The Tokyo Stock Exchange Goes Broke
On Tuesday, August 7, 2012, the Tokyo Stock Exchange (TSE) experienced a serious system glitch, resulting in the suspension of some transactions at the exchange, which is part of the critical market infrastructure. Ultimately, the glitch restricted trading opportunities for investors.
Investigation of the incident brought to light the following: At 9:18 a.m. on August 7, 2012, a hardware failure occurred at “Layer 3 Switch #1,” a derivatives trading system network device, which was the primary device in a primary-standby configuration.
A system failure task force was formed immediately to identify the nature of the incident and the course of action. The next steps are to install a revised version of the built-in program in the device which failed after thorough verification in a test environment. The Tokyo Stock Exchange suffered two separate outages that impacted investor confidence in their systems, brought strict admonishment by a regulatory agency, and resulted in compensation penalties to senior executives.
This incident occurred only a week after another serious trading systems glitch resulted in a $400 million loss for Knight Capital. The incident at the TSE was the second of its type at the Tokyo Exchange; a previous system glitch occurred in February 2012.
The Japanese Federal Services Agency criticized the Tokyo Exchange for the system interruption and issued a business improvement order highlighting the exchange's failure to address the trading system problems.
The business improvement order required the TSE to establish improvement measures that are subject to verification by external experts, ensure effectiveness of improvement measures, and provide regular reports on the progress and status of these actions.
