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Capital Markets

Japan: Crisis? Which crisis?

Japan might finally be on the road to recovery from its economic downturn but recent events have revealed a crisis of a different sort. After a human input error to a trade by Mizuho Securities in December that the Tokyo Stock Exchange trading system refused to cancel, despite requests from the broker, the TSE was rocked by another crisis in January when panic selling forced the exchange to shut early since the trading system was unable to cope with the flood of orders.

The selling was sparked off by a raid by Japanese prosecutors on the Tokyo offices of internet company Livedoor, a controversial business that had upset the Japanese corporate establishment because of its aggressive bid tactics. Livedoor is facing allegations of market manipulation and accounting fraud. The shares of the company were quickly suspended.

The trading fiasco has caused uproar in Japan, coming so soon after a similar occurrence last year. In November, the trading system crashed and trading was suspended after renewed buying interest in Japanese equities forced volumes through maximum limits.

Critics are pointing not just to the integrity of the trading system but also to TSE management failings. Many investors were furious at TSE management for allowing Livedoor to restart trading the day after the suspension just as the allegations against the company widened.

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