Trading suspended in J-Com after 30-billion-yen typo blunder by Mizuho Securities

Submitted by Share Trading on 10 December, 2005 - 10:58

Japanese broker is in hot water after a typo mistake - instead of ¥610,000 for ONE share, they sold 610,000 shares for ¥1: The Tokyo Stock Exchange (TSE) on Friday suspended trading in J-Com Co., a day after its stock was sold in a mistake that could cost Mizuho Securities Co. 30 billion yen in damages.

The TSE said it wants to prevent a repeat of the market turmoil Thursday caused when a Mizuho Securities trader placed an erroneous sell order of J-Com shares.

In this major trading blunder, this typo instance begins when the brokerage wanted to sell a single J-Com share for 610,000 yen. Instead, it placed an order to sell 610,000 shares for a single yen. Everyone's worst nightmare when trading - inputting the wrong numbers into the order.

The ensuing confusion sent stock prices tumbling.

J-Com, a temporary staffing agency that went public Thursday on the TSE's Mothers market for start-ups, has issued just 14,500 shares, leaving a huge shortfall in the number of shares sold that Mizuho Securities will have to address.

Analysts said Mizuho Securities could incur at least 30 billion yen in losses from the blunder. Mizuho Securities President Makoto Fukuda said Thursday night that his company had already lost about 27 billion yen.

Company officials said the error was made through a series of simple computer mistakes.

After receiving an order from a corporate client to sell one J-Com share for 610,000 yen, the Mizuho Securities broker switched the numbers and entered the wrong order into the computer.

A warning flashed on the computer screen indicating a large difference in the sell price and market prices. However, that warning was ignored and the order was sent through.

Mizuho Securities officials quoted the broker as saying about the warning, "It happens often, so out of habit we end up ignoring them.''

But the problem was allowed to fester.

TSE officials phoned Mizuho Securities after they realized an order had been placed for a volume of shares that far exceeded the number of outstanding shares.

Mizuho Securities then tried to revoke its erroneous sell order.

The TSE places a minimum price on stock in sell orders. So Mizuho's original sell order had been automatically revised to the limit-low 572,000 yen for a J-Com share.

Mizuho, in fact, wanted to replace the original sell order with one that included the 572,000-yen price. But in another mistake, Mizuho Securities continued to use 1 yen as the sell price in its revoke order. The discrepancy in the sell prices invalidated the revoke order.

Stock prices in J-Com escalated to a limit-high of 772,000 yen after it became clear Mizuho Securities was trying to buy back all the shares sold through the erroneous sell order. The TSE halted trading in J-Com shares, fearing the bourse would become unstable.

Mizuho Securities officials bought back about 470,000 shares at the limit-low price of 572,000 yen around 10 minutes after they realized the mistake.

But the brokerage failed to obtain about 140,000 other shares likely bought by others at the 572,000-yen price.

Under securities law, Mizuho Securities must transfer stock certificates to buyers four business days after the sale.

However, J-Com has only issued 14,500 shares. Mizuho Securities could face the possibility of having to repeatedly buy back J-Com shares placed on the market before transferring stock certificates to those buyers.

There is no telling how long or how much Mizuho Securities would have to spend to complete all those buy orders.

Moreover, if Mizuho Securities cannot hand over the stock certificates to buyers in time, the company might be forced to pay compensation to make up for the delay.