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Tokyo bourse blames IP address error for trading outage

Simple setup mistake at brokerage server seen as cause of Oct. 9 glitch

The Tokyo Stock Exchange is set to lay out suggestions for preventing a crash like the one earlier this month in a report due Tuesday.
The Tokyo Stock Exchange is set to lay out suggestions for preventing a crash like the one earlier this month in a report due Tuesday.   © Reuters

TOKYO -- The connection failure that froze some trading at the Tokyo Stock Exchange earlier this month was triggered by incorrect IP addresses, the bourse is set to report in an official review on Tuesday.

The outage at 7:31 a.m. on Oct. 9 occurred when multiple Internet Protocol addresses -- similar to a telephone number or street address that identifies computers -- were set instead of one, at a brokerage's server. That caused the TSE to be flooded with over 1,000 times the data it normally sends, the report to the Financial Services Agency will say.

The flurry of data overwhelmed the exchange's network equipment and rendered one of its four communication lines with brokerages inoperative.

In a detail expected to be left out of the report -- which spans tens of pages -- the IP address settings were likely mistakenly set by a Merrill Lynch client that uses automated high-frequency trading software. The report suggests ways that brokerages as well as investors, including high-frequency traders, can prevent such an issue from arising again.

The disruption resulted in a massive backlog of trades, hurting investors. At 8:03 a.m. and 8:07 a.m., the report says, the TSE asked brokerages to use its remaining three communication lines. But some brokerages still experienced trouble, and around 100,000 trades were left incomplete, needing to be settled after the incident.

The report attributes the difficulty in switching to the other communication lines to "differences between companies at the administrative and systems levels." It adds that the TSE is "cooperating with brokerages while advancing verification procedures," showing a willingness to work together on preventing a recurrence.

The TSE intends to dock pay for President Koichiro Miyahara in order to take some blame for the disruption as a market operator, and is expected on Tuesday to also assign responsibility for those in charge of the systems.

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