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Japan stock markets plan to resume trade Friday morning

Tokyo Stock Exchange still investigating the cause with supplier Fujitsu

People walk past a screen of blank prices in a stock quotation board in Tokyo on Oct. 1. (Photo by Shihoko Nakaoka)

TOKYO -- The Tokyo Stock Exchange will reopen Friday morning, after technical malfunction on Thursday caused Japan's main stock market to halt activity for an entire day for the first time.

"After discussing with market participants, if trading resumed today, there was a request that it would be difficult to deal with customers and smooth trading," Koichiro Miyahara, president and CEO of TSE, said in a press conference. "So we decided to suspend trading for the entire day."

Miyahara said there was a malfunction in a part of the arrowhead trading system at 7:04 a.m., which caused "abnormalities" in its ability to transmit information. TSE plans to replace the hardware and resume normal trading activity on Friday.

Trading will begin at 9 a.m. JST on Friday, as normal and without trading limits, based on Wednesday's close as starting prices. TSE announced after the press conference that it was "proceeding without problems toward resumption of trading."

The TSE said the issue stemmed from "a hardware failure" and that switching to a backup device also failed to work. As a result, market information could not be distributed.

Chief Information Officer Ryusuke Yokoyama explained that TSE has identified the faulty part of the device, and that Friday's operation would be run with a backup device. However, it is still investigating why the automatic switch-over from the faulty to the backup device did not work on Thursday.

Fujitsu, the information technology services company that developed the TSE's "arrowhead" trading system, earlier told Nikkei that it was "currently checking the situation." The TSE began using the system in 2010, and upgraded it last November.

"It is our responsibility to operate the market," said Miyahara, TSE's CEO. While Fujitsu will be investigating the cause of he failures, Miyahara said that TSE is not considering asking the company for compensations.

Koichiro Miyahara, president and CEO of the Tokyo Stock Exchange, apologizes for the shutdown on Oct. 1. (Photo by Yuki Nakao)

The unprecedented disruption is likely to raise concerns over the reliability of Asia's largest exchange by market capitalization at a time when Japan has ambitions of becoming the region's leading financial hub.

TSE initially said that trading of all stocks would be halted due to an "issue in the distribution of market information." In a notice on its website shortly before trading began at 9 a.m., Japan Exchange said it would not be able to accept orders.

It later said trading would be halted for the entire day and did not say when it would resume operations.

The outage caused wide discontent among market participants who were unable to execute trades on a day when the Bank of Japan was releasing its Tankan survey, a closely watched economic indicator, which meant high volumes were expected. The survey was released just 10 minutes before trading was due to start.

TSE said it "sincerely apologizes for any inconvenience caused to investors."

In a press conference on Thursday, Chief Cabinet Secretary Katsunobu Kato said the incident was "very regrettable."

The issue marks a major blow to one of the largest stock exchanges in the world. TSE has an average daily turnover of about 3 trillion yen ($28 billion). More than 2,100 companies are listed on its main board, called the first section, with a total market capitalization of over 600 trillion yen.

It is also raising concerns over the safety of TSE's trading system, which the bourse has touted as one of the most sophisticated in the world.

"There should be a backup system, so it's puzzling that trading would stop altogether," said one portfolio manager.

Previous trading halts only lasted for hours. TSE suffered a complete trading halt due to a system error in November 2005, but trading resumed the same day.

The bourse also temporarily suspended trading of all stocks in January 2006, when an investigation into Livedoor triggered a flood of orders.

The Nagoya Stock Exchange, Fukuoka Stock Exchange and Sapporo Securities Exchange also halted trading activity on Thursday. The exchanges all use the Tokyo Stock Exchange's system to execute trades. TSE's off-trading hours trading system, ToSTNeT, also halted trading.

Futures trading on the Osaka Exchange is ongoing as usual. Nikkei futures, which trade on the Osaka Exchange, rose following a rally in U.S. stocks on Wednesday. The Japanese yen strengthened against the U.S. dollar to around 105.5 per dollar.

The issue has shuttered one of the few stock markets in Asia that was scheduled to be open on Thursday. Chinese markets are closed due to the Golden Week holiday period, while exchanges in Hong Kong, South Korea and Taiwan are also closed.

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