A businessman checks share prices in Tokyo.
Photograph:Yoshikazu Tsuno/AFP/GettyThere are a lot of red faces today at the Tokyo Stock Exchange, the world's second biggest bourse.
For the second time in its 56-year history, the exchange was forced to halt trading after a surge in orders overwhelmed its computer system's capacity of 4.5m trades a day. Faced with a system meltdown, the exchange closed 20 minutes early.
The incident has badly tarnished Japan's hi-tech image and Japanese investors have confessed their embarrassment.
"It's very shameful,'' Makoto Haga, a fund manager at STB Asset Management, told Bloomberg. "Where has hi-tech Japan gone?''
The trouble started on Monday when prosecutors raided an internet firm called Livedoor following allegations that the company had spread false information to investors. That was followed by press reports today that the company had tampered with its financial reports.
Taking fright at these developments, investors not only dumped shares in Livedoor but also sold off others in hi-tech companies such as Softbank and Yahoo Japan. The sell-off wiped out more than $300bn (£169bn) in shareholder value - about equal to the gross domestic product of Sweden - in the past three days.
Inundated by today's wave of selling, the exchange had to call a halt in trading. From tomorrow, trading will be stopped should the number of processed transactions exceed 4m a day or orders surpass 8.5m and shortened hours will stay in place "for a while''.
There are suggestions that the exchange has been hit by a double whammy. Not only is the exchange underpowered as it did not invest enough in its computer systems during Japan's long economic slump, but it is struggling to deal with an explosion in trade as individual investors acquire a taste for buying and selling shares cheaply over the internet.
Individual investors now account for about 40% of all trades on the Tokyo, Osaka and Nagoya stock exchanges, up from 30% a year ago. Partly because of the renewed appetite for share dealing from small investors, the Nikkei last week rose to a five-year high.
"The current situation is totally unexpected," said the Tokyo Stock Exchange president, Taizo Nishimuro.
Mr Nishimuro only took over last month after his predecessor resigned following a previous glitch in December. On that occasion, a malfunction at the exchange prevented Mizuho Securities from cancelling a trading error, causing heavy losses at the brokerage unit of Japan's second-largest bank. The incident was doubly embarrassing as it scuppered the exchange's flotation plans.
At the time, Japan's financial services regulator ordered the exchange to submit a report by January 31 on changes planned to improve its systems and prevent future breakdowns.
The latest hiccup will undoubtedly see some frantic rewriting before the report is delivered. As for small investors, this week's ructions are a timely reminder about the dangers of playing the market.
"The past two days have been a warning to the market that things have gone too far and that things have started to look like a bubble," day trader Masayasu Higuchi told Reuters.
