 9 a.m. local-time opening bell Thursday. A broker at Mizuho Securities Co. received a call asking to sell one share of J-Com, which had its debut on the exchange that morning at 610,000 yen, or about $5,000. Instead, the Mizuho broker typed in 610,000 shares at one yen each.
An assistant caught the error within a minute and a half. For the next half hour, Mizuho tried to cancel the erroneous order, but the computer system didn't respond. Mizuho sought help from the TSE, but still couldn't cancel the order. The company didn't disclose the identity of the broker, or whether any action was taken against this employee.
By 10:30 a.m., senior executives at Mizuho and the TSE were made aware of the error. But it took Mizuho until 4:30 p.m. to acknowledge involvement as it focused on figuring out what happened, rather than trying to stem repercussions in the market.
The problem trade wreaked havoc at other investment banks. Some were deluged with phone calls from traders and investors asking if they were responsible for the huge error. Nikko Cordial Securities Inc., one of Japan's Big Three brokers, released a statement saying that neither it nor its affiliates were responsible for the trade.
Lehman Brothers Inc., which recognized the order was potentially an error, stopped all of its trading in J-Com before the market took its lunch break at 11:30 a.m.
The trade has also created confusion as to who owns Osaka-based J-Com. On Friday, Morgan Stanley, following local disclosure regulations, filed documents with tax authorities saying that it bought 4,522 shares. That accounts for 31.2% of the shares outstanding, but only about 1% of the number of shares Mizuho sold.
The details of the trading error were finally disclosed at 11:40 p.m., nearly 15 hours after the mistake was made. Keisuke Yokoo, a Mizuho vice president, said: "All we can do is to accept the criticism that we lacked the will to control the crisis."
Mizuho and the TSE blamed each other for inadequate systems. Tomio Amano, a TSE senior executive, said Mizuho couldn't cancel the trade because its system didn't automatically update to market prices. Mizuho executives suggested the bourse's system should have rejected Mizuho's order because the size was clearly abnormal. The TSE's Mr. Amano acknowledged the bourse should have suspended trading in J-Com when the error was confirmed.
U.S. exchanges have had to make their own tough calls about botched transactions. In 2003, for example, an apparent spurt of bad trades pushed the stock of education company Corinthian Colleges Inc. down more than 30% in minutes on the Nasdaq Stock Market. The exchange halted trading, but Archipelago Holdings Inc., the electronic exchange now in the process of merging with the New York Stock Exchange, reopened Corinthian trading before Nasdaq did, prompting confusion. Nasdaq canceled hundreds of trades it said were the result of errors. A Nasdaq spokeswoman says rival trading centers now wait for Nasdaq to reopen halted Nasdaq stocks before trading begins.
At the NYSE, people for the most part still trade with each other -- not computer to computer. Even though errors often start with a clerk mistyping an order, humans are better at catching the problem than computers, Big Board officials say.
But NYSE trading glitches concerning so-called program trades have dragged the entire U.S. stock market down for short periods.
--Aaron Lucchetti and David Reilly contributed to this article.
Write to Yuka Hayashi at yuka.hayashi@wsj.com and Andrew Morse at andrew.morse@wsj.com
TSE Chief Tsurushima May Quit Over Trading Error (Update1)
Dec. 12 (Bloomberg) -- Tokyo Stock Exchange President Takuo Tsurusihma, 67, admitted the bourse's own system prevented Mizuho securities from canceling a false share-sale order and said he may resign.
Mizuho Securities Co., Japan's second-biggest financial group, made a trading error on J-Com Co.'s Dec. 9 debut on the Tokyo Stock Exchange, triggering $3.5 billion of trades which could cost the brokerage at least 27 billion yen ($223 million).
The losses may mount as Mizuho Securities Co. tries to buy stock in J-Com Co. to meet commitments after it mistakenly tried to sell 610,000 shares in the $93 million telecommunications company. The Tokyo Stock Exchange failed to cancel the trade after four requests from Mizuho, the brokerage's President Makoto Fukuda said last week.
``We are very sorry to have caused such huge trouble to J- Com, Mizuho Securities and investors,'' Tsurushima said at a press conference last night. ``I regard it as a very significant matter and will consider how to take the responsibility, which includes my resignation.''
Trading in J-COM was suspended today, the Tokyo exchange said.
On Dec. 9, Mizuho's Fukuda said the brokerage entered a mistaken order to sell 610,000 shares of J-Com at 1 yen each, Fukuda said last week. Brokerage employees realized the error four minutes later and made four unsuccessful attempts to cancel the order, Fukuda said.
The Tokyo exchange initially did not acknowledge responsibility for failing to recognize the cancellation orders.
To contact the reporters on this story:
Takahiko Hyuga in Tokyo at thyuga@bloomberg.net.
Last Updated: December 11, 2005 18:11 EST
Dec. 12 (Bloomberg) -- Tokyo Stock Exchange President Takuo Tsurusihma, 67, admitted the bourse's own system prevented Mizuho securities from canceling a false share-sale order and said he may resign.
Mizuho Securities Co., Japan's second-biggest financial group, made a trading error on J-Com Co.'s Dec. 9 debut on the Tokyo Stock Exchange, triggering $3.5 billion of trades which could cost the brokerage at least 27 billion yen ($223 million).
The losses may mount as Mizuho Securities Co. tries to buy stock in J-Com Co. to meet commitments after it mistakenly tried to sell 610,000 shares in the $93 million telecommunications company. The Tokyo Stock Exchange failed to cancel the trade after four requests from Mizuho, the brokerage's President Makoto Fukuda said last week.
``We are very sorry to have caused such huge trouble to J- Com, Mizuho Securities and investors,'' Tsurushima said at a press conference last night. ``I regard it as a very significant matter and will consider how to take the responsibility, which includes my resignation.''
Trading in J-COM was suspended today, the Tokyo exchange said.
On Dec. 9, Mizuho's Fukuda said the brokerage entered a mistaken order to sell 610,000 shares of J-Com at 1 yen each, Fukuda said last week. Brokerage employees realized the error four minutes later and made four unsuccessful attempts to cancel the order, Fukuda said.
The Tokyo exchange initially did not acknowledge responsibility for failing to recognize the cancellation orders.
To contact the reporters on this story:
Takahiko Hyuga in Tokyo at thyuga@bloomberg.net.
Last Updated: December 11, 2005 18:11 EST