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Regulators order Japanese brokerage to compensate investors for trading error

TOKYO – Regulators on Monday ordered a Japanese brokerage house to compensate investors with hefty penalty payments following a massive trading error that news reports said could cost the brokerage up to $333 million.Among the pack of institutional investors set to cash in on their rival’s mishap are Morgan Stanley, Lehman Brothers Holdings Inc., Credit Suisse Group’s Credit Suisse First Boston and Japanese brokerages Nikko Cordial Securities and Nomura Holdings Inc.The trading settlement unit of the Tokyo Stock Exchange said it will order Mizuho Securities Co. to pay some 912,000 yen ($7,560) per share in cash to investors who bought into recruiting firm J-Com Co. after an erroneous order placed by Mizuho.Mikihiko Kitano, a Mizuho Securities spokesman, said Monday the brokerage was still tallying its final losses based on the clearing house’s order, but said they would be much higher than the 27 billion yen ($225 million) initially expected.The figure could be high as 40 billion yen ($333 million), Kyodo News agency reported.The trouble began Thursday morning, when a trader at Mizuho Securities tried to sell 610,000 shares at 1 yen (less than a penny) apiece in a job recruiting company called J-Com Co., which was debuting on the exchange. It had intended to sell 1 share at 610,000 yen ($5,041).As J-Com’s share price plunged from its debut of 672,000 yen ($5,600) to 572,000 yen ($4,767), investors took advantage of the abnormally low price and snapped up some 700,000 shares. Morgan Stanley ended the session with a 31.2 percent stake in J-Com.Lehman Brothers obtained 3,150 J-Com shares, while Credit Suisse First Boston bought 2,889 shares. In all, the orders totaled more than 40 times that of J-Com’s outstanding shares.Also Monday, the stock exchange told Japan’s financial watchdog that a system glitch contributed to the error, reversing an earlier stance that it was solely the fault of the brokerage.The exchange found, after consulting with electronics maker Fujitsu Ltd., which made the system for the exchange, that its system was unable to cancel “sell” orders while taking “buy” orders, which contributed to the mishap, according to Toru Onoda, a spokesman for the TSE.The exchange also refused to cancel the erroneous order for J-Com shares, even though it greatly surpassed the number of shares actually available.The exchange’s admission came only weeks after trading was suspended for all but the last 90 minutes of the trading session due to a glitch in the transactions system.A new piece of software developed by Fujitsu – part of recent measures introduced by the Tokyo exchange to deal with recent surges in trading volume – was behind the malfunction on Nov. 1.The Financial Services Agency will review the report by the TSE, according to agency official Ryo Takeuchi.The watchdog is considering issuing a strict order for the exchange to come up with measures to prevent similar incidents from happening again, according to media reports.”This case is extremely regrettable and each party needs to firmly investigate the matter and work toward recurrence prevention,” Chief Cabinet Secretary Shinzo Abe told a news conference on Monday.Trading of J-Com shares has been suspended since Thursday.—Associated Press Writer Hiroko Tabuchi contributed to this report.


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