Tokyo Stock Exchange Faces FSA Probe Over System Outage

Based on an on-site investigation and findings from JPX's own investigative committee, the FSA will consider issuing a business improvement order. 

Japan's FSA (Financial Services Agency) has decided to conduct an on-site investigation of the TSE (Tokyo Stock Exchange) in response to a system failure that shut down equities trading earlier this month, reports Nikkei.

On 1 October, the TSE was forced to cancel equities trading for the full day, after a hardware fault and subsequent failure to switch to a backup device prevented the exchange from distributing market information as normal. Regional exchanges using same platform also canceled trading.

The next day, the FSA ordered the TSE and its parent company JPX (Japan Exchange Group) to submit a report on the incident.

On Friday, the TSE submitted the requested incident report detailing the sequence of events surrounding the system failure, the cause of the failure, and measures the bourse will put in place to prevent a recurrence.

The failure occurred in a memory module of shared disk device used on the TSE's Arrowhead cash equity trading system, following which a setting prevented automatic switching to a secondary device. These issues have since been corrected, but the TSE says it will undergo additional testing and drills and enhance its procedures.

Among the measures to prevent recurrence, the TSE will establish a council comprising market users by end-March to develop rules and procedures necessary to resume trading on the same day in the event of a future system failure, and to clarify standards for trading halts and resumptions.

The council will comprise trading participants, members from investment banks, investors, system vendors, and a representative from the FSA.

According to Nikkei, the FSA will review in detail the cause of the system problems as well as the TSE's internal controls. Based on the results of the on-site probe, the regulator plans to weigh administrative actions, including a possible business improvement order.

JPX has established its own investigative committee to investigate the TSE system failure, comprising four independent outside directors.

The FSA will reportedly take the progress of JPX's own probe into consideration when making a final decision on any administrative actions.