TSE, in Trading Upgrade Step, Nears Vendor Selection

By Maria Trombly | Securities Industry News | September 18, 2006

The Tokyo Stock Exchange (TSE) finished accepting bids this month to rebuild its troubled trading system and is preparing to select a vendor by year-end. The exchange did not disclose the names of the candidates; full implementation is planned for 2009.

The TSE is seeking an equities trading system that includes order matching, connectivity with market participants, a market data feed, trade surveillance and links to clearing and settlement systems. Bidders must have a track record with large-scale, public and mission-critical systems, and a Japanese presence sufficient to support and service the trading platform. Trading systems experience is particularly desirable, the exchange said.

The selection process follows a series of highly publicized and embarrassing outages at the TSE. In November 2005 it shut down for an entire morning because of problems traced to a capacity upgrade in progress by Fujitsu, the exchange's principal technology supplier. In December, Mizuho Securities accidentally entered an order to sell 610,000 shares of J-Com Co. at 1 yen each, instead of one share at 610,000 yen. The exchange temporarily stopped trading in J-Com shares. Mizuho is still fighting with the TSE over the liability for the resulting JPY40 billion ($344 million) loss.

Takuo Tsurushima, then TSE president, Sadao Yoshino, managing director of IT, and Tomio Amano, managing director and executive officer, all resigned in December. Six other senior executives took pay cuts, as did several Fujitsu officers. TSE chairman Taizo Nishimuro was named acting CEO in January and took the title permanently in March. Also in January, the TSE hired Yoshinori Suzuki, who had been CEO of NTT Data Force Corp., as chief information officer.

But problems continued, with more botched trades in January. Difficulties adapting to an increase in volume led the TSE to reduce trading time by half an hour each day. Normal trading hours

didn't resume until the systems were upgraded in April. "The current trading system itself had some problems," said Masayuki Hirose, director of IT planning at the exchange.

In an unrelated move, at roughly the same time that the TSE's problems were coming to light, the Osaka Stock Exchange replaced its Fujitsu trading system with one from Hitachi (Securities Industry News, Feb. 20).

The TSE has also been contending with developments that are simultaneously challenging securities markets around the world, including rapid increases in trading and message volumes stemming from algorithmic trading. Because algorithmic systems break orders into small lots for more efficient execution, order messages are increasing at a faster rate than share turnover. Robert Iati, an analyst with Westborough, Mass.-based research firm Tabb Group, predicts that if the TSE and other Asian markets follow the U.S. model, their trade order volumes will increase more than 50 percent over a two-year span.