IDG News Service - A rapid increase in the number of people buying and selling stocks online in Japan is a contributing factor to the Tokyo Stock Exchange's admission that it is having difficulty keeping up with market volumes, analysts said.
The market, one of the world's largest stock exchanges, closed for business 20 minutes early yesterday as a precaution against a system failure as the number of trades approached the computer's daily limit (see "Tokyo Stock Exchange faces more IT worries"). It began operating a shortened trading day today to further guard against possible problems.
While several causes for this week's problems were fingered, a key culprit appears to be the surging popularity of online trading in Japan, said some analysts.
The number of people accessing online trading Web sites in Japan from home shot up from 2.9 million in November 2004 to 4.2 million in November 2005, according to figures from NetRatings Japan Inc. The number of page views on such Web sites also climbed fast, from 731 million to 1.6 billion during that same period, the Internet market research company said.
The number of online traders began to rise quickly in mid-2005, said Masahiko Ishibashi, a research director at Gartner Research Japan. At about that time, speculation was building that Japan was finally coming out of an economic slump and the stock market began rising. The prospect of a rising stock market brought people into the trading game, he said.
It's not just extra traders entering the market but also the way they are trading, said Ishibashi. These investors are buying and selling stocks multiple times each day to make quick profits on small price movements, he said.
Such day trading is hitting the stock exchange system hard because its daily limit is determined by the number of executed trades, not by the number of shares that change hands. At present, the system capacity is 4.5 million trades per day -- prompting market executives to end trading yesterday when the number of trades hit 4.15 million. Today, in a session that was 30 minutes shorter than normal, about 4 million trades had been handled by the close, according to Tokyo Stock Exchange.
In addition, investors were spooked this week by a raid by public prosecutors on Livedoor Co. Ltd., a Japanese Internet portal. The company was raided on suspicion of wrongdoing in relation to an acquisition, according to local media reports. Newspapers have followed with additional accusations against the company over the last few days.
That led to a massive numberof sell orders for Livedoor stock and Internet stock in general that pushed the system to capacity.
Looking ahead, the number of traders is likely to continue increasing, said Gartner's Ishibashi.
The exchange had already planned to raise the system's limit to 5 million trades per day at the end of January. It is now considering adding capacity to take the executed transactions limit to either 7 million or 8 million per day.
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