System Overload!! ... System Overload??

As reported in Bloomberg today: "The Tokyo Stock Exchange halted trading for just the second time in its history after a surge in orders overloaded computer systems. Trading on the world's second-largest exchange stopped at 2:40 p.m. Japan time, 20 minutes before the regular close. The exchange, which replaced its president last month after two computer breakdowns, said it may shorten trading hours tomorrow. Japan's Nikkei 225 Stock Average tumbled 2.9 percent to 15,341.18, extending a decline that wiped off more than $300 billion of market value this week. Tokyo Electron Ltd. and Toshiba Corp. were among technology-related stocks that dropped after earnings from Intel Corp. and Yahoo! Inc. fell short of estimates. The exchange halted trading after processing 4 million orders, the maximum it can handle. It earlier asked brokerages to pool client orders to reduce the number of transactions. The suspension may further undermine investor confidence in the exchange, which halted all trading for the first time on Nov. 1 because of an error triggered by a systems upgrade. Takuo Tsurushima resigned as president last month after glitches scuttled a planned initial public share sale this year. The exchange said the breakdown in November was caused by a systems upgrade it conducted in October and that it may bring forward the timing of another overhaul planned for February. A malfunction at the exchange on Dec. 8 prevented Mizuho Securities Co. from canceling a trading error, causing the brokerage unit of Japan's second-largest bank about 40.5 billion yen (US$350 million) of losses. "

My take:

It just needs a system upgrade. Every system will have a limit but to have just 4 or 4.5 million orders as a limit is silly, and heads should roll. The queasy thing is that the expected new upgrade to be done at the end of January 2006 by the TSE will boost its limit to 5 million trades per day - gawd.... if you are hitting 4.5 million and is already having problems, increasing to 5 million will only postpone it somewhat. Should be looking at 6-8 million at least to give the exchange some kind of buffer.

This boils down to IT people not asking enough questions/feedback from traders. Naturally the chairman/ president would do a lot of deep bowing and then resign.... sigh, how we wish for the harakiri days...

All this after a system upgrade, I thought the TSE system was alright before the upgrade. After the initial upgrade, you have the Mizuho Securities fallout - and that basically was due to the inability for the trader/securities house to cancel the order from the system immediately. I am a firm believer in that in a proper exchange, all trades sent through the system should be honoured - even if it was a mistake. However, in the case for Mizuho, the sell order that was put through was more than the actual paid up of that share - i.e. if A has a paid up of 20m shares, the sell order put through was a few x 20m shares, surely the system must have in place reasonable limits to prevent this kind of acitivity (which can sabotage any firm if you have a really disgruntled employee).

There should be prudent limits preset in the system to counter human error, another black eye for TSE. Where are the circuit breakers???

Then the TSE should have stepped in to arbitrate between the buyers and sellers. One party should not benefit excessively from a genuine mistake, especially when the system infrastructure was not smart enough to prevent these mishaps.

p/s Maybe the Bursa should ship over the KLSE system to the TSE as the Malaysian versions works a lot better - anyway the activity on KLSE is so slow anyway, we should take the TSE system in exchange (how we can hit 4 million orders a day??).