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Data entry error behind stock order snafu for Mizuho Securities

The Yomiuri Shimbun

Tokyo, Japan, December 10, 2005 -- Mizuho Securities Co.'s erroneous sell order error made Thursday in respect of J-Com Co. shares was caused by a simple data entry mistake in which the price and the number of shares on a sell order were mixed up, and warning signs from its computer system connected to the Tokyo Stock Exchange were ignored.

The incident is expected to hit the brokerage's finances as it will face demands for compensation from investors who suffered losses due to Mizuho's error. The brokerage itself is saddled with latent losses that could amount to as much as 30 billion yen from the incident.

The incident started when a Mizuho Securities staffer entered data incorrectly.

On Thursday morning, a Mizuho client investor placed a sell order with Mizuho soon after the stock markets opened Thursday morning.

The staffer entered "sell 610,000 [J-Com] shares at 1 yen each" while the order from the client actually was "sell one share at 610,000 yen."

The staffer's computer screen flashed a warning when it detected the unusual order, but the staffer ignored the warning and completed the order.

"The warning sign shows up from time to time, so the staffer must have ignored it carelessly," a Mizuho spokesman said.

The staffer realized he had made a mistake one minute and 25 seconds after completing the sell order.

He immediately entered a command to cancel the order three times, but the TSE's computer system did not accept the command.

The staffer then used another computer system that is connected to the TSE more directly to place a cancel command. But this process failed.

Mizuho said it was checking with the TSE why the two cancel processes were not executed.

Loophole in system

Normally, if a sell order is made for a single share for 1 yen, which is well below the fluctuation limit of any issue, the TSE or the securities firm that placed the order will quickly notice the mistake.

But in the latest incident, since Thursday was the first day of the J-Com issue's public listing, the fluctuation limit had not been determined because the initial share price was not set. This apparently resulted in Mizuho, the TSE and other market participants not noticing the mistake until it was too late.

When the sell order was completed, investors placed buy orders for some of the 610,000 shares. After failing to cancel the order, Mizuho itself repurchased most of the shares using its own funds.

"We repurchased a majority of them," Mizuho Securities President Makoto Fukuda said Thursday night.

About 700,000 shares of the J-Com stock were traded for a total of 421.3 yen billon Thursday.

TSE seen partly to blame

Mizuho's mistake is tantamount to its short selling J-Com shares. The certificates for shares that Mizuho was unable to repurchase from investors who placed buy orders must be provided to those investors by Tuesday.

However Mizuho has not come up with a concrete measure to deal with such investors.

Observers also said the TSE held some responsibility for the incident because it accepted the unusual sell order.

The TSE does not have a system to automatically detect an unusual order, and the bourse will come under pressure to remedy this situation.

Incident not without precedent

Thursday's incident was not the first time a large-scale errant order was placed in the nation.

In November 2001, UBS Warburg (Japan) Ltd. (now UBS Securities Japan Ltd.) issued an order to "sell 610,000 shares at 16 yen each," instead of "sell 16 shares at 610,000 yen each," for newly listed Dentsu Inc. stock on the First Section of the TSE. It is believed that UBS Warburg incurred significant losses due to this erroneous order.

In December of the same year, Deutsche Securities Ltd. made a massive sell order for Isuzu Motors Ltd. stock, but the order was not processed because it was made soon before the market closed.

In both cases, the price and amount of shares were inadvertently mixed up.

(Dec. 10, 2005)

http://www.yomiuri.co.jp/dy/business/20051210TDY08010.htm



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