Typo Costs Japanese Stock Company $225 Million

“To err is human, to really screw up requires a computer.” But put the two together, and no end of trouble can result. Thursday morning of last week, such an event occurred on the Tokyo Stock Exchange when a typographical error in a trading order caused Mizuho Securities to sell 610,000 shares in a company at ¥1 each. Unfortunately, the order should have been one share at ¥610,000. A bit of proofreading could have saved the company ¥27 billion – about US$225 million.

This morning, reports from Japan say that the price is actually higher. Mizuho is going to buy back about 100,000 shares in J-Com (a staffing company) from investors at an 18% premium from Friday’s close, pushing losses up by about $110 million. As of this moment, the loss will take down Mizuho’s profit for the year by about 4.1%. There is no word really on how this is affecting J-Com, which had just debuted on the Tokyo Stock Exchange. It is unlikely to damage business, and may even boost public awareness of the firm. However, to be a Japanese-speaking fly on wall in the boardroom there . . . .

Mizuho, however, may not have to shoulder all of the burden in the end. The Tokyo Stock Exchange is expected to pick up some of the damages. Reuters reported this morning that Mizuho attempted to cancel the mistaken order, and the TSE’s computer system refused to accept the cancellation; the TSE said Mizuho used the wrong commands for a cancellation. TSE yesterday acknowledged that it bore some “responsibility,” but how much it will pay for the error is unclear.

The damage to the TSE goes beyond general embarrassment and some financial loss. The exchange wants to be a publicly listed company. Financial Services Minister Kaoru Yosano said, “The TSE probably wants to expand its operations by listing, but before that it needs to be more aware of its responsibilities as an exchange and make its systems more credible.” Actually, the incident is a good reason not to be a public company. A public entity would have the bejesus sued out of it by its own shareholders, and the damage would thereby magnify by at least one order of magnitude.

In the end, there plenty of blame to go around, and the parties involved need to address the problems exposed and do so quickly. For example, the order was for 40 times the outstanding shares of J-Com; perhaps such an order should automatically be kicked out of the system. Putting the wrong figures in the wrong boxes suggests inadequate training, a hurried environment and possible malice; an investigation at Mizuho should find out what factors caused such a blunder. In the end, if this doesn’t get fixed, it is only a matter of time before it happens again.

This journal, of course, never makes such mistakes -- any fault always lies with the internet browser that the reader is using. That took all week-end to make up.

© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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