Please may I take it back?

Reuters

Tsurushima considers the position

THE cost to Mizuho, Japan's biggest bank, of the “fat fingers” that mis-keyed a share trade at its securities arm looks like being less than the ¥40 billion ($330m) once feared. Several broking firms that took advantage of Mizuho's clumsiness were reported on December 13th to be considering repaying about two-fifths of that amount. That may be small consolation to either the bank or the Tokyo Stock Exchange (TSE).

At the start of trading on December 8th Mizuho Securities placed an order on the TSE to sell 610,000 shares of J-Com, a small recruiting agency it was bringing to market that day, for ¥1 each: it had meant to sell one share for ¥610,000, the initial offer price. The false order, indeed, was for 40 times more shares than J-Com had outstanding.

Having tried frantically to cancel the order and failed, Mizuho scrambled to buy the shares it had sold but did not own. Some of the nicest sharks in finance, including Morgan Stanley, UBS, Nomura Securities and Nikko Citigroup, detected blood in the water. Meanwhile, as rumours swirled, investors sold the shares of brokers who might have made the mistake (Mizuho did not own up until trading ended). They also sold more broadly, calculating that a troubled broker would unload its own holdings to cover its losses. The Nikkei 225-share average registered its third-biggest daily fall of the year (though it recovered to end December 13th at its highest since 2000).

Mizuho would undoubtedly have been in an even bigger pickle were it not for limits to daily share-price movements on the TSE. All the same, it is one of the very few Japanese brokers on the exchange sufficiently capitalised to withstand a large trading loss.

Indeed, Mizuho's reputation will be repaired sooner than that of the exchange, whose rules and systems are now coming in for intense scrutiny. Almost anywhere else in the world, says one international trader, such an aberrant order would have been spotted and could have been de-keyed. The debacle comes a month after a systems glitch closed the TSE for the best part of a day. It seems, after the exchange's dog days during the 1990s and early in this decade, that too little has been invested in upgrading systems that have since been strained by a doubling of trading volumes. It all makes a mockery of the TSE's ambitions to seek a listing itself.

The TSE's regulator, the Financial Services Agency, is incandescent, and has demanded that the exchange improve its systems. After the exchange belatedly took upon itself some of the blame it had earlier directed wholly at Mizuho, its president, Takuo Tsurushima, said he was thinking of resigning. On December 12th, the exchange's clearing house, the Japan Securities Clearing Corporation, said it would invoke provisions unused in half a century to allow Mizuho Securities to settle in cash with buyers of J-Com shares. The price, ¥912,000 a share, must have been plucked largely from the air. It now seems that Mizuho will not have to foot the whole bill. It must be relieved to see a limit to its losses.