The Tokyo Stock Exchange suffered its most significant technical glitch since 2005 yesterday when a server experienced a problem and its back-ups didn't kick in as they were supposed to, reported Bloomberg News. As a result, trading in 222 stocks and 12 exchange-traded funds, five convertible bonds and two real estate investment trusts (see pdf for a full listing) was halted for some three and a half hours, from around 0900 to 1230 local time.
In addition, the Sapporo Securities Exchange (pdf), which shares the same Fuji Ltd. developed "arrowhead" trading system, had to suspend trading in 74 shares.
The stocks affected included Sony Corp., Hitachi Ltd., Mitsubishi Electric Corp. and Tokyo Electric Power Co. On Wednesday, Sony announced the appointment of a new CEO, and yesterday it also announced losses for the fourth year in a row. As one could imagine, traders were bemoaning the glitch as being most inopportune, this other Bloomberg story reports.
There has been a spate of stock exchange technical glitches the past several months across the world. Last month, the Johannesburg Stock Exchange halted trading for an hour due to a network problem. Further, according to a Reuters story, the JSE "was forced to halt trade several times last year, due to problems with the connection to its trading engine in London."
A few days before the JSE glitch, the Financial Times of London reported that a "technical glitch" delayed the start of trading on the SIX Swiss Exchange for three hours. The FT article also noted that "more than 20 [technical glitch] incidents were reported on Europe’s share trading venues last year with NYSE Euronext, Borsa Italiana and the London Stock Exchange among those to suffer high-profile outages as messages went missing, index levels failed to update and hardware failed. Last month BATS Chi-X Europe, Europe’s largest share trading venue, was knocked out for more than seven hours."
Then in December the NASDAQ suffered a problem with that resulted in quoting delays as it opened, while in November the New York Stock Exchange has a problem disseminating trades and quotes in about 300 stocks. Also in November, the Toronto Stock Exchange experienced a glitch that affected stocks with ticker symbols M through Z. In addition, the Australian Securities Exchange (ASX) experienced an outage for four hours in late October, its second outage of the year.
The numerous glitches, as well as the "flash crash" in 2010 and the continuing number of mini-flash crashes since then, have caused the US Securities and Exchange Commission (SEC) to revisit its exchange disaster management guidelines it developed in the 1980s, a story last week in the Wall Street Journal reported.
The concern is that the "technological arms race in financial markets," as Andrew Lo, director of the Laboratory for Financial Engineering at M.I.T. put it in a recent New York Times article, may be creating unintended consequences that could cause chaos in the markets if a trading system goes haywire.
The SEC hopes, the WSJ says, to develop guidelines "to span the 13 U.S. stock exchanges and other" that would lay out in an orderly way what would happen in case of exchange outages or other technical glitches.
Some exchanges off the record told the WSJ that they think the current SEC disaster management guidelines are perfectly fine and don't need to be revised. These exchanges argue that because the potential financial/reputational consequences for stock exchanges created by a major technical glitch are so high that they will do everything in their power to keep one from happening.
Yeah, right. I've heard that sort of reasoning before in regard to other financial institution endeavors; I didn't believe it then, and I don't believe it now either.
And I bet that the Tokyo Stock Exchange thought those back-up servers would work without fail, too.
Robert N. Charette is a Contributing Editor to IEEE Spectrum and an acknowledged international authority on information technology and systems risk management. A self-described “risk ecologist,” he is interested in the intersections of business, political, technological, and societal risks. Charette is an award-winning author of multiple books and numerous articles on the subjects of risk management, project and program management, innovation, and entrepreneurship. A Life Senior Member of the IEEE, Charette was a recipient of the IEEE Computer Society’s Golden Core Award in 2008.