Although the direct cause of the stock's price volatility that day was the massive erroneous order placed by Mizuho Sec., it was revealed that a cancel order from Mizuho Sec. was not accepted due to a TSE system irregularity.
We express our deepest regret to all parties concerned for the great inconvenience caused when we incorrectly reported early on that the reason the aforementioned cancel order was not executed was because Mizuho Sec. failed to specify the post-deemed processing price in the cancel order price.
As the TSE bears the responsibility for providing a stable market, we once again express our profound regret to all parties involved that share price volatility occurred that could potentially cause trust in the market to be damaged.
The situation and circumstances of that day are outlined below.
Situation:
At 9:27 a.m., Mizuho Sec. mistakenly placed a sell order for 610,000 shares of J-COM at 1 yen, instead of the intended 1 share at 610,000 yen. At that time, the issue had a special bid quote of 672,000 yen displayed, however, the conditions for execution were fulfilled with this sell order, and the trade was completed. As the number of sell orders was so immense, a portion still remained even after trades were completed at the initial price. This remaining portion were registered as sell orders at 572,000 yen, the lower daily price limit established when the initial price was determined (explained further below), and a large amount of buy orders were continuously executed in sequence. During this time, Mizuho Sec. placed a cancel order for the above sell order, but because a system irregularity existed that became apparent during such extraordinary circumstances, the order was not able to be canceled, and executions continued to be sequentially completed without interruption.
Processing circumstances apparent at this point
When the initial price for a newly listed issue is determined,
the daily price limit for quotations for the issue is set based
on that initial price. Should an order be placed that exceeds this
daily price limit, the trading and transaction rules are such that
this order is considered to be placed at the price limit ("deemed
processing" below). It was revealed through this incident that
there was an irregularity in this system when cancels or changes
are processed to orders in which deemed processing is applied.
In the case of J-COM specifically, when a sell order of 1 yen was
placed at 9:27 a.m. while a special bid quote of 672,000 yen was
being displayed, the initial price of 672,000 yen was determined,
and therefore the daily price limit for quotations was established
(100,000 yen above and below the price). As there was a massive
amount of sell orders at 1 yen, orders still remained after the
initial price was determined, which were then registered at the
lower daily price limit of 572,000 yen through deemed processing.
After this, executions were repeated one after another, and buy
orders were eliminated sequentially from 672,000, causing the price
to fall.
Meanwhile, Mizuho Sec. made several attempts to cancel the order,
but as these cancel orders were made while executions were being
processed, an irregularity occurred in which the target order was
not canceled. This is an irregularity that arises when deemed processing
is applied to an order, and a corresponding opposing order exists.
Future response
This is an incident that occurs when an issue is newly listed on
the TSE directly and, as in this case, while a special bid quote
is displayed, such a large amount of orders is placed that the net
amount exceeds the number of the special quote order, and many sell
orders still remain after the initial price is determined, to which
deemed processing is then applied and then orders are placed at
that price. As such, we are committed to strengthening supervision
of newly listed issues in the near future and conduct extensive,
detailed investigations of our system while considering the possibility
of this and all other cases in the future, in ensuring irregularities
such as this do not occur again. Also, the TSE will conduct a prompt,
thorough analysis of the details of the cause of this recent irregularity
in cooperation with the trading system developer, Fujitsu, Ltd.
The executives and employees of the TSE as well as all concerned
parties are together fully committed to exerting their full efforts
in assuring the stable operation of the market and that this type
of situation does not occur again in the future. We ask for your
kind understanding and support in this matter.
This English version announcement is not an officially
accurate translation of the original Japanese announcement. In the
case where any differences may occur in the English version, the
original Japanese announcement will prevail. TSE shall not accept
any responsibility for damages caused by any errors, inaccuracies,
misunderstandings or misspelling with regard to the translation
of the announcement. This announcement may be used only for reference
purposes. This Tokyo Stock Exchange, Inc. maintains the right to
claim compensation from violators for any damages it may suffer
from the violation of these conditions.
