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Tokyo Stock Exchange adds trading capacity

Learning from its mistakes

The Tokyo Stock Exchange added capacity to its trading system over the weekend in the hope of avoiding another embarrassing market shutdown in the coming week.

The exchange was forced to end trading 20 minutes early last Wednesday after the number of executed trades approached the clearing system's daily limit of 4.5 million. On Thursday and Friday, the exchange operated a shorter trading day to avoid a repeat of the same problem.

Over the weekend, the bourse operator augmented the system processing capacity to take the maximum daily limit for executed trades to five million, it said in a statement. As a result, from today the exchange will increase from four million to 4.5 million the threshold at which it orders a shutdown of the market. The shorter trading hours, which have cut 30 minutes from afternoon trade, will continue.

The exchange has come in for criticism of its IT management following Wednesday's shutdown.

"On the Tokyo Stock Exchange side there was clearly a lack of preparation," said Ikuo Yasuda, chairman and CEO of merger and acquisition advisors Pinnacle, speaking on Friday at the Foreign Correspondents' Club of Japan.

He said the exchange typically handles between two million and three million executed trades per day – sometimes more. The daily limit of 4.5 million trades is only 50 percent higher than the typical volume, so the exchange should have done more.

"If the system goes down then it can be said the preparations were not adequate," Yasuda said. "In the case of the New York Stock Exchange there's a lot more buffer in their capacity. Recently the number of individual investors is increasing and their small transactions are all counted towards that 4.5 million. Because of this the Tokyo Stock Exchange should have anticipated and prepared for this."

Before last week's problems, Tokyo Stock Exchange had been planning to install a new clearing system this coming weekend and said Friday that work will go ahead as scheduled. The new system will be in operation from 30 January, although it will start with a daily limit of five million executed trades. Last week, the bourse said it would raise capacity to between seven million and eight million trades this year but did not provide a time frame.

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