Tokyo

THE Tokyo Stock Exchange (TSE) halted trading for the entire day on Thursday, freezing buying and selling in thousands of companies in the worst outage for the world's third-largest bourse.

Japan Exchange Group Inc, operator of the TSE, said the problem occurred because of a failed switchover to backups following a hardware breakdown. The exchange will replace the hardware and restart its system the same day, and aim to resume trading as normal on Friday, TSE President Koichiro Miyahara told reporters in the afternoon in Tokyo.

The issue damps investor sentiment following a positive US stock market performance overnight and closures in other major markets in the region, including China, Hong Kong, South Korea and Taiwan for public holidays. It also comes on the first day of a new quarter and of the second half of Japan's fiscal year, when trading volumes would typically be high as many funds adjust their positions.

The failure was the first all-day stoppage in trading since the exchange shifted from the open-outcry trading pit to a fully-electronic system in 1999. Previous glitches had affected only part of the trading day.

Ryuta Otsuka, a strategist at Toyo Securities Co, said: "This is very problematic. When things like this happen, investor confidence in the Japanese market takes a hit. It could later weigh on Japanese stocks."

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Chief Cabinet Secretary Katsunobu Kato, the top government spokesperson, said it was "extremely regrettable" that trading opportunities have been restricted; the Financial Services Agency is considering ordering the exchange to issue a report detailing the cause of the glitch and the steps it will take to prevent a recurrence, Kyodo reported.

Global markets are on a heightened state of alertness to glitches, following a cyber attack in New Zealand that spurred trading halts over four days in August. The Japan exchange said, however, that there were no indications that Thursday's outage was linked to the hacking. Deutsche Boerse's electronic trading system has also suffered two major outages this year.

Other markets in Japan, including the exchanges in Sapporo, Nagoya, and Fukuoka, have suspended trading. Derivatives, including futures, trade on the Osaka Exchange, which was unaffected by the system issue. Futures on the Nikkei 225 Stock Average were up 0.5 per cent in Osaka in the mid-afternoon local time. Japan Exchange shares on the Japannext PTS platform fell by 4.7 per cent.

The benchmark Topix index dropped 2 per cent yesterday, trimming its gain for September to 0.5 per cent and closing the latest quarter with a 4.3 per cent advance. A Tokyo-based equity trader at a local brokerage said mutual-fund flows for the beginning of the month and second half of the fiscal year will now be queued up, which could add to volatility on Friday if the bourse does not open.

Japan's US$6.15 trillion (S$8.38 trillion) stock market is the third-largest in the world behind those of US and China. Over 2,100 stocks are listed on the top section of the TSE, where total daily turnover has averaged about US$22 billion in the past year.

Makoto Sengoku, a market analyst at Tokai Tokyo Research Institute Co, said he will watch the reaction in the TSE Mothers Index, the main gauge for startup companies in Japan. "For retail investors trading every day, today might be a shock, but for those who aren't frequently trading, it's not as impactful," he said.

The system issue is the largest since a series of computer issues in the mid-2000s led to the resignation of the exchange president. Trading was halted for 41/2 hours in 2005 due to a botched system upgrade, the first time equity trading had been completely suspended. The next year, the exchange halted trading early after a surge in orders triggered by an investigation into high-flying Internet company Livedoor Co overloaded its computer systems. Trading hours were shortened for three months.

The Tokyo exchange introduced its faster Arrowhead system in January 2010, but that did not solve the issues entirely. A computer glitch in 2012 halted trading in 241 securities, and a system error later that year took derivatives trading offline.

Fujitsu spokesman Takeo Tanaka said the company is investigating the latest issue, but declined to say more.

The halt came on the same day as one of Japan's most closely watched economic indicators, the Bank of Japan's Tankan survey, released just 10 minutes before trading was set to begin. BLOOMBERG