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Tokyo Stock Exchange mulls system upgrade

Wants to avoid repeat of recent fiasco

An increase in trading capacity at the Tokyo Stock Exchange may happen earlier than planned after problems keeping up with volume forced a shutdown earlier this week, the market operator said.

Tokyo Stock Exchange had been planning to replace the current clearing system with a new version at the end of January. The new system will increase the maximum number of executed transactions from the current 4.5 million daily to five million per day. However, the exchange is now considering upgrading the current system as a stop-gap measure until the end of the month, said Mitsuo Miwa, a spokesman for the exchange.

The exchange needs to perform tests to determine to what level it can be upgraded. Those tests may take place over the weekend, although a decision has yet to be made, he said.

The faster-than-planned capacity increase is being considered after the market was forced to close 20 minutes early on Wednesday after heavy trading threatened to push the clearing system past its limit. The number of cleared trades hit 4.38 million by the time it was forced to shut down at 2:40 pm – the first time it's been subject to such an early close in its 57-year history.

From Thursday, a 30-minutes-shorter trading day was imposed to help keep volumes down. It worked, and another early close was avoided, with cleared trades totalling four million at market close on Thursday and 3.35 million at close on Friday.

The heavy volume was sparked by a raid by public prosecutors on the head offices of Livedoor late on Monday, according to analysts.

Livedoor is a major domestic internet portal and is well known for its charismatic president, Takafumi Horie, and aggressive merger and acquisitions activity. Japanese authorities haven't yet detailed any accusations against Livedoor, but local media has reported a string of misdeeds at the company associated with its acquisitions activity and financial statements.

Japan's internet trading population has grown rapidly in the last year; it is likely that many traders attempted to dump Livedoor stock and other internet shares on news of the raid. As capacity at the exchange is determined by the number of executed transactions rather than the number of shares that change hands, small orders from many investors can quickly cause a problem.

Whether an upgrade goes ahead or not, the exchange will keep operating on a shortened trading day for the foreseeable future, Miwa said.

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